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Universal Medical Financial & Technical Advisory Services Company Limited

2016 Annual Report

MANAGEMENT DISCUSSION AND ANALYSIS

(1)

Interest income represents the interest income before tax and surcharges from finance lease

business;

(2)

Interest expense represents financing cost of capital for finance lease business;

(3)

Average yield = Interest income/average balance of interest-earning assets;

(4)

Average cost rate = Interest expense/average balance of interest-bearing liabilities;

(5)

Net interest margin is calculated by dividing net interest income by average balance of interest-

earning assets;

(6)

Net interest spread is the difference between average yield of interest-earning assets and

average cost rate of interest-bearing liabilities.

The net interest margin and net interest spread of the Group in 2016 increased

significantly as compared to that of previous year, mainly due to the increase of average

yield of interest-earning assets and the decrease of average cost rate of interest-bearing

liabilities. The net interest margin of finance lease was 4.36%, representing an increase of

0.94 percentage point as compared to 3.42% over the last year; the net interest spread

was 3.31%, representing an increase of 0.75 percentage point as compared to 2.56% in

last year.

Average yield of interest-earning assets: In 2016, the average yield of the Group’s

interest-earning assets was 8.40%, representing an increase of 0.16 percentage point

as compared to 8.24% over the last year. Despite the downward trend of the domestic

deposit and lending rates, benefiting from customer loyalty and the competitive

advantages of differentiation brought by our integrated healthcare service solutions and

the positive effect from the replacement of business tax with value-added tax since 1 May

2016, the average yield of interest-earning assets of the Group increased slightly in 2016

as compared to last year.

Average cost rate of interest-bearing liabilities: In 2016, the average cost rate of interest-

bearing liabilities was 5.09%, representing a decrease of 0.59 percentage point as

compared to 5.68% over the same period of last year. The interest-bearing liabilities of

the Group entered a repricing cycle in 2016 after the several rate cuts by the People’s

Bank of China in 2015. With the rapid development of domestic bond market in

2016, the Group issued bonds of an aggregate principal amount of RMB3.9 billion.

The proportion of direct financing increased, and the average cost rate of domestic

financing of the Group decreased. Meanwhile, cost of interest rate and exchange rate of

overseas financing increased significantly under the impact of U.S. interest rate hike and

depreciation of Renminbi, so the Group continued reducing the proportion of overseas

financing from 29.6% in 2015 to 14.0% in 2016. The average cost rate of interest-

bearing liabilities of the Group decreased significantly as compared to last year after

offsetting the increase of financing cost as a result of the replacement of business tax

with value-added tax since 1 May 2016.