LETTER TO SHAREHOLDERS

PRESIDENT’S LETTER TO SHAREHOLDERS

Dear shareholders,

In 2019, the global political and economic landscape entered a new round of adjustments, posing rising risks and challenges at home and abroad. The Chinese economy withstood external and internal pressures and showed great resilience, providing potent support to enterprises development. Over the past year, the management, guided by the strategic leadership of the Board of Directors, had followed the overarching principle of pursuing progress while ensuring stability. Placing equal stress on quality, speed and long-term goals, it had cemented the Banks business foundation, optimized its structure, advanced its transformation and management and promoted high-quality development, achieving both economic and social benefits.

Continuing the pursuit of higher quality and excellence, balancing stability and progress and improving our capability for value creation

We witnessed stable business expansion and progress in structural adjustment. We have been pursuing development in a moderately progressive manner. At the end of 2019, the Groups total assets and liabilities amounted to RMB6.75 trillion and RMB6.22 trillion, respectively, up by 11.3% and 10.8% from previous year. Thanks to continuing consolidation of customer base, we overcame the deposit difficulties commonly faced by rival banks and the total deposits reached RMB4.04 trillion, up by 11.7% from the end of prior year doubling the increment of last year. Personal customer deposits surpassed RMB800.0 billion for the first time, with the increment exceeding RMB100 billion for two consecutive years. Advantages in deposit costs were maintained and sustainable development capabilities was further enhanced.

Business scale shows the appearance of a banks operation and management, and business structure reflects its underlying development quality. Last year, we worked on improving the asset structure and tilted loan resources towards low-risk and low-capital-consuming business. Personal mortgage loans, low-priced corporate loans and government low-risk loans accounted for over 60% of newly increased on-balance-sheet loans, further improving the asset safety and anti-cyclical resilience. We

worked on optimizing liability composition and rolled out multiple measures to consolidate our work in terms of customers, settlement and products. The customer deposits made up a share of 64.95% of our liabilities, up by 0.5 percentage points from the prior year. The proportion of personal customer deposits to the total customer deposits was 21.7%, up by 2.0 percentage points. We worked on improving the income structure. We built up efforts in promoting of fee-based business, as a result non-interest income accounted for 32.3%, up by 0.4 percentage point from the past year. With these deep-level structural arrangements and adjustments, we fostered new momentum for our liability business, strengthened the safe cushion for asset business and gradually formed a stabilizer for income increase. By doing so, we are more confident in dealing with influence brought by the economic cyclical fluctuations.

We witnessed stable long-established advantages and progress in new business expansion. Corporate banking has been our long-established advantage. Last year, we continued the reform on corporate banking integration, strengthened differentiated and classified services for customers, and vigorously developed transaction banking. The comprehensive advantages were continuously released. In 2019, the total number of our corporate customers reached a record high of 743,000, an increase of 113,000 from the end of the prior year. Corporate deposits hit RMB3 trillion, maintaining the leading position among joint-stock banks. Giving full play to the advantage of CITIC United Fleet in collaboration, the Bank financed more than RMB640.0 billion for corporate customers jointly. We advanced cooperation with the government and enterprises, and won the bid for the custodianship of the occupational annuity plans of the central government organs and institutions and 25 provinces, cities and autonomous regions.

We made the retail banking and financial market business as the key points to overcome business cycle and achieve sustainable business growth. Last year, we paced up the building of a basic framework for an open retail bank, set up marketing platforms to acquire customers more efficiently, and launched open agency payroll service platforms. The systematic development of our retail banking system was promoted and our indigenous momentum for growth was further unleashed. In 2019, the number of personal customers surpassed the threshold of 100 million and assets under management reached RMB2 trillion. The total credit cards issued reached 80 million. We accelerated the transformation of financial market business towards investment and trading, built a 24/7 trading platform connecting financial markets of Beijing, Hong Kong, London and New York, established Shanghai Branch Financial Markets Center and obtained the approval for the establishment of CITIC Wealth Management Corporation Limited further cementing our position as a core trader in the money market. In 2019, our income from bond trading reached RMB1.122 billion, and the income from foreign exchange trading totaled RMB1.08 billion. The ability to seize market shares and opportunities was enhanced.

As a Chinese saying goes, A handy tool makes a handyman. Products and services have been the magic weapons for winning competition in the banking sector. In face of fierce competition, we have been cementing our advantages of featured services and enhancing our government finance, foreign exchange trading, transaction banking, auto finance, investment banking, bill business, going-abroad finance and credit card business. We have been fostering advantaged services and expanding of private banking, agency payroll services, asset custody services and wealth management business. We have been actively supporting emerging business including online consumer finance, inclusive finance, technology financial and pension finance. We are working to inject vitality to traditional services through continuous efforts so that our advantages will be further enhanced. We hope that through fostering emerging business, making breakthroughs, launching a batch of characteristic single big products our distinctive brand and competitiveness can be forged.

We witnessed stable asset quality and progress in profitability. We are well aware that asset quality is the foundation of a banks sound development. We have been prioritizing risk control and assets quality in business operation and valuing real profit after filtering risk factors. In 2019, indicators for asset quality continued to improve. NPL ratio was 1.65%, the lowest over the last four years. The proportion of problematic loans was 3.87%, down by 0.26 percentage point from the end of the past year. The proportion of loans overdue for 90 days and 60 days in total NPLs were 75.8% and 84.4%, respectively, both demonstrating substantial drop from the end of the last year. Allowance coverage ratio was 175.25%, and the ratio of allowance for loan impairment losses to total loans was 2.90%, both the highest over the last five years. At the same time, we sped up the disposal of NPLs with the principle of NPLs disposed reaching RMB80.60 billion, the highest in history. We collected RMB17.16 billion of NPLs in cash, up by 30% year on year. We recovered RMB5.87 billion in written-off assets, 2.4 folds of the number of past year. The improvement of those indicators allows us to strike a better balance between risks and returns, achieving robust growth while effectively containing the risks.

With improving asset quality, the profitability reached a new height. In 2019, our net operating income totaled RMB187.88 billion, a year-on-year increase of 13.3%. Net profit attributable to equity holders was RMB48.02 billion, up by 7.9%, the fasted growth over the last six years. The risk adjusted return on capital increased by 0.7 percentage point, and the stability and sustainability of profits further enhanced. 

Taking advantaged situation for faster development, stressing targeted measures and accelerating strategic investments

We supported businesses in the real economy with targeted measures. We have been following the right approach of principles and interests and upholding our original aspiration of supporting the real economy. Over the past years, we have regarded inclusive finance as strategic importance, and implemented favored measures in performance evaluation and pricing so as to be the growing powering for small and micro-sized enterprises. We launched a self-service electronic discounted bill product Xin Miao Tie and realized full-process online processing. The annual transaction totaled RMB71.3 billion, making the product an effective high-quality tools to serve small and micro businesses. We established a centralized risk control model for inclusive finance integrating credit review, approval, extension and post-lending inspection. We used financial technology means to develop an automatic approval system and a smart risk warning system for loans to small and micro enterprises. As for inclusive loans we granted to small and micro businesses, NPL ratio was much lower than the industry average. In 2019, our inclusive financial loans increased by nearly 50% from the end of last year, about 40 percentage points faster than the growths of other types of loans and significantly above the CBIRCs two no-less-than and two control target and in line with the highest assessment requirement of the PBOC on targeted RRR (Deposit Reserve Ratio) cut.

Private enterprises are the most dynamic sector in the economy, and our important customers and partners. We introduced 14 tailor-made measures to give financial support to the development of private enterprises, innovated business cooperation and risk control model in terms of policy support, procedure optimization and technology empowerment. Private enterprises with ready market, technologies, promising future and core competitiveness were our focus of support. We also helped many private enterprises facing temporary difficulties. 

We fully integrated into national development strategies. We are fully supportive of national development strategies and set up three working groups for the integrated development of the Beijing[1]Tianjin-Hebei region, the Yangtze Economic Belt and the Guangdong-Hong Kong-Macao Greater Bay Area respectively to implement regional development initiatives. Based on local geographic and business features, we set different business goals, support and management authority to local branches in an effort to support our countrys national initiatives. In 2019, the proportions of loan balance and expenses for branches of strategic importance and those in key areas reached 87.2% and 83.4% respectively, up by 0.4 and 1.5 percentage points respectively from the past year. Leveraging on the favorable geographic conditions endowed by the development of the Guangdong-Hong Kong[1]Macao Greater Bay Area, overseas subsidiaries such as CNCBI and CNCB Investment continued to deepen synergy and cooperation with the Bank and CITIC Group. In 2019, cross-border RMB trade settlement recorded over RMB100 billion, and the total number of new bond underwriting projects increased by 60%. Seizing the opportunities brought by the shift of growth engines and industrial upgrade, we stepped up support to key areas such as new infrastructure, mega consumption and mega health and voluntarily withdrew from low-quality and low-efficiency customers. The proportion of credit balance for these sectors we granted last year rose by 3.2 percentage points. Our credit structure became more closely associated with the trends of social and economic development. Acting upon the Belt and Road Initiative, the JSC Altyn Bank we acquired in Kazakhstan made new breakthrough. In 2019, it made net profit of KZT14.36 billion, up by 37.2%; its NPL ratio was 0.38%, the lowest among commercial banks in Kazakhstan; its allowance coverage ratio reached 472%; and it also became one of the banks with the highest credit rating in Kazakhstan.

We heavily invested in financial technology. On the overwhelming tides raised by internet, financial technology has become the key to future competition. Since 2014 when we became one of the first banks to roll out online loan products, we have been making efforts to harness information technologies to empower our business. From then on, we initiated and founded CITIC aiBank with Baidu, developed an AI-driven platform CITIC Brain, and contributed to the building of the block chain platform in Xiongan New Area. And we independently developed a distributed database for financial services. Over the past years, our financial and manpower investment in financial technology has been setting records. In 2019, our total inputs in technologies totaled close to RMB4.9 billion, a year-on-year increase of 36.8%, marking the fifth consecutive year of a growth rate above 30%. Total technicians we employed were 3,182, a growth of 56.2% year on year. Our transformation to a agile IT-powered organization basically finished. We are 50% faster in financial technology research and development and capable of swiftly responding to market and front-line demands. We made major breakthroughs in the basic technological framework as we launched the first cloud-based credit card system based on an autonomous distributed database in the banking sector. We also put close to 94% of our basic IT frameworks on the cloud. The power generated by the technological progress is spurring great changes in our business operation and management. In 2019, our Suzhou finance

sharing project was put into operation, enabling centralized management of expense reimbursement in the whole bank. We launched a new performance management system and FTP pricing system, substantially improved the management efficiency in the Head Office and branches. Our public operation center in Hefei was put into use, making it possible to process hundreds of business applications at the back office. The speed of handling corporate payment business was enhanced by 70%. We firmly believe that as long as we can harness the powerful technology, CITIC Bank will have wings to take off.

Blazing new trail for long-term goals, discarding outdated institutions and building new ones, and advancing high-quality development in full steam 

Without long-term strategy, short-term achievement is impossible; and without full-scale consideration, single plan is impractical. In the light of global banking sector, since I took office, I have been thinking over how to foster unique competitiveness of CITIC Bank through advancing business transformation. I believe as long as we are courageous enough to initiate revolution from inside and discard traditional ideas, mindsets and practices that are not suitable for high-quality development, we can develop new ideas, models and technologies for sustainable business growth. 

We accelerated institutional reform. We continued expediting institutional reform for innovation, placing equal emphasis on encouraging innovation and tolerating mistakes in innovation, setting up annual innovation awards, major innovation special awards and technological innovation awards, holding bimonthly meetings on innovation in branches, and promoting primary-level micro-innovation to mobilize all employees across the Bank to participate in innovation. In 2019, we approved 11 innovative projects submitted by branches, and 34 innovative projects launched have generated income of RMB1.73 billion. We continued advancing institutional reform for risk management, established the principal responsible person mechanism for operation for credit approval, the principal responsible person mechanism for management and the full-time approver mechanism, formulated identification measures for non-performing assets, optimized the centralized operation mode of personal loans, developed the unified credit extension management plan for subsidiaries, and promoted differentiated credit extension policies and authorization plans to control risks in business increment, defuse existing risks and comprehensively enhance our capability for risk management. We continued to improve the internal control and compliance system building. Aiming to build a Safe CITIC Bank, we carried out the 413 Compliance Action, formed a part-time compliance officer team and continuously strengthened the Ten Forbidding Acts of employees. We improved accountability policies and refined the accountability system. We realized the audit target of coverage

every three years of domestic and overseas institutions, and our audit supervision continued to produce a marked effect. We continued stress on market-oriented business operation, flexibly adjusted asset and liability management strategies, developed policies and gave supports based on market situation. We set up mechanisms making branches heads accountable for respective business targets and convening regular meetings of sub-branch heads, and launched the platform that allows branch heads to evaluate Head Office departments and give suggestions, so as to pool the wisdom of branches and sub-branches for sound decision-making and planning. We continued reform of the human resources system and set up organizational structures for branches that are suitable for local conditions and strategic goals. We deployed 67.4% of newly-recruited employees in branches of strategic importance. We implemented OKR evaluation in departments, selected and cultivated officials through various channels, and expanded the scope of differentiated remuneration to further energize the talent team.

We pursued capital-saving development and nurtured our capability for light development. In the long run, bank capital will become scarcer. Striking an effective balance between business development and capital restriction is a major challenge we have to cope with. Last year, we took strict measures to control capital consumption. Our risk-weighted assets rose by 9.3%, lower than the growth rate of assets and loans. And the core tier-one capital adequacy ratio enjoyed steady growth. In the future, we will focus on capital-light development, accelerate transformation from a credit agency to a service agency, develop intermediary services as investment banking and agency sale in a faster speed, expand capital-light products such as transaction banking and asset custody services as our focuses, and provide customers with cross-market and cross-term services. We will work to transform from making interest margin to making on price margin by fostering our capability for asset circulation and investment trading. Based on changing the traditional business model of expanding business scale, we will improve mechanisms for credit asset circulation, and blaze new trail in stimulating the flow of re-possessed assets and equity investment. We will give full play to

our role as a core maker on the foreign exchange and money markets to strengthen our market-making business and effectively make use of our existing assets. We will place equal stress on quality and efficiency and foster more effective management of capital. We will give more finance support to capital-light business, step up efforts to dispose low-efficient assets and recover written-off loans and fully explore the potential of off-balance sheet asset profit in replenishing capital.

We advanced digital transformation and accelerated efforts to enable technological empowerment. As the society enters the digital age, it is an irreversible trend that bank customers and market move from the real world to the digital world. Digital transformation has become extremely urgent for banks. We must go all out to grab the entrance ticket to the digital competition age. We will speed up top-level design. We will arrange digital transformation from a high starting point and with high standards, formulate a transformation plan, increase training across the Bank, and cultivate a digital mindset for all employees, so as to excel in this banking transformation, stay abreast now and win in the future. We will accelerate digital marketing, explore the value of big data assets and enhance our marketing by means of big data technology. The AI-driven platform independently developed by us, CITIC Brain, integrates model development, training, arrangement and management and has been used to provide targeted financial services in sectors of corporate banking and retail banking. Just the function of real-time product recommendation brought in the sales of personal wealth management products of RMB160.0 billion in a year, and expanded the scale of assets under management by RMB41.0 billion. We will apply digital technologies to decision making, build an agile and efficient data middle desk to improve analysis, evaluation and decision making in a scientific manner and shift from experience-based decision making to digital[1]technology-powered decision making. We are planning to build a data analysis team with 400 to 600 professionals to provide tailor-made strategies to improve the capability of front-line operators, employees at various management positions at various levels at front, middle and back office. We will endeavor to accelerate digital management, improve channel efficiency management, digital risk management, digital evaluation management and digital human resources management in the pursuit of overall refined management. Particularly in risk management, we will use big data to innovate credit approval and pricing, and realize automatic risk warning and online risk control so as to comprehensively enhance our ability to analyze and apply data in the whole process from decision making to execution and feedback.

In 2020, the unexpected outbreak of COVID-19 epidemic brought different feeling to different people, but it made all of us witness the powerful energy brought by the solidarity of the whole nation in face of crisis. The year 2020 is the last year of the three year plan of CITIC Bank. A good harvest depends on the spring sowing. I believe the devotion and contribution of every one of us in CITIC Bank family will bear fruits and generate value to boost the growth of our company!

Fang Heying

Executive Director, President

26 March 2020