UNAUDITED CONSOLIDATED BALANCE SHEET 30th June st Dec ASSETS Cash and short-term funds 6,650,131 6,925,793 Trade bills 606, ,645 Ce

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1 INTERIM REPORT 2002 The Directors of Dah Sing Financial Holdings Limited (the Company ) are pleased to present the Interim Report and condensed accounts of the Company and its subsidiaries (the Group ) for the six months ended 30th June The unaudited profit attributable to shareholders was HK$460.4 million for the six months ended 30th June UNAUDITED INTERIM FINANCIAL STATEMENTS These unaudited consolidated condensed interim financial statements are prepared in accordance with Hong Kong Statement of Standard Accounting Practice ( SSAP ) 25 Interim financial reporting issued by the Hong Kong Society of Accountants. The accounting policies used in preparing the unaudited interim financial statements of the Group are consistent with those adopted in the 2001 annual financial statements. UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 30th June Variance % Interest income 1,298,055 1,749,601 Interest expense (368,853) (947,238) Net interest income 929, , Other operating income 318, , Operating income 1,247,908 1,054, Operating expenses (430,154) (441,594) -2.6 Operating profit before provisions 817, , Charge for bad and doubtful debts (327,718) (137,193) Operating profit after provisions 490, , / Net gain / (loss) on disposal of fixed assets 7,328 (220) Net gain on disposal of held-to-maturity and non-trading securities 23,819 50,984 Profit on ordinary activities 521, , Share of net losses of jointly controlled entities (3,600) (10,000) Share of net profits of associates 2,117 Profit before taxation 517, , Taxation (53,509) (69,604) Profit after taxation 464, , Minority interests (3,649) (1,134) Profit attributable to shareholders 460, , Basic earnings per share HK$1.87 HK$ Diluted earnings per share HK$1.87 HK$ Proposed interim dividend of HK$0.52 (2001: HK$0.52) per share 128, ,221 1

2 UNAUDITED CONSOLIDATED BALANCE SHEET 30th June st Dec ASSETS Cash and short-term funds 6,650,131 6,925,793 Trade bills 606, ,645 Certificates of deposit held 485, ,766 Trading securities 2,167,555 3,173,305 Advances to customers and other accounts 30,254,114 30,081,342 Held-to-maturity securities 6,593,970 4,597,102 Non-trading securities 5,845,474 6,234,977 Investments in associates 99,866 Investments in jointly controlled entities 23,400 27,000 Fixed assets 1,091,021 1,302,828 Value of long-term life assurance business attributable to shareholders 618, ,029 Assets of long-term fund attributable to policyholders 374, ,222 Total assets 54,711,017 54,431,875 LIABILITIES Deposits and balances of banks and other financial institutions 112, ,164 Current, fixed, savings and other deposits of customers 36,255,581 33,030,725 Certificates of deposit issued 6,402,786 5,652,190 Other accounts and accruals 4,554,654 8,219,098 Current portion of long-term liabilities 230,000 Long-term liabilities 200, ,000 Long-term liabilities attributable to policyholders 374, ,222 Total liabilities 47,899,758 47,961,399 CAPITAL RESOURCES Loan capital 974, ,719 Minority interests 67,261 78,312 Share capital 493, ,158 Reserves 5,147,625 4,776,340 Proposed dividend 128, ,947 Shareholders funds 5,769,004 5,417,445 Total capital resources 6,811,259 6,470,476 Total liabilities and capital resources 54,711,017 54,431,875 2

3 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30th June Cash flows from operating activities (1,768,314) (2,619,656) Cash flows from investing activities 288,912 (59,151) Cash flows from financing 505,300 1,047,630 Net decrease in cash and cash equivalents (974,102) (1,631,177) Cash and cash equivalents at beginning of the period 4,372,189 4,565,439 Cash and cash equivalents at end of the period 3,398,087 2,934,262 Analysis of the balances of cash and cash equivalents Cash and balances with banks and other financial institutions 553, , ,784 Money at call and short notice 1,440,508 1,991,850 Treasury bills with original maturity within three months 1,515, ,162 Placements with banks with original maturity within three months 230,000 Deposits and balances of banks and other financial institutions with original maturity within three months (111,502) (271,534) 3,398,087 2,934,262 CASH AND SHORT-TERM FUNDS 30th June st Dec Cash and balances with banks and other financial institutions 553,194 1,102,326 Money at call and short notice 1,440,508 2,696,348 Treasury bills (including Exchange Fund Bills) 4,656,429 3,127,119 6,650,131 6,925,793 An analysis of treasury bills held is as follows: Trading securities, at fair value Unlisted 74, ,016 Held-to-maturity, at amortised cost Unlisted 4,581,881 2,591,103 4,656,429 3,127,119 3

4 RECONCILIATION OF OPERATING PROFIT AFTER PROVISIONS TO CASH FLOWS FROM OPERATING ACTIVITIES For the six months ended 30th June / Operating profit after provisions 490, ,823 Provisions for bad and doubtful debts 327, ,193 Advances written off net of recoveries (325,882) (121,101) Depreciation 33,510 31,325 Interest expense on loan capital issued 20,147 16,302 Interest expense on certificates of deposit issued 73, ,889 Change in treasury bills maturing beyond three months (878,815) (5,677) Change in trade bills (71,908) (30,292) Change in certificates of deposit held 39,197 73,905 Change in trading securities 1,005,750 (1,640,852) Change in advances to customers and other accounts (177,545) (357,671) Change in held-to-maturity securities (1,995,008) 83,184 Change in non-trading securities 455,776 (2,060,179) Change in amount due to / from an associate (4,998) Change in value of long-term life assurance business attributable to shareholders (25,675) (21,250) Change in deposits and balances of banks and other financial institutions maturing beyond three months (297) 25,329 Change in current, fixed, savings and other deposits of customers 3,224, ,600 Change in other liabilities (3,716,881) 556,363 Exchange adjustments 871 8,899 Cash generated from operations (1,525,657) (2,277,210) Interest paid on loan capital (20,592) Interest paid on certificates of deposit (72,958) (176,025) Dividends paid on ordinary shares (147,947) (162,709) Net Hong Kong profits tax paid (1,160) (3,712) Cash flows from operating activities (1,768,314) (2,619,656) 4

5 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30th June / / Opening balance Total equity 5,417,445 4,661,768 Change in accounting policy 162,709 Restated balance 5,417,445 4,824,477 Recognised gains / (losses) arising from change in fair value of non-trading securities 58,738 (12,310) Net gains / (losses) not recognised in the profit and loss account 58,738 (12,310) Profit attributable to shareholders 460, ,966 Change in reserves (19,657) (5,451) Dividends (147,947) (162,709) Issue of share capital 677 Closing balance Total equity 5,769,004 5,092,650 SHAREHOLDERS FUNDS 30th June st Dec Share capital 493, ,158 Reserves Share premium 817, ,703 Capital reserve 104 5,072 Investment properties revaluation reserve 23,287 25,165 Premises revaluation reserve 308, ,707 Investments revaluation reserve 42,015 (3,912) General reserve 588, ,930 Retained earnings 3,367,481 3,031,675 5,147,625 4,776,340 Proposed dividend 128, ,947 Total 5,769,004 5,417,445 5

6 CHARGE FOR BAD AND DOUBTFUL DEBTS For the six months ended 30th June Variance % Specific provision charged 327, , General provision charged , , % % 460,425, ,966, ,578, ,558, ,425, ,966, ,772, ,824,333 TAXATION Hong Kong profits tax has been provided at 16.0% (2001: 16.0%) on the estimated assessable profit for the period. Included in the taxation is the attributable share of estimated Hong Kong profits tax losses arising from investments in limited partnerships. The Group s investments in limited partnerships are written off in the same period as the taxation benefits resulting from those investments are received and utilised. There is no significant deferred taxation liability not provided for. BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic earnings per share is based on earnings of HK$460,425,000 (2001: HK$447,966,000) and the weighted average number of 246,578,802 (2001: 246,558,360) shares in issue during the period. The calculation of diluted earnings per share is based on earnings of HK$460,425,000 (2001: HK$447,966,000) and the weighted average number of 246,772,712 (2001: 246,824,333) shares in issue during the period after adjusting for the effect of all dilutive potential ordinary shares. 6

7 TRADING SECURITIES At fair value: 30th June st Dec Debt securities Listed in Hong Kong 809,061 1,727,877 Listed outside Hong Kong 39,067 78,562 Unlisted 1,213,378 1,251,878 2,061,506 3,058,317 Equity securities Listed in Hong Kong 55,376 60,363 Listed outside Hong Kong 21,242 25,832 Unlisted 29,431 28, , ,988 2,167,555 3,173,305 Trading securities are analysed by issuer as follows: Central governments and central banks 770,671 1,996,582 Public sector entities 1,197,127 1,051,142 Banks and other financial institutions 101,537 20,296 Corporate entities 68,789 72,332 Others 29,431 32,953 2,167,555 3,173,305 7

8 HELD-TO-MATURITY SECURITIES 30th June st Dec / / / Balance as at beginning of period / year 4,597,103 7,106,084 Amortisation of discount 37,305 84,510 Additions 2,766,352 7,085,237 Repayments (685,806) Securities sold during the period / year (162,981) (9,678,729) Exchange difference 41,997 Balance as at end of period / year 6,593,970 4,597,102 Listed securities, at amortised cost Listed in Hong Kong 2,787,366 1,817,416 Listed outside Hong Kong 1,637,966 1,203,092 4,425,332 3,020,508 Unlisted securities, at amortised cost 2,168,638 1,576,594 6,593,970 4,597,102 Market value of listed securities 4,468,698 2,996,177 Held-to-maturity securities are analysed by issuer as follows: Central governments and central banks 3,220,830 1,817,416 Public sector entities 391, ,043 Banks and other financial institutions 2,435,002 2,354,921 Corporate entities 546, ,722 6,593,970 4,597,102 8

9 NON-TRADING SECURITIES 30th June st Dec At fair value: Debt securities Listed in Hong Kong 32, ,581 Listed outside Hong Kong 639, ,752 Unlisted 5,121,243 4,128,214 5,792,666 5,974,547 Equity securities Listed in Hong Kong 6,163 20,427 Listed outside Hong Kong 8, Unlisted 38, ,955 52, ,430 5,845,474 6,234,977 Non-trading securities are analysed by issuer as follows: Central governments and central banks 389,082 1,347,408 Public sector entities 1,520,609 1,400,484 Banks and other financial institutions 234, ,205 Corporate entities 3,667,721 2,852,893 Others 33, ,987 5,845,474 6,234,977 ADVANCES TO CUSTOMERS AND OTHER ACCOUNTS 30th June st Dec Variance % Advances to customers 29,186,420 29,274, Securitised loans 234,003 Less: non-returnable proceeds (234,003) Provisions for bad and doubtful debts Specific (349,902) (308,142) General (262,652) (263,183) 28,573,866 28,703, Accrued interest 279, ,325 Other accounts 1,401,159 1,046,572 Provisions against accrued interest and other accounts Specific (36,396) General (131) (191) 1,680,248 1,378,310 30,254,114 30,081,

10 GROSS ADVANCES TO CUSTOMERS BY INDUSTRY SECTOR 30th June st Dec Variance % Industrial, commercial and financial Property development 268, , Property investment 2,514,744 2,379, Financial concerns 353, , Stockbrokers 11,903 12, Wholesale and retail trade 1,124,033 1,168, Manufacturing 2,130,943 2,134, Transport and transport equipment 2,005,534 2,180, Others 931, , ,340,490 9,574, Individuals Loans for the purchase of flats in the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 2,458,999 2,465, Loans for the purchase of other residential properties 8,407,825 8,443, Credit card advances 2,790,660 2,773, Others 3,600,930 3,661, ,258,414 17,344, Loans for use in Hong Kong 26,598,904 26,918, Trade finance 2,123,009 1,879, Loans for use outside Hong Kong 464, , ,186,420 29,274, Over 90% of gross advances to customers were extended to customers located in Hong Kong. 10

11 NON-PERFORMING LOANS % of Total % of Total 30th June 2002 Advances 31st Dec Advances Gross advances 597, , Specific provisions made (324,058) (267,035) 273, ,900 Market value of security held 254, ,420 Interest in suspense 40,221 53,147 Non-performing loans are loans and advances to customers on which interest is being placed in suspense or on which interest accrual has ceased. OVERDUE ADVANCES % of Total % of Total 30th June 2002 Advances 31st Dec Advances Gross advances overdue for: Six months or less but over three months 202, , One year or less but over six months 85, , Over one year 158, , , , The amount on which interest is still being accrued 66,701 60,536 Market value of security held against the secured advances 254, ,015 Secured overdue advances 243, ,424 Unsecured overdue advances 203, ,230 Specific provisions made 176, ,044 11

12 OVERDUE ADVANCES ARE RECONCILED TO NON-PERFORMING LOANS AS FOLLOWS: 30th June st Dec Advances which are overdue for more than three months 446, ,654 Add: non-performing loans which are overdue for three months or less 131, ,379 Add: non-performing loans which are not yet overdue 24,402 20,536 Add: rescheduled advances net of amounts included in overdue advances 61,640 51,902 Less: advances which are overdue for more than three months and on which interest is still being accrued (66,701) (60,536) Non-performing loans 597, ,935 Over 90% of non-performing loans and overdue loans were due from customers located in Hong Kong. RESCHEDULED ADVANCES (net of those which have been overdue for over three months and reported as part of Overdue Advances above): % of Total % of Total 30th June 2002 Advances 31st Dec Advances Rescheduled advances 231, , Specific provisions made 35,003 20,349 There were no advances to bank and financial institutions nor other assets that were classified under non-performing, overdue and rescheduled assets as at 30th June 2002 and 31st December

13 MATURITY PROFILE 30th June year 5 years or less or less Repayable 3 months but over but over After on demand or less 3 months 1 year 5 years Undated Total Assets Treasury bills 1,515,887 3,140,542 4,656,429 Certificates of deposit held 30, , ,569 Advances to customers 5,406,900 3,758,628 2,512,623 7,284,120 9,597, ,817 29,186,420 Debt securities included in: Trading securities 51, ,036 1,410, ,079 2,061,506 Held-to-maturity securities 25, , ,726 5,238, ,181 6,593,970 Non-trading securities 44, , ,205 1,680,380 2,606,571 75,895 5,792,666 5,477,215 6,548,619 6,883,189 16,069,662 13,095, ,712 48,776,560 Liabilities Deposits and balances of banks and other financial institutions 103,205 8, ,492 Current, fixed, savings and other deposits of customers 7,431,942 26,302,713 2,353, ,553 36,255,581 Certificates of deposit issued 350,000 1,968,794 4,083,992 6,402,786 7,535,147 26,661,010 4,323,157 4,251,545 42,770,859 13

14 MATURITY PROFILE (Continued) 31st Dec year 5 years or less or less Repayable 3 months but over but over After on demand or less 3 months 1 year 5 years Undated Total Assets Treasury bills 865,392 2,261,727 3,127,119 Certificates of deposit held 69, , ,766 Advances to customers 5,543,495 3,780,315 2,552,040 6,828,066 9,956, ,305 29,274,357 Debt securities included in: Trading securities ,773 2,532, ,710 3,058,317 Held-to-maturity securities 682,137 3,462, ,527 4,597,102 Non-trading securities 749, ,925 2,480,201 2,579,924 4,079 5,974,547 5,543,495 6,077,538 5,390,644 15,758,850 13,167, ,384 46,556,208 Liabilities Deposits and balances of banks and other financial institutions 70, ,299 1, ,164 Current, fixed, savings and other deposits of customers 7,118,226 23,484,452 2,240, ,696 33,030,725 Certificates of deposit issued 100,000 1,170,606 4,381,584 5,652,190 7,188,804 23,805,751 3,412,244 4,569,280 38,976,079 14

15 CROSS-BORDER CLAIMS Banks and other financial institutions 30th June 2002 Public sector entities Others Total Equivalent in millions of HK$ Asia Pacific excluding Hong Kong ,121 North and South America 544 3,463 4,708 8,715 Middle East and Africa 1 1 Europe 1, ,648 2,569 3,463 5,453 11,485 31st Dec Banks and Public other financial sector institutions entities Others Total Equivalent in millions of HK$ Asia Pacific excluding Hong Kong ,122 North and South America 823 1,889 3,665 6,377 Middle East and Africa 1 1 Europe 2, ,055 4,255 1,889 4,411 10,555 The information of cross-border claims discloses exposures to foreign counterparties on which the ultimate risk lies, and is derived according to the location of the counterparties after taking into account any transfer of risk. In general, transfer of risk from one country to another is recognised if the claims against a counterparty are guaranteed by another party in a different country or if the claims are on an overseas branch of a bank whose head office is located in a different country. 15

16 CONTINGENT LIABILITIES, COMMITMENTS AND DERIVATIVES The following is a summary of the contractual amounts of each significant class of contingent liability and commitment: 30th June st Dec Direct credit substitutes 66,176 67,356 Transaction related contingencies 40,195 14,014 Trade-related contingencies 772, ,371 Other commitments with an original maturity of: under 1 year or which are unconditionally cancellable 17,473,791 17,849,072 1 year and over 1,075, ,487 19,428,418 19,530,300 The following is a summary of the aggregate notional contract amounts of each significant type of derivatives: Trading Hedging Total 30th June st Dec th June st Dec th June st Dec Exchange rate contracts Forward and future contracts 8,115, ,288 13,607,435 16,218,588 21,722,687 16,559,876 Currency swaps 57,720 57,703 57,720 57,703 Foreign exchange option contracts Currency options purchased 361, , , ,773 Currency options written 360, , , ,853 8,837,312 1,216,914 13,665,155 16,276,291 22,502,467 17,493,205 Interest rate contracts Forward and futures contracts 9,431,990 9,304,892 9,431,990 9,304,892 Interest rate swaps 4,271 3,556,842 3,166,208 3,561,113 3,166,208 Interest rate option contracts Options written 2,988,005 1,497,590 1,169,663 4,485,595 1,169,663 12,424,266 5,054,432 13,640,763 17,478,698 13,640,763 Other contracts Equity index futures contracts 19,311 16,896 14,435 19,311 31,331 Equity option contracts Options purchased 178,407 71, ,407 71,424 Options written 179,332 71, ,332 71, , ,744 14, , ,179 16

17 CONTINGENT LIABILITIES, COMMITMENTS AND DERIVATIVES (Continued) The trading transactions include positions arising from the execution of trade orders from customers or transactions taken to hedge these positions. The credit risk weighted amounts and replacement costs of the above off-balance sheet exposures, without taking into account the effect of bilateral netting arrangements that the Group entered into, are as follows: 30th June st Dec Credit risk Credit risk weighted Replacement weighted Replacement amount cost amount cost Contingent liabilities and commitments 751, ,336 Derivatives Exchange rate contracts 86, , , ,146 Interest rate contracts 25,574 85,425 24,766 89,772 Other contracts , , , , , , ,883 The contract amounts of these instruments indicate the volume of transactions outstanding as at the balance sheet date. They do not represent the amounts at risk. The credit risk weighted amounts are the amounts which have been calculated in accordance with the Third Schedule of the Banking Ordinance and guidelines issued by the Hong Kong Monetary Authority. The amounts calculated are dependent upon the status of the counterparty and the maturity characteristics of each type of contract. Replacement cost is the cost of replacing all contracts which have a positive value when marked to market (should the counterparty default on its obligations) and is obtained by marking to market contracts with a positive value. Replacement cost is considered to be a close approximation of the credit risk for these contracts at the balance sheet date. 17

18 FOREIGN EXCHANGE RISK The following is the Banking Group s net foreign exchange position in individual currency that constitutes 10% or more of the total net position in all foreign currencies: Equivalent in millions of HK$ 30th June st Dec US$ EUR US$ EUR / Spot assets 21, , Spot liabilities (21,350) (806) (20,522) (672) Forward purchases 29, , Forward sales (26,410) (910) (19,064) (609) Net long / (short) position 3, ,018 (2) MANAGEMENT OF RISKS The Directors are of the opinion that the market risk arising from the trading book of the Group, having regard to the Group s risk management policies and procedures in place, is not material. SEGMENT INFORMATION For the six months ended 30th June 2002 Banking & Insurance related business business Total Operating income 1,208,497 39,411 1,247,908 Profit before taxation 480,293 37, ,583 For the six months ended 30th June 2001 Banking & Insurance related business business Total Operating income 1,024,405 30,205 1,054,610 Profit before taxation 490,499 28, ,704 18

19 FINANCIAL RATIOS Period ended Year ended Period ended 30th June st Dec th June 2001 / Net interest income / operating income 74.5% 75.4% 76.1% Cost to income ratio 34.5% 41.6% 41.9% Return on total assets (annualised) 1.7% 1.7% 1.8% Return on shareholders funds (annualised) 16.6% 17.0% 18.2% Dividend payout ratio (on distributable profit) 29.3% 34.5% 31.2% Loan to deposit (including loan capital) ratio (as at period end) 65.5% 72.4% 75.2% Loan to deposit (excluding loan capital) ratio (as at period end) 67.0% 74.2% 77.2% Capital adequacy ratio (Note) 19.1% 18.7% 17.8% Adjusted capital adequacy ratio (Note) 19.0% 18.5% 17.6% Average liquidity ratio (Note) 52.3% 46.2% 44.2% Net interest margin (annualised) 4.05% 3.76% 3.72% 0.52 Note: The capital adequacy ratio represents the consolidated ratio of the Banking Group as at 30th June or 31st December. The capital adequacy ratio of each entity within the Banking Group is computed in accordance with the Third Schedule of the Banking Ordinance. The adjusted capital adequacy ratio represents the consolidated ratio of the Banking Group. The adjusted capital adequacy ratio of each entity within the Banking Group is computed in accordance with the Guideline Maintenance of Adequate Capital Against Market Risks issued by the Hong Kong Monetary Authority. The adjusted ratio takes into account market risk. The liquidity ratio is calculated as the simple average of each calendar month s average liquidity ratio for the relevant periods for the Banking Group. The liquidity ratio of each entity within the Banking Group is computed in accordance with the Fourth Schedule of the Banking Ordinance. INTERIM DIVIDEND The Directors have declared an interim dividend of HK$0.52 per share for 2002 payable on or after Monday, 2nd September 2002 to shareholders whose names are on the Register of Shareholders at the close of business on Friday, 30th August

20 0.52 CLOSING OF REGISTER OF SHAREHOLDERS The Register of Shareholders will be closed from Monday, 26th August 2002 to Friday, 30th August 2002, both days inclusive. In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company s Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen s Road East, Hong Kong for registration not later than 4:00 p.m. on Friday, 23rd August BUSINESS REVIEW Our Group achieved satisfactory results for the first six months of 2002 amidst a very difficult operating environment. The local economy suffered from slow investment and consumption, rising unemployment, weak sentiment and continued deflation. Despite such market conditions and weak loan demand, our operating profit after provisions for the period under review, at HK$490.0 million, was 3.0% higher than that of the first six months in Profit attributable to shareholders, at HK$460.4 million, was 2.8% higher than that of the same period last year. We have maintained our interim dividend of HK$0.52 per share. Our Banking business, operated through Dah Sing Bank and MEVAS Bank, achieved a sound performance in the first six months of this year. The strong growth in operating income was however offset by the significant rise in bad debt charges, which were mainly due to credit card and consumer lending being adversely affected by much higher personal bankruptcies. We continue to place emphasis on growing our customer base and cross-selling, offering additional products and services, enhancing our service quality, and upgrading our risk management capabilities. Against a background of lower new business growth and persistency levels arising from the weak operating environment, our life insurance business generated a flat profit contribution relative to the same period last year despite a stronger return on bond investments. 20

21 FINANCIAL REVIEW When compared with the first half of 2001, operating profit before provisions was 33.4% higher, mainly the result of stronger revenue contribution and savings in operating expenses from our banking business. A significant increase in bad debt charges trimmed the growth of our operating profit after provisions to 3.0%. Net interest income was up by 15.8% in the period. Lower interest rates, an increased average balance of high yielding assets relative to 2001, and our ability to sustain the higher interest yields in credit card and consumer loans, together with our investment in fixed income securities, assisted in boosting our net interest income. Our net interest margin widened from 3.72% in first half 2001 to 4.05% in the first six months period this year. Other operating income was 26.3% higher. The growth was mainly driven by the increase in our banking business fee and commission income generated by credit card and wealth management businesses, and higher treasury contribution. Our life insurance business net contribution included in other operating income was HK$35.2 million, almost identical to HK$35.6 million earned in the first half of Operating expenses declined 2.6% when compared with the same period in A reduced staffing level and a tight control on expenses enabled us to record a lower cost base. Our cost to income ratio dropped from 41.9% in first half 2001 to 34.5% in the period. Reflecting the deterioration in the asset quality of credit card and consumer lending brought about by the adverse economic conditions and the significant increase in personal bankruptcies, and with a higher average balance of consumer lending relative to the first half of 2001, the Group s charge for bad and doubtful debts increased significantly when compared with the same period last year. In line with the broader market, a higher charge-off rate for our credit card portfolio was recorded. The asset quality of our commercial banking and hire purchase finance businesses continued to hold up well despite the economic downturn. Our non-performing loan ratio remained healthy and eased slightly to 2.05%, against 2.07% at the end of For our banking business, total loans and advances to customers were 0.3% lower than those at the end of Most lending categories were slightly down with the exception of trade finance, partly due to seasonal factors and partly due to an expanded commercial banking customer base. The flat loan book performance reflected a general weak loan demand, tight spread, and our more stringent credit control criteria and pricing requirements. Our total deposit base, comprising customer deposits and certificates of deposits, increased by 10.3% relative to the end of MEVAS Bank, launched in April 2001, focused on the personal banking sector. MEVAS continued to increase its customer base and to improve its revenue, although a small loss was incurred during the first half. 21

22 PROSPECTS The Hong Kong economic recovery may slow as the U.S. economy cools and with a continuing volatile global equity environment, local market sentiment is likely to remain subdued. We continue to maintain a cautious outlook for Hong Kong s economic performance in the second half of the year. With China s WTO accession and a higher rate of economic growth, Hong Kong is well positioned to benefit from China s progress and increasing trade flows despite a slower global economic recovery. We remain confident on Hong Kong s longterm future and development as we continue to restructure our economy towards a more knowledge-based and higher valueadded services centre. With the challenging market environment in the US, we are of the view that the US interest rate increase anticipated earlier this year will be delayed. This would be positive for our banking business performance in the second half. Our focus on fee income and our sound cost control should also be of benefit and will help to mitigate the expected high level of loan losses mainly arising from our unsecured consumer lending portfolio. Our life insurance business is working hard to improve persistency, to push for a higher number of in-force policies and to generate new business growth. The forthcoming launch of unit linked life insurance will broaden our product range and should assist both revenue growth and customer acquisition. DIRECTORS INTERESTS At 30th June 2002, the interests of the Directors in the share capital of the Company recorded in the register maintained under section 29 of the Securities (Disclosure of Interests) Ordinance were as follows: Name of Director Number of Ordinary Shares of the Company held Personal Corporate Other Interests Interests Interests Total Peter G. Birch (*) David Shou-Yeh Wong 4,344,746(*a) 87,379,236(*b) 91,723,982 Chung-Kai Chow 650, ,676 John Wai-Wai Chow 797, ,248 John W. Simpson 16,017 16,017 Peter G. Birch 50,000 50,000 Hon-Hing Wong 400,000(*c) 400,000 Roderick S. Anderson 60, ,000(*c) 260,131 Gary Pak-Ling Wang 100,000(*c) 100,000 Notes (*): a) b) a) The corporate interest of David Shou-Yeh Wong is in respect of shares held by a company in which he has an interest of one third or more. b) Such shares are indirectly held by HSBC International Trustee Limited, the trustee of a discretionary trust established for the benefit of David Shou-Yeh Wong and his family. 22

23 c) , , , ,000 DIRECTORS INTERESTS (Continued) c) These interests represent share options outstanding to subscribe for shares of the Company granted pursuant to the Executive Share Option Scheme approved by shareholders on 17th May Certain Directors of the Company were granted options on 27th November 1997 or 3rd April 2000 at a consideration of HK$1 per option to subscribe for shares of the Company at par value of HK$2 each. Options granted on 27th November 1997 and 3rd April 2000 have an exercise price of HK$13.57 and HK$26.28 per share respectively. The options can be exercised in varying amounts between the first and fifth anniversaries of the dates of grant. Mr. Hon-Hing Wong exercised his option to subscribe for 400,000 shares of the Company in May Instead of allotting new shares, the Company exercised its discretion as allowed by the Executive Share Option Scheme by paying Mr. Wong HK$15.32 per share in cash, which is the excess of closing market price on the exercise date over the predetermined subscription price of HK$26.28 each. The aggregate payment amounted to HK$6,128,000 and the options granted to Mr. Wong to subscribe for 400,000 shares was confirmed as exercised. Mr. Yiu-Ming Ng exercised his option to subscribe for 200,000 shares of the Company in June Instead of allotting new shares, the Company exercised its discretion as allowed by the Executive Share Option Scheme by paying Mr. Ng HK$11.72 per share in cash, which is the excess of closing market price on the exercise date over the predetermined subscription price of HK$26.28 each. The aggregate payment amounted to HK$2,344,000 and the options granted to Mr. Ng to subscribe for 200,000 shares was confirmed as exercised. Apart from the foregoing, at no time during the six months ended 30th June 2002 did the Company grant any right to subscribe for its own equity or debt securities. SUBSTANTIAL SHAREHOLDER S INTERESTS At 30th June 2002 the register of substantial shareholders maintained under section 16(1) of the Securities (Disclosure of Interests) Ordinance showed that the Company had been notified of the following interests, being 10% or more of the Company s issued share capital. These interests are in addition to those disclosed above in respect of the Directors. Shareholder No. of shares UFJ Bank Limited The Sanwa Bank, Limited 36,998,266 UFJ Bank Limited (formerly, The Sanwa Bank, Limited) 36,998,266 UFJ Bank Limited 37,268,266 Note: 6th August 2002 on which the interim results for the six months ended 30th June 2002 was announced, UFJ Bank Limited was beneficially interested in 37,268,266 shares of the Company in issue. 23

24 COMPLIANCE WITH CODE OF BEST PRACTICE None of the Directors is aware of information that would reasonably indicate that the Company is not, or was not for any part of the accounting period covered by this interim report, in compliance with Appendix 14 of the Listing Rules of the Stock Exchange of Hong Kong Limited, except that (1) non-executive Directors were not appointed for a specific term since all Directors, excluding the Managing Director, have been subject to rotation in annual general meetings pursuant to the Company s Articles of Association and (2) the Audit Committee comprises five members with four independent non-executive Directors and one executive Director who brings particular banking expertise and extensive knowledge of the Group to the Audit Committee. AUDIT COMMITTEE The Audit Committee has reviewed with management the accounting principles and practices adopted by the Group and discussed internal controls and financial reporting matters including a review of the unaudited interim financial statements for the six months ended 30th June DEALINGS IN THE COMPANY S SHARES There was no purchase, sale or redemption by the Company, or any of its subsidiaries, of the Company s listed shares during the period ended 30th June By Order of the Board H L Soo Company Secretary Hong Kong, 6th August 2002 (Tuesday) 24