Dear all,

　　This is an important meeting during the critical period where the reform and restructuring of China Everbright Group and China Everbright Bank are on the way; it is also a meeting of self-disclosure, self-reflection and self-warning. This year, the National Audit Office audited China Everbright Bank on a comprehensive basis and discovered a lot of serious violation issues. China Banking Regulatory Commission also announced 7 violation issues of China Everbright Bank on 6 July. This meeting is to announce 10 serious violation cases within the Group system along with the treatment opinions for the purpose of instructing the majority through the treatment of a few people in order to curb the high frequency of case occurrence, serve as a deterrent within the Group and reestablish the image to guarantee the smooth progress of the reform. I’m going to elaborate on several opinions of mine in the following passage:

　　I. Keen Attention on the Grave Situation of Current Case Risks

　　In recent years, the Party Committee and the Discipline and Inspection Committee of the Group have attached great attention to the construction of the Party’s work style and the building of a clean and honest government as well as the combat against corruption, and promoted the publicity and education on the anti-corruption campaigns; we have redoubled our efforts in handling the cases, took effective measures and conducted investigation and punishment on a series of violation issues; besides, we have achieved phased results in the special treatment of the banking sector as well as the special treatment of commercial bribery, which has provided the necessary conditions for the development of the Group. Meanwhile, we must also be aware of the fact that, currently the Group system, particularly China Everbright Bank and other financial enterprises are still exposed to an extremely serious case and risk situation, where some of the cases can be described as appalling with odious nature and very bad influence, which can be summarized in the term of “Four Excesses”.

　　First, there is an excessive amount of cases. In the past three years, 24 major violation cases have been found within the Group system, including 6 very serious cases; what will be announced today is 10 typical cases and issues as well as a series of cases under investigation, involving illegal personal loans, illegal fund entrance into the stock market, credit card fraud, corporate use of personal loans, loan fraud and etc. The illegal fund entrance into the stock market of Zhengzhou Branch, Shenzhen Branch and Wuhan Branch have aroused the attention of the State Council, who have issued explicit commands and China Banking Regulatory Commission requires that the relevant personnel liable should be subject to severe sanction; in the counterfeit invoice case where Guangzhou Branch and Zhengzhou Branch purchased whole packs of counterfeit invoice from illegal channels with handling charges paid to the seller, they run the bank yet use counterfeit invoice as checks to make free withdrawal, which has caused very bad influence; the State Council has issued explicit commands that the counterfeit invoice case shall be subject to sever sanction. All these situations indicate that there is an extremely high frequency of cases within the Everbright system, reflecting the weakness in our management and internal control.

　　Second, there is an excessive number of people involved. Since this year, 594 people have been involved in the cases and violations occurred at China Everbright Bank alone, including 104 people that have been transferred to the judicial institutions and subject to administrative punishment and personnel punishment during the phased treatment, and the rest are subject to other forms of punishment. The above-mentioned personnel include 27 leaders at branch levels.

　　Third, there is an excessive amount of serious cases. China Banking Regulatory Commission shall announce the fact that Xu Lunzhong, the original leader of Xi’an Branch, left China without approval during the audit of the National Audit Office, which has caused very bad social influence; the illegal operation of the original leader of Everbright Petroleum Exploration and Investment Co., Ltd. has violated the financial and economic disciplines and caused tremendous economic losses, which has reduced the enterprise to a standstill; Yin Min, the original leader of No. 2 Zhongshan Road, Guangzhou Business Department of Everbright Securities, in his disregard of the laws and regulations, conducted illegal financing of RMB540 million for the stock investment of himself and other people, which has caused significant direct economic losses to the securities company, and he is sentenced to five years in prison by the judicial institutions; the case of Zhou Suhua, the original leader of Zhongshan Sub-branch of Dalian Branch and the case of Jia Jinsong, the original leader of the Personal Banking Department of Taiyuan Branch have caused significant direct economic losses to the bank, and as their conduct have constituted crime, these two people have been transferred to the judicial institutions.

　　Fourth, there is an excessive amount of money involved. The 10 typical cases announced today involve as much as RMB1.325 billion, causing RMB63.97 million direct economic losses and forming non-performing loans of RMB119 million. A certain corporate loan of Xi’an Branch is suspected of fraud, thus jeopardizing RMB119 million loans of the bank; the Zhou Suhua case of Dalian Branch involves almost RMB100 million, including RMB40 million remains unpaid back; during the past three years, Guangzhou Branch have cashed in on RMB40 million with more than 5,500 counterfeit invoices and invoices with impractical purposes.

　　These cases reflected the serious problems of the internal management of China Everbright Group, whose corporate management system and mechanism still have a long way to go to meet the requirement of modern corporate system, and there is very serious systematic deficiency that gives rise to case risks. This is the result of poor corporate governance, imperfect internal control and risk management mechanism as well as the absence of inspection and examination; besides, this is also due to weak system execution, poor management of key posts and links, where a lot of regulations and systems have become useless; it is imperative to improve the incentive restriction mechanism and Human Resources management mechanism, where there exists the phenomenon of “one hand firm and the other hand infirm” and that some executives are promoted and come to their posts with illness; moreover, there is also the reason that some primary organizations lack management and control as well as the weak legal concept and compliance operation awareness of individual persons, who have fallen under the bottom line of their due professional ethics. Meanwhile, there are more words than action in our case treatment, together with the loose management and human relationship, which has fostered unhealthy tendencies.

　　Facing such a grave situation, we must make further efforts to strengthen internal management, enhance our sense of responsibility and pressure for the work and improve our understanding of the duration and hardship of the rectification. Given the difficulties, heavy burdens, poor image and low credit of our company in a critical time period of reform and restructuring, such frequent occurrence is making what is bad even worse, which, if left unchecked, will rapidly spread out and cause the “Dirty Water Effect” I once mentioned; as far as a company is concerned, one major or serious case and one or two “bad apple” or black sheep can affect the very survival of a company or even ruin it. Everbright International Trust & Investment and Everbright Petroleum are such typical examples. Now that we are facing a very serious situation, if we take no action against such frequent case occurrence, the success of China Everbright Bank reform and restructuring shall be subject to a lot of doubt, and we won’t be able to sell at a good price even if we have managed to launch an IPO. Seen from the international practice, often times, good corporate governance can enhance the value of the company by 20%; however, if the morality of China Everbright Bank is subject to doubt as a result of frequent case occurrence, it will greatly compromise our future investment value and we might lose more than RMB10 billion in IPO, the we will become historical culprits. Currently, the Group has put forth the work concept of “giving priorities to main contradiction and internal management, and grasping historical opportunity and key enterprises, to drive the overall development of the Group”, stressing that now and the future period are the period of opportunities and transition for the reform and development of China Everbright Group, and that the Group shall spare no efforts to build the “Five Projects”, where the core of “Project of Management” is to require various organizations to improve internal management, control operational risks and construct compliance culture. Therefore, we must maintain a high coherence of our thinking to realize the imperativeness of strengthening case risk prevention and internal management, establish the guidance concept of strict management and prudent operation, properly handle the relationship of security, performance and development to strike the balance between development and management, innovation and standardization, change our image and uphold our honor in order to facilitate the reform.

　　II. Profound Reflection on the Lessons of Case Risks

　　We shall analyze and reflect on the cases and risks that occurred in the recent years, which left us with significant lessons.

　　The first is insufficient awareness of the leaders. The leaders of some organizations, driven by temporary interests, place business above management and attach more attention to deposits than performance, and time points have once become the main yardstick against which work is measured; all is well that completes the tasks well and violations went unpunished. Internal management suffers from unlimited authorization, lack of balance, slackening management and confusion of rights and responsibilities. Some even meet half way with the unreasonable requirements without any principle; some “determine the indicator before the people” in the appointment of account managers, which gives rise to a series of serious cases. Although these risks occur in the primary organizations, they do reflect our insufficient awareness of the situation.

　　The second is insufficient system implementation. According to the analysis of China Banking Regulatory Commission, over 80% of the cases in the domestic banking sector result from “lack of strict implementation of the existing systems”. Of all the cases happened to China Everbright Bank in the past and announced today, which one does not involve the issue of system implementation? Although there are a number of factors that are accountable for the major cases, the most central factor is “non-compliance and illegal operation”. Often times, the tricks of violators are merely “kids” play, which, in my opinion, does not have much “technology content”; if we had implemented the existing regulations and systems, or carry out the “Better late than never” measures, we could have avoided such cases as the loan fraud case of Xi’an Branch, counterfeit invoice reimbursement case of Guangzhou Branch, discount fund appropriation case of Dalian Branch and etc. Often times, our “Investigation, Audit and Examination” system is only a symbolic form in its implementation, where some of the credit personnel do not even go to the company to verify the statements, account books, vouchers, and some even change the loan application reports and statements provided by the company into pre-loan investigation report, where they leave such words as “our company, our enterprise” and etc., which is sheer irresponsibility; sometimes, the Loan Audit Committee has more form than substance in the interim loan audit, where the President has the final say. Therefore, this has made the existing regulations and systems totally useless with no compliance to the existing regulations, which is an extremely difficult issue to put an end to. This is the most urgent and most fundamental issue.

　　The third lies in insufficient inspection and examination. There is a lack of strict inspection and firm control in the key areas and key links; for example, the case of Xu Lunzhong of Xi’an Branch is not built in a day or two, where the suspect has escaped abroad for a while yet we do not even know what this case all about; the illegal operation of Everbright Petroleum was also not found and dealt with till many years later. Internal inspection and examination is plagued by the situation of the “face” issue in work, reconsiderations in reporting and untimely treatment, which has given rise to the frequent cases and problems, with management loopholes and risk hazards appearing now and then.

　　The fourth is insufficient investigation of liability. We used to deal with the problems through the approach of making big things small and make small things nothing, where the persons that are responsible are not involved at all. Often times, the pleading call arrives before the responsible persons are dealt with; as they are not able to overcome the issue of connections, so they cut the responsible persons some slack and let them go unpunished; even if punishment is imposed, it is more of a symbolic form, which is carried out as lightly as possible. For example, China Banking Regulatory Commission announced that Guangzhou Branch only imposed a warning punishment and a symbolic fine of RMB2,000 on the persons responsible for Guangzhou Branch’s write-off of the RMB37 million housing purchase payment of Guangdong Ruisheng Investment & Development Co., Ltd.; the amount of the fine is not enough to cover the single-trip air ticket of a person on the inspection team from Beijing to Guangzhou. Such symbolic and funny punishment, as reflected by some people from primary organizations, will make the punished laugh at us for being a fool after they have gained great profits and got away with it. As for the illegal personal loans of Xizhimen Sub-branch of Beijing, China Banking Regulatory Commission explicitly pointed out in the announcement that “The punishment on the responsible persons is way too light, which shall be redone on a comprehensive basis.” Whether the fear to investigate the liabilities is due to kindheartedness or unspeakable reasons does provoke profound thinking.

　　The fifth is insufficient quality of the personnel. I divide the violations into two categories: Some cases are due to the intended violation of some personnel that commit crimes; however, other cases are the result of the so-called “getting accustomed to” of the personnel. This is further divided into many categories: some risks are due to inadequate sense of responsibility for work and distraction; some are because of illegal operations from choosing convenience over work rules; some are the result of the lack of principle and the fear of offending other people, which gives rise to risks while knowing it is illegal operation; some are caused by the ignorance of the system and unfamiliarity with the business as well as the inability to identify risks, and etc. All of these risks are attributable to the quality of the personnel.

　　III. Seek Both Temporary and Permanent Solutions to Establish a Long-Term Mechanism of Internal Management and Risk Control

　　Loose internal control and frequent case occurrence has directly caused a huge amount of losses and waste of state-owned assets, which damages the image and devalues the intangible assets of a company, terminates an individual’s career life and causes misfortune to the family and increases a lot of unstable and unharmonious factors to society. Facing such a difficult and heavy task, we must make consistent efforts to seek both temporary and permanent solutions in our comprehensive treatment on the basis of “Three Fives”.

　　i. Reflect “Five Characteristics” in the Internal Control Objective

　　The first is effectiveness. The compliance and implementation of internal control system and requirements must be guaranteed for all the organizations and personnel. The second is prudence. The arrangement and implementation of internal control must be carried out for the purpose of preventing and controlling corporate risks. The third is comprehensiveness. Various control measures must be carried out in each business area and operational link and cover all the departments and posts. The fourth is timeliness. We shall take corresponding measures to prevent and solve risks without delay in the area of financial innovation. The fifth is independence. We shall make a point of separating supervisory departments from management and executive departments in order to increase the authority and independence of the supervisory departments.

　　ii. Implement “Five Focuses” in the Current Work

　　The first is to focus on major and serious cases. “Special attention” shall be given to the organizations and branches with frequent occurrence of major, serious and new cases, especially the “heavy disaster areas” announced by China Banking Regulatory Commission and mentioned by the National Audit Office. Efforts shall be made to focus on the “temporary solution” and “order maintenance”; meanwhile, we shall carry out further investigation and redouble our efforts in liability investigation, particularly the leaders’ responsibility implementation within the due time. We shall give attention to the letter petition of the people and encourage opinions and suggestions from the employees; and reward shall be granted to the people credited for reporting such major and serious cases.

　　The second is to focus on the areas with frequent occurrence. First of all, we shall strengthen the supervision and management on the leaders, especially those who are “the First Man” with the time extended to “beyond eight hours” and the scope from work to the social groups, including both corporate businesses and personal affairs. Efforts shall be made to implement the system of post rotation, compulsory vacation and in-office audit and departure audit. Second, we shall strengthen the supervisory and management of key targets; as for “nine kinds of people”, they shall be transferred from their original posts once found out and the detected problems shall be dealt with seriously. Third, we shall strengthen the supervision and management on the key posts and intensify the restriction on the posts of credit, accounting and cashier. Fourth, we shall strengthen the supervision and management on key links, including such critical links of delivery procedures, approval programs, computer operation password, deposit/withdrawal procedures and bill liquidation links, etc., which are prone to frequent risks and shall be treated with effective control.

　　The third is to focus on follow-up rectification. The inspected organization shall make rectifications on the detected cases and risk points within the due time limit, particularly the major cases and issues announced by China Banking Regulatory Commission and the National Audit Office while the Head Office shall also redouble its efforts on the inspection frequency. As for the branches that fail to make corrections within the time limit, their relevant businesses shall be subject to restriction; we shall consider the rectification as a key content for the selection of advanced organizations on the basis of one ballot veto; it shall be linked with their performance wages, and the link proportion of senior management is higher than that of ordinary employees. Special reward shall be granted to the organizations with no case occurrence for five years as well as the employees that maintained strict compliance to the regulations and systems and stood out to prevent case occurrence.

　　The fourth is to focus on internal control. We become strong with proper control and get weak and disorganized without it. We shall keep up with the business development to further enhance the internal control system and establish and enhance internal control measures, including department control, post control, personnel control and computer control, etc. Efforts shall be made to optimize the internal control system and business procedures by the request of “one manual for one business, one system for one procedure and one set of regulations for one post”. We shall strengthen the implementation of “Thirteen Opinions” regarding the prevention of operational risks and redouble our efforts in the implementation and inspection of the “four systems” to build up the regulations, procedures, disciplines and records with strictness. Meanwhile, efforts shall be made to further enhance the technical measures and improve the information technology system’s capacity to support risk control.

　　The fifth is to focus on case liability investigation. Heavy penalty shall be imposed to deal with the chaotic situation. We shall practice the responsibility system of “the First Man” in internal control management and risk prevention; “military orders” shall be signed on various levels to guarantee that the associate directors and functional departments, persons in charge of the grass-roots institutions can perform their duties well. Besides, we shall implement the stipulation of China Banking Regulatory Commission that “cases involving over RMB1 million shall be traced up two levels” and that “the liabilities of the leaders shall be subject to investigation first”. We shall carry out the system of “Four Questionings for One Case” on a comprehensive basis to increase the penalty on the responsible persons for the purpose that the costs of violations shall far exceed the illegal gains from the crimes.

　　iii. Maintain “Five Combinations” in Long-Term Construction

　　The improvement of internal management and risk control is a long-term task based on the “Five Combinations” to seek both temporary and permanent solutions, strengthen system construction and improve system implementation in order to establish an effective mechanism on the basis of the combination of “investigation, prevention, blockage, punishment and instruction”

　　The first is the combination of punishment and instruction. Efforts shall be made to contain the frequent occurrence and safeguard the security of corporate property and deposit fund; on the one hand, we shall take strong measures for strict treatment. On the other hand, we shall focus on seeking permanent solutions to combine punishment and instruction. We shall strengthen employee instruction in terms of world view, life philosophy and value outlook; under the current situation of the market economy, we shall also make a point of responsibility and contribution while we give value to labor income and material reward. The center of corporate management is the management of people while the core of people management is responsibility management. Efforts shall be made to develop a good code of conduct with self-discipline and self-control through the “Project of People Support” in operation.

　　The second is the combination of case investigation and prevention. We shall include case risk investigation into the daily routine and track down the cause of the cases so that such violations and criminal activities will have nowhere to hide. Better late than never. We shall organize various cases in recent years, particularly the major cases involving over RMB 1 million and compile a case book to analyze the case causes and summarize experience and lessons to make pertinent follow-up rectifications for the purpose of shift risk prevention and control from investigation alone to a combination of pertinent rectification and investigation in order to prevent any possible occurrence.

　　The third is the combination of system enhancement and system implementation. The reason for the loose internal control and frequent case occurrence of China Everbright Bank is mainly attributable to poor implementation of the system instead of the imperfectness of the system. Efforts shall be made to form a situation where conduct regulation and personnel management are carried out on the basis of the system for the purpose of constantly improving the standardization of operation and systemization of management.

　　The fourth is the combination of internal monitoring and external supervision. Various organizations are the main body of case and risk inspection and prevention. The chief leader is the first person to be held responsible. Meanwhile, external supervision is also an indispensable factor, particularly during the current special period when case risks have not been completely brought under check, we shall cooperate with the regulatory departments at various levels for their support; various branches and affiliates shall take the initiative to communicate with the local government, coordinate and cooperate with various departments, such as public security, discipline and inspection, supervision, audit and etc. for the purposes of maintaining a close watch on the development of case risks on a dynamic basis and bringing the combined force of internal monitoring and external supervision into full play.

　　The fifth is the combination of internal control and cultural construction. Internal control is the construction and implementation of the rigid system while cultural construction is the soft strength. For a company like China Everbright Group with a poor foundation of cultural construction and a lot of debts, efforts shall be made to prioritize compliance culture construction on the agenda in its internal management; By the request of striking a balance between security and development, moral governance and legal compliance, self-awareness and restriction, we shall make extensive efforts in consideration of the reality of the Group to promote the construction of corporate compliance culture to develop the business concept of “Violation is Risk”, “Safety is Benefit” and “Compliance is Reputation” for the executives and employees. It is only when we outperform our competitors in terms of risk awareness can our company, our bank be able to outperform them.

　　Dear fellows, now that China Everbright Group has entered a critical stage of its reform and development, and the restructuring and IPO of China Everbright Bank has also entered a critical and sensitive period, which has attracted extensive social attention. The occurrence of any case accident and risk loss can cause negative impact on the public opinion and market evaluation, which can ruin the reform halfway if we are not careful. Therefore, we shall set even higher standards with stricter requirements and more efforts for our work than any time before. Leaders and employees at various levels shall stand on the strategic height overlooking the overall situation to have a profound understanding of the significance and imperativeness of strengthening internal control management and preventing operational risks; efforts shall be made to combine understanding and action as well as system construction and system implementation, improve the initiative, effectiveness and pertinence of work in order to guarantee the smooth advancement of the reform in a more secure, stable and healthy environment and to facilitate better and faster development of the Group’s various businesses.

　　Thank you!