Return On Investment Increased Remarkably

Published Date: 02 Nov 2017

In the face of such a complex macro-economic background, the guarantee industry is experiencing a profound change. China Banking Regulatory Commission, as the competent authority overseeing guarantee industry, has preliminarily established a system framework for industrial regulation and prudent supervision and completed the rectification of financing guarantee institutions. Progress has been made in setup of industrial self-discipline organizations, and the regulation and constraint of the industry has been increasingly enhanced. Under the backdrop of continuously rigorous tightening of liquidity and rising private loan rates, some guarantee institutions operate against regulations and caused adverse impact, which has drawn particular attention from the regulatory authorities and all walks of the society. Meanwhile, small and medium enterprises were confronted with operation difficulties, and some of them even went bankrupt, thus aggravating the risks of guarantee business and posing challenges to the survival and sustainable development of financing guarantee institutions.

Part1 company profile

Introduction to the Company

China National Investment and Guaranty Co., Ltd. (the "Company" or "I&G") was established by the Ministry of Finance and the former State Economic and Trade Commission in 1993 with approval of the State Council. As a member of State Development & Investment Corporation, I&G is a nationwide guarantee institution specializing in credit guarantee.

The Company’s business philosophy is to enhance corporate credit, optimize allocation of social credit resources, improve market transaction efficiency, promote the building of social credit system and credit culture, and serve the national economic and social development by means of credit enhancement services. The Company is committed to becoming the most competitive integrator of nonstandard financial and credit enhancement services in China.

As at the end of 2011, the Company’s registered capital and total assets and bank credits were RMB 3.52 billion, RMB 7.22 billion respectively; Its external credit line granted by banks was RMB151.3 billion. China Chengxin International Credit Rating Co., Ltd., China Lianhe Credit Rating Co., Ltd. and Dagong Global Credit Rating Co., Ltd. consecutively confirmed long-term corporate credit rating (for a financial guarantee institution) of AA+ for I&G (with an outlook of "Positive"). The Company has established five branches/offices in Jiangsu, Shanghai, Dalian, Tianjin and Shenyang, to serve the regional economic development. And the Jiangsu Re-guarantee company is one of the most important branch in east China which owned RMB 300 million of registered capital. Until the end of 2011, the Company had underwritten 5,000 deals of guarantee, with an aggregate guarantee amount of RMB 2 billion. Among them, 3,431 deals of guarantee were underwritten in 2011, with a total guarantee amount of RMB 57.4 billion. The Company generated income of RMB 136 million in the year, with a gross profit of RMB 42 million, keeping atop in the industry.

Jiangsu re-guarantee branch of I&G mainly engages in the following credit and guarantee services:

1. Financial product guarantee, mainly including such financial guarantee services as principal-guaranteed investment guarantee, public offering and private equity guarantee, real estate financial guarantee, guarantee for the targeted additional issuance of corporate bonds, and SMEs collective bill guarantee;

2. Logistics finance guarantee and credit solutions, with products covering automobile, steel products, chemical fertilizer, imported medical equipment, etc.;

3. Property preservation guarantee, with 72 agencies and partners in 22 provinces (autonomous regions and municipalities) of China;

4. Guarantee for government procurement, mainly including bid guarantee, performance guarantee, quality guarantee, prepayment guarantee and performance finance guarantee in course of government procurement;

5. Construction project guarantee, mainly including bid guarantee, performance guarantee, prepayment guarantee, payment guarantee, repair guarantee and supply guarantee in course of project construction;

6. Real estate structural financing, bridge financing and acquisition, transaction performance guarantee, etc.;

7. Guarantee for low-carbon areas;

8. Micro and small business financing guarantee

Corporate Culture

I. Mission

The company’s mission is to improve corporate credit, quicken market trading, optimize credit resource allocation, boost the development of credit guarantee industry, promote the building of credit culture and social credit system and serve the national economic and social development by means of credit enhancement services.

II. Outlook

The company aims to become the most competitive non-standard financial and credit enhancement service integrator in China.

III. Core values

To provide premium services to clients and improve social economic operation efficiency by leading products and quality services.

To create career development room for employees and help them achieve a balance between beautiful life and career development.

To enhance sustainable development capacity, strive to improve commercial value of the company and steadily increase the value of shareholders’ equities.

IV. Business philosophy

People-oriented. To understand, respect, utilize, cultivate and encourage people, to fully arouse the enthusiasm and creativity of employees and to seek common development of employees and the company.

Reputation foremost. I&G follows the business ethics of being honest and credible, persists in the business principle of achieving a win-win situation and sharing interests with others, establishes wide cooperation relationship with all circles at home and abroad, and builds a good social image.

Accommodation to changes. To keep pace with changing times, and be bold in reform and innovation. To enhance the company’s sustainable development capability by innovation in technology, system and management.

Harmonious development. To persist in a prudent, sustainable and harmonious development concept, and pursue the optimization of sustainable development capability instead of pursuit of becoming the biggest one; to adhere to the values of achieving a win-win situation with clients; to harmonize corporate interest, individual interest with social interest, uphold the consciousness of corporate citizenship, actively shoulder social responsibility and repay the community.

V. Strategic thinking

To implement the blue ocean strategy, adhere to the concept of value innovation, seek compound market demands in the overlapping areas of financial innovation, and provide clients with integrated credit solutions.

To follow the path of intensive, high-end and internationalized development, strive to enhance the comparative advantages and sustainable development capability and improve the Company’s core competence.

Organisation chart?

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Management System

Focusing on market-oriented development and enhancement of comparative advantages and sustainable development capacity, the Company has made continuous efforts to put in place and improve the operational mechanism and management system and to establish the management framework and system that work well for the future strategies, embody core culture of the Company and have distinct characteristics of guarantee industry. All this will help ensure sustainable and sound development of the Company.

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PART2 operation and development

Overview

In 2011, under the leadership of the State Development and Investment Corporation and the Board of Directors, the Company rebuilt its management foundation and adjusted its business structure in response to the changing environment, and strived to improve its business management and operating results according to the new objectives and annual business plan formulated after the restructuring. Despite the complicated and challenging environment and situations, the Company still achieved satisfactory business performance.

I. Overall operation

(I) The Company achieved remarkable growth of economic performance despite the slowdown of domestic and foreign economy

In 2011, European and American sovereign debt crisis kept evolving, slowing down the global economic recovery; the deceleration of Chinese economy, tight monetary policy, continuously tightened policy for such areas as local financing, credit, trust and real estate, continuous downturn of capital market and increasingly intensified regulation of guarantee industry have brought about pressure and challenge to the Company’s operation, development and business innovation. In the face of the complex and volatile environment, the Company advanced with the times, seized the market opportunities, controlled operational risk and achieved business growth against the trend. In 2011, the Company recorded income of RIB 778 million, a dramatic growth of 61% over the previous year; its gross profits and net profits increased by 60% and 88% to RMB 394 million and RMB 295 million respectively, thus resulting in ROE 5.84%.

(II) Guarantee business made a significant breakthrough in size and profitability

In 2011, thanks to China’s macro-control policy, a large amount of business reserves accumulated in 2010 were released, and the business size of financial product guarantee expanded sharply, driving the Company’s guarantee business size and profitability to achieve a remarkable growth and a significant breakthrough. In 2011, the newly executed contract amount was RMB76.2 billion and the contract reserve by the end of the year reached RMB29 billion. The newly added guarantee amount reached RMB 57.4 billion in 2011, an increase of 212% over the previous year, exceeding RMB 50 billion for the first time. Commercial guarantee business income stood at RMB 420 million in 2011, an increase of 123% over the previous year, exceeding RMB 400 million for the first time. As at the end of 2011, the balance of the Company’s outstanding balance was RMB 71.1 billion, and accumulative guarantee amount was RMB 163.1 billion, keeping atop in the industry.

(III) Return on investment increased remarkably

In 2011, the Company adopted a relatively positive fund allocation plan and investment strategy in response to the changing market. While guaranteeing the major project investment and liquidity demands, the Company actively funded the expansion of guarantee business market, and strengthened ability in optimization of fund allocation. The interactive capability of guarantee and investment business was continuously enhanced, and the performance of assets and funds was improved remarkably. In 2011, the Company realized return on investment of RMB 323 million, a large increase of 91% over the previous year.

(IV) The Company’s asset quality was good and credit capability was enhanced continuously

The Company has good asset quality and strong solvency. As at the end of 2011, the Company’s total assets were RMB 7.22 billion. Among them, net assets were RMB 5.16 billion, and total liabilities were RMB 2.06 billion, with a debt to asset ratio of 28.5%.

The Company’s credit capacity was further enhanced. As at the end of 2011, the Company had bank credits of RMB 151.3 billion, including more than RMB 50 billion granted in 2011. The Company and its branches have successfully passed the examination of regulatory authorities, and received a business license for financing guarantee institution. The Company was granted a long-term credit rating of AA+ for financial guarantee institution and a rating outlook of "Positive" by several rating agencies.

II. Major measures

Rebuild foundation, adjust structure and actively respond to internal and external changes

The year 2011 was full of changes and challenges for the Company and the whole guarantee industry. In the face of internal and external changes, the Company formulated the Guidelines on the Operation Plan of China National Investment and Guaranty Co., Ltd. for 2011, defining 2011 as a year of structural adjustment and foundation reconstruction. While expanding business and adjusting business structure, the Company also made efforts to strengthen self-improvement in terms of business, organization, mechanism and capacity so as to pave the way for going public in the future.

With regard to guarantee business, the Company implemented the business strategy of classified guidance. The Company made great efforts to promote the upgrade of financial product guarantee business modes; integrate resources and support the innovation in trade guarantee business modes; consolidate the construction of judicial guarantee business platform based on the original foundation, push forward business innovation and achieve organic growth; tune the ideas on government procurement guarantee with focus on policies, strive for the central procurement franchise rights, and greatly push forward market exploitation; endeavor to develop real estate composite business, and integrate real estate business with financial guarantee business. These strategies and measures ensured the healthy and leap-forward development of guarantee business in terms of size and profitability.

With regard to investment business, the Company made efforts to strengthen the building of investment system and capacity. It actively pushed forward the construction of asset allocation system, and improved the efficiency, quality and ability of asset and fund allocation; it enhanced the construction of investment business decision process and standards; it improved investment concept and intensified the synergy of investment and guarantee business; based on the principle of "security, liquidity and profitability", it optimized and adjusted investment portfolio to improve the return on investment; it strengthened asset management, improved project classification management, enhanced preservation and disposal, exerted to push forward fund recovery and project management and achieved a good return.

With regard to the initiation and organizing of operation, in the face of the complex environment, the Company continuously strengthened the tracking and study of environment and policies, and enhanced employees’ awareness of crisis, market and values by meeting and symposium; the Company actively accommodated to the changes in systems and mechanisms, urged the management teams of the Company at various levels to enhance the development concept, overcome the sentiment of being afraid of difficulties and instilled new vitality into the Company; the Company further adjusted its structure, integrated resources, enhanced economic responsibility system and assessment, strengthened operation planning, arrangement and coordination, and laid a solid foundation for its rapid and healthy development.

(II) Improve operational system and rules and improve operational capacity and quality

In 2011, the complex and volatile macro-economic environment, multiplication of business size and continuous innovation in business types greatly increased the difficulties and pressure of business operation and management. Under the circumstances, the Company kept strengthening operation management and capacity building, intensified daily oversight and management of projects and fully performed contracts.

The Company further strengthened the construction of operation and management rules and standards under the existing framework for operation and management of guarantee projects. The Company strengthened the construction of its operation and management system, and basically achieved the synchronous integration of branches’ operation and management with the Head Office’s, laying a foundation for the overall operation and management at the next step. The Company closely followed the changes in macro polices and market, continuously paid attention to customers’ operation status, actively responded to the risks exposed in project operation, and took steps to effectively mitigate these risks so as to guarantee the security of the Company’s operating business. The Company strengthened the operating analysis, risk scrutiny and study of risk pre-warning and operating information management and gradually improved its operation and management capacity.

(III) Improve innovation system, improve innovation capacity and make a new breakthrough in business area and product innovation

The Company integrated and improved research and development ("R&D") system, set up a strategic research center based on the original R&D system, and conducted classified and tiered management of R&D. The management of scientific research plans was further enhanced. Based on an investigation into the 51 subjects initiated before 2009 but having not been accepted, the Company adopted a differentiated treatment strategy in line with the subject progress and situation changes, guaranteed the progress of key subjects, and enhanced the initiation, management, tracking and supervision of key subjects in 2011.

The Company further enhanced its innovation capacity, particularly in the fields of subject research, design of composite business mode, cross innovation of business, and business mode upgrade and development. The Company continuously pushed forward financial guarantee innovation, launched the upgrade mode for financial product—TOT business, expanded the private placement business in the field of public financing, made an attempt in trust guarantee for the issue of shares to designated investors by listed companies, and actively followed up the developments of asset securitization market. In respect of logistics finance guarantee, the Company, on the one hand, promoted the upgrade of traditional business mode, and strived to upgrade and update existing products; on the other hand, it deliberated with related institutions on such new business modes as supply chain finance and e-commerce trading platform guarantee, and initiated substantial business operation. With respect to the subdivided regions, markets and products of construction project guarantee, the Company deeply studied the markets of industrial property, commercial property and contract surety, and deliberately designed sustainable and composite guarantee products. In respect of government procurement guarantee, following long-term tracking, R&D, and promotion, the Company has made a significant breakthrough in government procurement qualifications and policies. In respect of e-commerce guarantee, the Company continued to deeply study the financing guarantee business modes for bulk commodity electronic trading platform. Progress was made in the guarantee business R&D and policy promotion. The Company communicated and signed framework agreements with renowned foreign institutions on front and back office business, laying a foundation for business expansion.

(IV) Strengthen the building of comprehensive risk management system and further enhance risk management ability

In line with the changes in external situations and the requirements of the Board of Directors on business performance, the Company actively promoted the business deliberation and exchange of each business line, enabling the middle office departments to reach the consensus of risk concept and business development, and further enhance their risk control concept and capability. The Company completed the risk management subject, designed new business process, and adjusted the risk management functions of front, middle and back office; the Company formulated the guidelines for the management of compliance risk and systemic risk, continuously enhanced the identification and prevention of systemic risk, compliance risk and liquidity risk, actively push forward the portfolio and limit management for business risk and further improved risk management system. In respect to the changes in macro-economic situations, the Company carried out overall and systematic risk inspection in the second half of 2011. Some issues were found in the inspection and have been properly addressed. As viewed from the inspection results, the Company’s outstanding guarantee business was healthy and risks were basically controllable.

(V) Rebuild management and internal control foundation and achieve a big progress in the construction of management system

In order to meet the requirements on going public, in 2011 the Company strengthened infrastructure construction in seven areas, including internal control, listing indicator planning, human resource policy, system clear-up and comprehensive risk management. Along with the reconstruction of management and system foundation, the Company issued and modified nearly 40 rules and measures concerning approval decision, business operation, meeting management, financial audit and human resources. Meanwhile, the Company strengthened the implementation of management system and tracking and feedback of system implementation results, and enhanced the foundation of management.

(VI) Attach importance to resource and capacity building and give full play to resources efficiency and intensive effect

The Company accelerated the transformation of development modes and enhanced intensive development ability. In the distribution of business, the Company made great efforts to develop platform business, improved business modes and enhanced market competitiveness. The Company strengthened the integration of business resources and business cooperation among departments, achieved remarkable progress in the building of regional platform for branches, and greatly pushed forward the business coordination and cooperation between branches and the Head Office. The Company deeply studied its value chain, product lines and profit-making modes. Its ability in interaction between investment and guarantee business was boosted remarkably; the scale of its service business and ability in channel integration were improved greatly; its innovation capability in business type, platform, mode and risk control was strengthened obviously; the research, development and design of asset management business have been under consideration and design.

The Company continued to strengthen exchange and cooperation. Its contact with regulatory authorities and related management departments has been closer. Entrusted by China Banking Regulatory Commission, the Company undertook the responsibility for setup of China Financing Guarantee Association. The Company has received positive recognition by related state departments and made a new breakthrough in preferential tax and subsidy policies. The Company further promoted strategic cooperation with such institutions as banks, trust and fund companies, and built and improved virtual marketing platform, with a view to intensifying its comparative advantages and core competitiveness. Depending on the communication channels of international associations, the Company continued to maintain and develop a wide contact with international peers, and actively participated in symposiums and trainings.

(VII) Improve the Company’s team buildup and cultural cultivation, and further enhance team vitality and cohesion

According to development needs, the Company adjusted the applicability of organization structure. The Company strengthened the building of management team, completed the selection and appointment of a number of middle management personnel, established and improved the collective discussion system for departments and branches. The Company finished the project manager qualification authentication and annual review. The Company recruited 34 new employees to meet its business development. In line with business needs, the Company carried out internal and external training and further reinforced its learning atmosphere.

Party construction was continuously enhanced. The Company deeply promoted the activity of "rivaling for excellence", deepened the education on practicing integrity, and conducted colorful learning and education activities in celebration of the 90th anniversary of the Communist Party of China, providing good political, organizational and cultural guarantee for its operation and development.

The Company kept strengthening cultural cultivation and humanistic education. It called for building a cost-effective company, and achieved positive results by self-inspection of daily work, work process and employees; working habit, and formulation of rules and regulations. The Company continuously strengthened employees’ health management, upheld healthy life concept, and carried out colorful cultural and sports activities.

(VIII) Uphold the consciousness of corporate citizenship and actively repay the society

First, promote the harmonious development of economy and society by credit guarantee.

The Company has been devoted to address the financing difficulties of small and medium enterprises (SMEs), created the successful mode of "policy fund, legal entity management and market-oriented operation" to support SMEs development by government, and received the recognition from government departments. By the end of 2011, the Company had underwritten 22,000 deals of guarantee, with an aggregate guarantee amount of RMB 160 billion, achieving huge social benefit. The accumulative amount of SMEs policy guarantee reached RMB 28.8 billion, providing great support for SMEs’ development. The Company also actively pushed forward the guarantee innovation in the filed of energy conservation and environmental protection, and made active efforts to boost the development of this industry.

Second, participate in financial product and system innovation.

The Company actively participated in financial product innovation, introduced specialized guarantee into bond, fund and inter-bank trading markets, and gave play to the credit enhancement and risk management functions of specialized guarantee institutions to effectively reduce the trading cost of each party on the market, arouse their enthusiasm towards financial innovation, and promote the healthy and rapid development of the market. The Company provided guarantee for such products as bonds, bills and principal-guaranteed funds issued by enterprises, encouraged enterprises to shift from indirect financing to direct financing, and proactively devoted energies to improvement of financial service system. By the end of 2011, the Company had provided guarantee for 86 direct financing projects, with total guarantee amount of RMB 76.1 billion.

Third, promote industrial development and self-discipline.

The Company took it upon itself to promote industrial development, actively explored and practiced business, strengthened communication and cooperation with domestic and foreign peers, and established basic standards and related systems for guarantee business. The Company made special contributions to push forward the legislation of China’s guarantee industry, promote the establishment of credit guarantee system, strengthen industrial self-discipline, apply IT to project surety system and guarantee business, and won high opinion of related departments and people of all circles.

Fourth, adhere to operation in good faith according to law.

The Company follows the business ethics of being honest and credible, pursues the harmonization of corporate interest, shareholder interest, staff interest and social interest, upholds the consciousness of corporate citizenship, persists in operation in compliance with laws and regulations, and takes the initiative in assuming social responsibility. Over the past 20 years after its establishment, the Company had no default record; it provided high-quality credit enhancement products and services for the society and built the first brand image in China’s guarantee industry. The Company has been rated "A-level tax credit enterprise" by local tax authority for many years.

Fifth, widely participate in social donation.

Since its establishment, the Company has been practicing and performing its social responsibility. It built a Hope primary school, and donated for the construction of a number of primary schools and hospitals in the earthquake-stricken Wenchuan. Moreover, it also provided donations and social legal assistance for the areas affected by floods and the prevention and cure of SARS. Employees of the Company also made donations and demonstrated excellent character and cultural treasure.

Business Performance

In the face of the quite complicated business environment in 2011, the Company particularly strengthened the infrastructure construction and restructuring of business, and achieved outstanding business performance. Its guarantee income and return on investment increased sharply from within the last year.

I. Financial highlights

The data below is excerpted from the audited annual financial report of I&G. (see Table 2-1, Fig. 2-1,Fig. 2-2)

Table 2-1 Major Financial Data and Indicators Unit: RMB 100 million,%

Major Financial Data and Indicators

As at the end of 2011

As at the end of 2010

As at the end of 2009

I. Financial data (audited)

Total assets

72.2

62.5

54.2

Total liabilities

20.6

12.8

11.9

Equity

51.6

49.7

42.2

2011

2010

2009

Total revenue

7.78

4.84

4.27

Total profit

3.94

2.46

2.68

Net profit

2.95

1.57

1.72

II. Financial indicators

Asset-liability ratio

28.5

20.6

26.1

ROR

52

55.2

61.1

ROE

5.8

3.4

4.7

Table 2?????????????????????

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II. Information on guarantee business

In 2011, according to the business strategy of "classified guidance", the Company’s various guarantee products achieved rapid development in an all-round way. Its business size realized a historical breakthrough and business income hit a record high again. The Company’s existing business was secured by sufficient collaterals, and thus related risks were controllable. It has made great efforts in the management of business risks.

In 2011, the Company’s guarantee amount increased by RMB 57.4 billion, 3.12 times that in 2010, including commercial guarantee of RMB 54.22 billion. Business income reached RMB 778 million, an increase of 61% over the previous year, of which commercial guarantee business income grew by 123% to RMB 421 million. As at the end of 2011, the Company’s accumulated guarantee amount was RMB 163.1 billion, accumulated amount of discharged guarantee was RMB 91.98 billion, and the balance of commercial payout was RMB 28.8 million. The balance of guarantee counted in the entrusted guarantee data of Shanghai Branch was RMB 71,124 million, including commercial guarantee of RMB 67.2 billion.

The overall risks of the Company’s ongoing guarantee portfolio are very low. Of which, the balance of low-risk bond guarantee, principal-guaranteed investment guarantee, and property preservation guarantee accounted for 76% of total balance of commercial guarantee; most high to low-risk projects had tangible counter-guarantee measures and thus could mitigate and reduce the final risks. The Company’s risk management ability is strong and management system is relatively sound.

(I) Guarantee performance indicators

By the end of 2011, the Company’s accumulated guarantee amount had reached RMB 163.1 billion, and the Company had provided guarantee services for nearly 18,000 customers, making it the specialized guarantee institution with the largest business size and most abundant products and customer resources in China. (see Table 2-2, Fig. 2-3, Fig. 2-4, Fig. 2-5, Fig. 2-6)

Table 2-2 Guarantee Business Data and Indicators Unit: RMB 100 million

Guarantee performance indicator

As at the end of 2011

As at the end of 2010

As at the end of 2009

Accumulated guarantee

1 631

1 057

873

Guarantee outstanding

711.2

334.2

301.5

Loss reserves

3.0

2.4

2.2

Clients’ deposit

6.2

7.4

6.1

Guarantee performance indicator

2011

2010

2009

Guarantee amount per year

574

184

241

Project amount per year

2 125

2 094

1 815

Client amount per year

1 186

1 144

1 185

Annual guarantee income

4.21

1.89

1.60

Accumulated payout ratio (%)

2009-2011

Commercial guarantee

0.1

Entrusted guarantee

0.6

Accumulated collection ratio (%)

2009-2011

Commercial guarantee

335.9

Entrusted guarantee

99.7

Table 2,3,4,5,6?

(II) Major risk control indicators

In accordance with the regulatory indicators of domestic guarantee industry and internationally recognized performance measurement methods on guarantee institutions, the guarantee performance and risk control quality of I&G both reached good level in 2011 (see Table 2-3).

Table 2-3 Performance Indicators of I&G in 2011

2-3 Performance Indicators of I&G in 2011

Internationally recognized

performance measurement indicators

for guarantee institutions

As at the end of

2011 Year

Notes

Net leverage ratio

4.92 times

Capital adequacy ratio

13.31%

　At the end of 2011, the overall average capital adequacy ratio of China’s commercial banks was 10.2%.

High liquidity assets to total assets

35.28%

　The Company has adequate current assets and its assets have a strong cashability and a good liquidity.

Loss reserve ratio

10.36 times

　The Company has a high loss reserve ratio and a strong expected loss solvency.

Annual loss ratio

0%

Annual expense ratio (including technical reserves)

43.74%

Annual combined ratio (including technical reserves)

43.74%

　i.e.: Commercial Guarantee (Annual loss ratio + annual expense ratio).

This indicator is relatively good in the interna-tional market.

Table 2-3 shows that, as at the end of 2011, the Company’s capital adequacy ratio exceeded the CBRC requirement that "the capital adequacy ratio of systematically important banks generally should not be lower than 11.5%"; the Company’s assets with high liquidity are relatively sufficient and have strong cashability; loss reserve is adequate, liquidity arrangements and risk prevention is good; the Company’s net leverage ratio was 4.92 times at the end of 2011. If the risk reserve provided within the year was taken into account, the annual combined expense ratio was 43.74% in 2011, indicating that it could cover its cost and maintained at a relatively good level in the international market.

(III) Guarantee clients

With the continuous deepening of commercial operation, the Company’s consciousness of market exploitation and marketing services was further enhanced, and the ability in stabilizing long-term clients and cultivating high-quality clients further improved. In 2011, the Company provided guarantee services for nearly 1,200 clients; the proportion of old clients kept increasing, and the overall strength and stability of customers were strengthened. The number of SMEs clients increased year by year and their business mainly involved platform business. With the continuous expansion of client number, the Company continued to study the credit rating and credit management modes for different customers, and strictly control the risk exposure and management costs of single customers. The Company also improved business efficiency by taking the operation mode of undertaking guarantee responsibility bill by bill under the comprehensive credits of customers. (see Fig. 2-7, Fig. 2-8)

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III. Information on guarantee risk assets at the year end

As at the end of 2011, the Company’s guarantee balance grew to RMB 71,124 million, 1.13 times that at the end of 2010. The Company’s guarantee business primarily involves financial products, construction projects, logistics financing, government procurement, judicial proceeding, entrusted services and others, and gradually formed six business categories and more than 20 guarantee products. Its business structure almost remained unchanged in the recent two years. Clients’ industries were mainly concentrated on finance and public utilities, project locations were scattered, and the regional comprehensive environment was favorable for business development. The Company’s guarantee business portfolio had a low comprehensive risk. (see Fig. 2-9, Fig. 2-10)

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Business Overview

I. Guarantee business

1. Financial product guarantee

Financial product guarantee means the guarantee institution provides credit guarantee or enhancement services for the purchasers or investors of the financial products issued, sold or traded by the guarantee applicant for capital raising, and bears corresponding guarantee liability under the letter of guarantee/guarantee contract in case the applicant fails to perform relevant obligations on financial products. It mainly includes such financial guarantee services as principal-guaranteed investment guarantee, public offering and private equity guarantee, real estate finance guarantee, guarantee for the targeted additional issuance of corporate bonds, and SMEs collective bill guarantee.

2. Logistics finance guarantee

Logistics finance guarantee means the guarantee institution provides credit guarantee for the lenders or financing customers of the guarantee applicant when the applicant provides credit facilities, and bears the corresponding guarantee liability under the letter of guarantee/guarantee contract in case the applicant fails to perform credit repayment obligations according to the relevant contract. It mainly includes steel trade guarantee, automobile trade guarantee, fertilizer distribution financing guarantee, supply chain financing, factoring and comprehensive credit guarantee business.

3. Construction project guarantee

Construction project guarantee means the guarantee institution provides credit guarantee for the beneficiary of related agreements performed by the guarantee applicant, and bears the corresponding guarantee liability under the letter of guarantee/guarantee contract in case the applicant fails to perform related obligations or meet the predetermined standards according to the relevant contract. It mainly includes commercial property/industrial estate payment performance guarantee, bid guarantee, performance guarantee, prepayment guarantee and owner payment guarantee. In 2011, the Company achieved a breakthrough in obtaining the qualifications for foreign-related guarantee business, and made substantial progress in front and back office business.

4. Guarantee for government procurement

Government procurement guarantee means the guarantee institution provides credit guarantee for the financing customers or performance beneficiaries of the guarantee applicant when the applicant provides credit facilities or performs related agreements under the government procurement order, and bears the corresponding guarantee liability under the letter of guarantee/guarantee contract in case the applicant fails to repay funds or perform related obligations according to the relevant contract. It mainly includes government procurement bidding, financing and performance guarantee.

5. Judicial guarantee

Judicial guarantee means the guarantee institution provides credit guarantee for the guarantee applicant when it applies for property preservation, and bears the guarantee liability for losses caused by wrong application for property preservation to the other party to the property preservation or the other parties. Judicial guarantee mainly includes the property preservation guarantee. According to the nature of property preservation and different subjects, it is primarily divided into attachment bond guarantee and release of attachment bond guarantee.

6. Entrusted guarantee

Entrusted guarantee means the guarantee institution performs the guarantee responsibility on behalf of the principal based on its entrustment, and bears the guarantee liability on behalf of the principal according to the letter of guarantee/guarantee contract in case the guarantee