Haitong Securities : ANNOUNCEMENT IN RELATION TO PROVISION FOR IMPAIRMENT OF ASSETS

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(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 6837)

ANNOUNCEMENT IN RELATION TO PROVISION FOR

IMPAIRMENT OF ASSETS

This announcement is made by Haitong Securities Co., Ltd. (the "Company") pursuant to Inside Information Provisions (as defined under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) and Rules 13.09(2) and 13.10B of the Listing Rules.

The Company convened the 11th meeting of the seventh session of the board of directors (the "Board") and the 6th meeting of the seventh session of the supervisory committee (the "Supervisory Committee") on 28 August 2020, at which the Proposal on the Provision for Assets Impairment was considered and approved. Details are hereby set out as follows:

1. OVERVIEW ON THE PROVISION FOR ASSET IMPAIRMENT
   According to relevant provisions under the Accounting Standards for Business Enterprises and the accounting policies of the Company, to truly and fairly reflect the financial position of the Company as of 30 June 2020 and the operating results for the six months ended 30 June 2020, the Company and its subsidiaries made assessment on the expected credit loss of various assets which required provision for impairment as of 30 June 2020. From January to June 2020, the Company and its subsidiaries made provision for credit impairment losses of RMB2,900.2711 million in total, accounting for over 10% of the audited net profit of 2019 of the Company, with details set out as follows:

	Unit: RMB' 0,000
		Provision
		amount
	from January
Items		to June 2020
Advances to customers on margin financing	66,447.70
Financial assets held under resale agreements	67,265.48
Finance lease receivables	61,455.56
Other loans and receivables	82,363.91
Others		12,494.46
Total	290,027.11

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1. IMPACT OF PROVISION FOR IMPAIRMENT OF ASSETS ON THE COMPANY
   From January to June 2020, the Company made a provision for asset impairment of RMB2,900.2711 million in the consolidated statement, as a result of which, the Company recorded a decrease of RMB2,900.2711 million and RMB2,234.8928 million in the total profit and net profit, respectively.

1. DETAILS OF PROVISION FOR IMPAIRMENT OF ASSETS
2. 1. Advances to customers on margin financing
      The Company made a provision for impairment of advances to customers on margin financing of RMB664 million for the six months ended 30 June 2020, as compared with RMB511 million in 2019.
      For the business of advances to customers on margin financing, the Company comprehensively assessed the expected recoverable cash flow of financing entities according to the characteristics of financing entities and changes in expected disposal and realization of collateralized securities, calculated the related expected credit loss using Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment, and made the provision for relevant impairment.
   2. Financial assets held under resale agreements
      The Company made a provision for financial assets held under resale agreements of RMB673 million for the six months ended 30 June 2020, as compared with RMB356 million in 2019.
      For stock pledge and repo business, the Company calculated the related expected credit loss using Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment, comprehensively assessed the expected recoverable cash flow of the financing entities according to the expected disposed and realized values of collateralized securities, and made the provision for impairment of the part expected to fail to cover the risk exposure after discount.
   3. Finance lease receivables
      The Company made a provision for impairment of finance lease receivables of RMB615 million for the six months ended 30 June 2020, as compared with RMB739 million in 2019.
      For financial leasing business, the Company assessed the related expected credit loss and determined the corresponding provision for credit loss according to the changes in credit risks of finance lease receivables, and calculated the expected credit loss based on Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment.

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1. Other loans and receivables
   The Company made a provision for impairment of other loans and receivables of RMB824 million for the six months ended 30 June 2020, as compared with RMB347 million in 2019.
   The Company comprehensively assessed the recoverability of other loans and receivables according to the latest status of other loans and receivables, public or accessible information related to the borrowers, value of collaterals and pledges, latest financial position of the borrowers and guarantors and other factors of other loans and receivables, and made the provision for impairment according to the difference between the recoverable amount and the outstanding loan amount at the end of the period.
2. Others
   In addition to the asset impairment losses from the above advances to customers on margin financing, financial assets held under resale agreements, finance lease receivables and other loans and receivables, the Company identified and assessed other various credit risks it faced in accordance with the nature of other various businesses. According to the Accounting Standards for Business Enterprises and the Company's relevant accounting policies and administrative measures, the Company made a provision for loan losses, provision for bad debts of receivables and other provisions for impairment of RMB125 million in total from January to June 2020, as compared with RMB894 million in 2019.

IV. OPINIONS OF INDEPENDENT DIRECTORS ON THE PROVISION FOR ASSET IMPAIRMENT

The independent non-executive directors of the Company are of the view that provision made by the Company for asset impairment is in line with relevant provisions under the Accounting Standards for Business Enterprises and the Company's accounting policies, truly and fairly reflects the financial position of the Company on 30 June 2020 and operating results for the six months ended 30 June 2020, which will provide investors with more authentic, reliable and accurate accounting information and is in line with the interests of the Company and minority shareholders. As the decision-making procedures for the provision for asset impairment are in line with relevant laws and regulations and the Articles of Association, the provision for asset impairment was approved.

1. OPINIONS OF THE AUDIT COMMITTEE UNDER THE BOARD ON THE PROVISION FOR ASSET IMPAIRMENT
   The Proposal on the Provision for Asset Impairment was considered and approved at the meeting of the Audit Committee of the seventh session of the Board of the Company approving interim report for 2020. The Audit Committee is of the view that the provision made by the Company for asset impairment is in line with relevant provisions under the Accounting Standards for Business Enterprises and the Company's accounting policies, truly and fairly reflects the financial position of the Company on 30 June 2020 and operating results for the six months ended 30 June 2020, and could reflect the Company's actual assets and financial position in a fairer manner. Therefore, the provision for asset impairment was approved.

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VI. OPINIONS OF THE BOARD ON THE PROVISION FOR ASSET IMPAIRMENT

The Proposal on the Provision for Asset Impairment was considered and approved at the 11th meeting of the seventh session of the Board of the Company. The Board is of the view that the provision made by the Company for asset impairment is in line with relevant provisions under the Accounting Standards for Business Enterprises and the Company's accounting policies and truly and fairly reflects the financial position of the Company on 30 June 2020 and operating results for the six months ended 30 June 2020. Currently, the Company has stable businesses, sound asset structure and strong liquidity in a normal operating condition, with various risk control indicators conforming to regulatory requirements. The Board approved the provision for asset impairment.

VII. OPINIONS OF THE SUPERVISORY COMMITTEE ON THE PROVISION FOR ASSET IMPAIRMENT

The Proposal on the Provision for Asset Impairment was considered and approved at the 6th meeting of the seventh session of the Supervisory Committee of the Company. The Supervisory Committee is of the view that the provision for asset impairment is in line with relevant provisions under the Accounting Standards for Business Enterprises and the Company's accounting policies, objectively and fairly reflects the Company's financial position and operating results, which will help to disclose more true and accurate accounting information. The relevant decision-making procedures are in line with relevant laws, regulations and the Articles of Association, and there is no circumstance under which the interests of the Company and its shareholders will be damaged. The Supervisory Committee approved the provision for asset impairment.

By Order of the Board

Haitong Securities Co., Ltd.

ZHOU JIE

Chairman

Shanghai, the PRC

28 August 2020

As at the date of this announcement, the executive directors of the Company are Mr. ZHOU Jie, Mr. QU Qiuping and Mr. REN Peng; the non-executive directors of the Company are Mr. TU Xuanxuan, Mr. ZHOU Donghui, Ms. YU Liping and Mr. XU Jianguo; and the independent non- executive directors of the Company are Mr. ZHANG Ming, Mr. LAM Lee G., Mr. ZHU Hongchao and Mr. ZHOU Yu.

• For identification purpose only

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