CONTENTS Financial Summary 2 Corporate Information 4 Directors and Senior Management s Profi le 6 Chairman s Statement 12 Group General Manager s Stat

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2 CONTENTS Financial Summary 2 Corporate Information 4 Directors and Senior Management s Profi le 6 Chairman s Statement 12 Group General Manager s Statement 17 Review of Operations 23 Corporate Governance Report 40 Report of the Directors 63 Consolidated Income Statement 81 Consolidated Statement of Comprehensive Income 82 Consolidated Statement of Financial Position 83 Statement of Financial Position 84 Consolidated Statement of Changes in Equity 85 Consolidated Statement of Cash Flows 87 Notes to the Financial Statements 88 Unaudited Supplementary Financial Information 290 Independent Auditor s Report 307 DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

3 FINANCIAL SUMMARY HK$ Million Shareholders funds 12,968 13,673 15,390 16,701 19,045 Subordinated notes 4,644 3,654 3,936 3,722 5,391 Deposits from customers 96, , , , ,916 Certificates of deposit issued 4,746 3,164 5,752 6,133 6,110 Total deposits 100, , , , ,026 Total liabilities (including subordinated notes) 124, , , , ,290 Advances to customers (excluding trade bills) 71,900 80,867 86,174 97, ,230 Total assets 141, , , , ,408 Profit attributable to shareholders 1,057 1,070 1,301 1,498 1,727 Total dividend distribution HK$ 1 Basic earnings per share (Note 1) Dividends per share Note: Basic earnings per share for 2010 to 2013 have been restated to take into account the rights issue of the Company completed in the second quarter of

4 FINANCIAL SUMMARY Advances to customers / Total deposits HK$ Million Total assets HK$ Million % ,873 71, ,793 80, ,279 86, ,353 97, , , , , , , , Total deposits Advances to customers (excluding trade bills) Total assets Shareholders funds HK$ Million Basic earnings per share / Dividends per share HK$ 20, ,000 12,000 12,968 13,673 15,390 16,701 19, , , Shareholders funds Dividends per share Basic earnings per share DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

5 CORPORATE INFORMATION DAH SING FINANCIAL HOLDINGS LIMITED BOARD OF DIRECTORS David Shou-Yeh Wong Chairman Robert Tsai-To Sze Independent Non-Executive Director Lon Dounn Independent Non-Executive Director Seiji Nakamura Independent Non-Executive Director Blair Chilton Pickerell Independent Non-Executive Director Takashi Morimura Non-Executive Director Toshihide Motoshita Non-Executive Director John Wai-Wai Chow Non-Executive Director Hon-Hing Wong (Derek Wong) Managing Director and Chief Executive Gary Pak-Ling Wang Executive Director Nicholas John Mayhew Executive Director Eiichi Yoshikawa Alternate to Takashi Morimura AUDIT COMMITTEE Robert Tsai-To Sze Chairman Lon Dounn Blair Chilton Pickerell NOMINATION AND REMUNERATION COMMITTEE Robert Tsai-To Sze Chairman Seiji Nakamura David Shou-Yeh Wong 4

6 CORPORATE INFORMATION DSBAHKHH REGISTERED OFFICE 36th Floor, Dah Sing Financial Centre 108 Gloucester Road, Hong Kong Tel: Fax: S.W.I.F.T.: DSBAHKHH Website: FCIS, FCS COMPANY SECRETARY Doris Wai-Nar Wong FCIS, FCS SENIOR MANAGEMENT Harold Tsu-Hing Wong Group General Manager Managing Director and Chief Executive of Dah Sing Banking Group Limited Wing-Kay Chow (Eleonore Chow) Director and Chief Executive of Dah Sing Life Assurance Company Limited AUDITORS PricewaterhouseCoopers Certified Public Accountants in Hong Kong SOLICITORS Herbert Smith Freehills SHARE REGISTRARS AND TRANSFER OFFICE Computershare Hong Kong Investor Services Limited Shops , 17th Floor, Hopewell Centre 183 Queen s Road East, Wan Chai, Hong Kong 0440 SHARE LISTING AND STOCK CODE The Stock Exchange of Hong Kong Limited: 0440 DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

7 DIRECTORS AND SENIOR MANAGEMENT S PROFILE BOARD OF DIRECTORS Mr. David Shou-Yeh Wong Chairman (1976) 45 Mr. Wong, aged 74, was appointed as the Chairman of the Company in He is currently the Chairman of Dah Sing Banking Group Limited ( DSBG ), Dah Sing Bank, Limited ( DSB ), Banco Comercial de Macau, S.A., Dah Sing Life Assurance Company Limited ( DSLA ), Dah Sing Insurance Company (1976) Limited, Macau Insurance Company Limited, Macau Life Insurance Company Limited, New Asian Shipping Company, Limited and various other companies. He serves as a member of the Nomination and Remuneration Committee of both the Company and DSBG. Mr. Wong is the Honorary President of Guangdong Chamber of Foreign Investors, a Vice President of The Hong Kong Institute of Bankers and a Vice Chairman of The Chamber of Hong Kong Listed Companies. Mr. Wong has over 45 years of experience in banking and finance. He is the father of Mr. Harold Tsu- Hing Wong, the Managing Director and Chief Executive of DSBG, Vice Chairman of DSB and DSLA, and an Executive Director of the Company s other key operating banking and insurance subsidiaries. Mr. Robert Tsai-To Sze Independent Non-Executive Director Mr. Sze, aged 74, was appointed as an Independent Non-Executive Director of the Company in He is also an Independent Non- Executive Director of Dah Sing Banking Group Limited ( DSBG ), Dah Sing Bank, Limited, Dah Sing Bank (China) Limited and Dah Sing Life Assurance Company Limited. He serves as the Chairman of the Audit Committee and the Nomination and Remuneration Committee of both the Company and DSBG, and is a non-executive Director to a number of Hong Kong listed companies as set out below. Mr. Sze is a Fellow of The Institute of Chartered Accountants in England and Wales and The Hong Kong Institute of Certified Public Accountants. He was a former partner of an international firm of accountants with which he practised for over 20 years Apart from the Company and DSBG, Mr. Sze also holds/held directorships in other Hong Kong listed companies during the last three years, namely, China Travel International Investment Hong Kong Limited, Hop Hing Group Holdings Limited, Min Xin Holdings Limited, Nanyang Holdings Limited, Sunwah Kingsway Capital Holdings Limited, Asia Satellite Telecommunications Holdings Limited (retired in June 2013) and QPL International Holdings Limited (retired in September 2013). 6

8 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Lon Dounn (Lonnie Dounn) Independent Non-Executive Director Mr. Dounn, aged 62, was appointed as an Independent Non-Executive Director, a member of the Audit Committee of the Company and the Chairman of Risk Management and Compliance Committee of Dah Sing Bank, Limited in April He also served as an Independent Non-Executive Director of Dah Sing Banking Group Limited between December 2010 and March Mr. Dounn has over 30 years of extensive experience in the banking industry and had assumed various senior executive positions in credit and risk management in a number of banks, including HSBC and Bank of China Mr. Seiji Nakamura Independent Non-Executive Director Mr. Nakamura, aged 72, was appointed as an Independent Non-Executive Director and a member of the Nomination and Remuneration Committee of the Company in June He served as an Alternate Director to two Non-Executive Directors of the Company during 1998 to Mr. Nakamura was appointed as an External Director of Kurita Water Industries Ltd. which is listed in Tokyo Stock Exchange in June Mr. Nakamura has over 40 years of extensive experience in the shipping industry, in addition to the 5 years financial sector and regulatory experience as a member of the Policy Board of the Bank of Japan during April 2007 to April (Jardine Fleming Taiwan) HSBC Investments (Hong Kong) Limited Harvard Business School Association of Hong Kong Mr. Blair Chilton Pickerell Independent Non-Executive Director Mr. Pickerell, aged 58, was appointed as an Independent Non- Executive Director and a member of the Audit Committee of the Company in June He is currently the Chairman, Asia of Nikko Asset Management Company, which he joined in Mr. Pickerell joined Jardine Matheson Holdings Group in 1984 and held various positions in Jardine Matheson Holdings Group, including as General Manager of Jardine Fleming Taiwan, President of Taiwan International Securities Corporation, Development Director of Mandarin Oriental Hotel Group, General Manager of Jardine Fleming Unit Trusts, and Managing Director of Jardine Pacific Limited. From 1999 to 2002, Mr. Pickerell was Managing Director of JF Asset Management Limited. He also served as Chairman of JF Funds Limited during part of that time. In 2003, he joined HSBC Investments (Hong Kong) Limited as the Chief Executive Officer, Asia Pacific. From 2007 to 2010, he served as Managing Director and CEO, Asia, of Morgan Stanley Investment Management. Mr. Pickerell was a court member of The University of Hong Kong during December 2008 to November 2014 and is a vice patron of The Community Chest of Hong Kong and a director of Harvard Business School Association of Hong Kong. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

9 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Takashi Morimura Non-Executive Director UFJ 2009 UFJ UFJ 35 Mr. Morimura, aged 62, was appointed as a Non-Executive Director of the Company in December He joined The Bank of Tokyo, Ltd. (now becomes The Bank of Tokyo-Mitsubishi UFJ, Ltd. ( BTMU ) after several mergers completed in 2006) in Mr. Morimura served and managed various divisions in BTMU before appointed as the Senior Managing Executive Officer and the Chief Executive Officer for Europe, Middle East and Africa in He is currently the Deputy President and the Chief Executive Officer of Global Business Unit of BTMU and the Managing Officer and the Group Head of Integrated Global Business Group of Mitsubishi UFJ Financial Group, Inc. Mr. Morimura possesses over 35 years of experience in corporate banking and finance. Mr. Toshihide Motoshita Non-Executive Director UFJ UFJ UFJ 25 Mr. Motoshita, aged 52, was appointed as a Non-Executive Director of the Company in August He is currently the Executive Officer, Regional Head for Hong Kong and General Manager of The Bank of Tokyo-Mitsubishi UFJ, Ltd. ( BTMU ) Hong Kong Branch. Mr. Motoshita graduated with a Bachelor Degree in Economics from Keio University in 1986 and joined The Bank of Tokyo, Ltd. (now becomes BTMU after several mergers completed in 2006) immediately after graduation. Mr. Motoshita had served and managed various positions in BTMU and possesses over 25 years of experience mainly in corporate banking. Mr. John Wai-Wai Chow Non-Executive Director ARA 30 Mr. Chow, aged 65, was appointed as a Director in 1994 and is currently a Non-Executive Director of the Company. He served as a member of Audit Committee of the Company from May 2011 to June Mr. Chow is currently the Managing Director of Winsor Industrial Corporation Limited, Executive Director of Wing Tai Properties Limited and Non-Executive Director of ARA Trust Management (Suntec) Limited (manager of the Singapore-listed Suntec Real Estate Investment Trust). He was the former Managing Director of Winsor Properties Holdings Limited (now renamed as Vanke Property (Overseas) Limited). Mr. Chow has over 30 years of experience in textile, garment and property business. 8

10 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Hon-Hing Wong (Derek Wong) Managing Director and Chief Executive H 17% 35 Mr. Wong, aged 62, was appointed as a Director in 1993 and promoted as the Managing Director of the Company in January He joined Dah Sing Bank, Limited ( DSB ), a key operating subsidiary of the Company s banking group, in 1977 and has served and managed various departments before appointed as a Director in 1989 and Managing Director in Mr. Wong was promoted as Vice Chairman of DSB and Dah Sing Banking Group Limited ( DSBG ) in April He ceased to be a member of the Nomination and Remuneration Committee of both the Company and DSBG in September Mr. Wong is the Chairman of Dah Sing Bank (China) Limited and a director of various major subsidiaries of the Group. He is a Director of Great Wall Life Insurance Company Limited, and a Non- Executive Director and Vice Chairman of Bank of Chongqing Co., Ltd. in which the Group has a 17% equity interest in its H shares listed in Hong Kong. Mr. Wong is an Associate of The Institute of Bankers (U.K.) and a Founder Member of The Hong Kong Institute of Bankers and The International Retail Banking Council of the U.K. Mr. Wong has over 35 years of experience in banking. Mr. Gary Pak-Ling Wang Executive Director Mr. Wang, aged 54, was appointed as an Executive Director of the Company in He joined Dah Sing Bank, Limited ( DSB ), a key operating subsidiary of the Company, as the Group Financial Controller in 1995 and was promoted as a Director in 1997, responsible for the overall financial management and control, operations and IT functions of the Group for a number of years since then. Mr. Wang was promoted as the Managing Director and Chief Executive of DSB in May He is also a Director of Dah Sing Banking Group Limited, Banco Comercial de Macau, S.A., Dah Sing Bank (China) Limited and Dah Sing Life Assurance Company Limited. Mr. Wang is a qualified accountant, a Fellow of The Association of Chartered Certified Accountants of the U.K. and a member of the Hong Kong Institute of Certified Public Accountants. Mr. Wang has over 25 years of experience in financial management and banking. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

11 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Nicholas John Mayhew Executive Director Mr. Mayhew, aged 47, joined the Company in 1998 and is currently an Executive Director of the Company, Dah Sing Life Assurance Company Limited, Macau Insurance Company Limited, Macau Life Insurance Company Limited, Dah Sing Bank, Limited ( DSB ) and Dah Sing Bank (China) Limited. He serves as the Deputy Chief Executive of DSB, and Head of Treasury and Corporate Finance of DSB, responsible for its treasury and corporate finance activities. Mr. Mayhew has over 25 years of experience in financial services both in the U.K. and Hong Kong. Mr. Eiichi Yoshikawa Alternate Director to Mr. Takashi Morimura UFJUFJMUFG 2014 MUFG UFJ UFJ UFJ 30 Mr. Yoshikawa, aged 58, was appointed as an Alternate Director to Mr. Takashi Morimura, a Non-Executive Director of the Company, in August He is currently the Managing Executive Officer, Deputy Chief Executive of the Global Business Unit, Chief Executive Officer for East Asia of The Bank of Tokyo-Mitsubishi UFJ. Ltd. ( BTMU ), a wholly-owned commercial banking subsidiary of Mitsubishi UFJ Financial Group, Inc. ( MUFG ). He has been appointed as the Managing Officer of MUFG in Mr. Yoshikawa graduated with a Bachelor Degree of Law from The University of Tokyo in 1981 and then joined The Bank of Tokyo, Ltd. (now becomes BTMU after several mergers completed in 2006). From 2007 to 2010, Mr. Yoshikawa was General Manager of BTMU Hong Kong Branch and also served as a Non-Executive Director of the Company during that time. From 2010 to 2014, Mr. Yoshikawa served as President of Bank of Tokyo- Mitsubishi UFJ (China), Ltd. Mr. Yoshikawa has over 30 years of extensive experience in corporate banking, treasury and corporate planning as well. 10

12 DIRECTORS AND SENIOR MANAGEMENT S PROFILE SENIOR MANAGEMENT Mr. Harold Tsu-Hing Wong Group General Manager Managing Director and Chief Executive of Dah Sing Banking Group Limited Mr. Wong, aged 45, joined Dah Sing Bank, Limited, a key operating subsidiary of the Company, in 2000, and was appointed as an Executive Director in 2005 and a Vice Chairman in March He is currently the Managing Director and Chief Executive of Dah Sing Banking Group Limited ( DSBG ). He is also a Vice Chairman of Dah Sing Life Assurance Company Limited, and a Director of Dah Sing Bank (China) Limited and Banco Comercial de Macau, S.A. Mr. Wong was appointed as a member of The EFAC Financial Infrastructure Sub-Committee, a sub-committee under the Exchange Fund Advisory Committee ( EFAC ) of the Hong Kong Monetary Authority, in October He is a qualified solicitor in England and Wales and in Hong Kong. Mr. Wong is a son of Mr. David Shou-Yeh Wong, the Chairman of the Boards of the Company and DSBG. Ms. Wing-Kay Chow (Eleonore Chow) Director and Chief Executive of Dah Sing Life Assurance Company Limited Ms. Chow, aged 49, was appointed as a Director and the Chief Executive of Dah Sing Life Assurance Company Limited in 2010, responsible for overseeing the operation of long-term insurance business. She is also a Director of Macau Life Insurance Company Limited. Ms. Chow is a fellow member of Life Office Management Association (FLMI) USA and has over 20 years of experience in insurance industry in Hong Kong, Mainland China and Taiwan. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

13 CHAIRMAN S STATEMENT % % 15% Our core businesses had a steady year in Performance in Hong Kong and Macau was good, whilst Mainland China was mixed. Against a backdrop of slowing growth in China, we are pleased to report that overall our banking business reported record profits again in 2014, with an increase of 16% in profit attributable to shareholders over Our insurance business was a little slower, with net profit up by 14% compared with Our overall profit attributable to shareholders of the Company was up by 15% to HK$1,727 million % 11.4% After the rights issue completed in the second quarter of 2014, our capital position continued to strengthen, with our Banking Group s overall Capital Adequacy Ratio of 16.3%, and Common Equity Tier 1 capital ratio of 11.4% as at 31 December BANKING BUSINESS 16% % We reported another year of record profits in our banking business, with net profit attributable to shareholders increasing by 16% to HK$2,034 million. The key drivers were strong performance from our core Commercial, Retail and Treasury businesses in Hong Kong, a record profit from our Macau subsidiary bank, Banco Comercial de Macau, and a steady contribution from our investment in Bank of Chongqing, which offset a weaker performance from our China subsidiary bank. It is encouraging that as we continue to pursue our back to basics strategy in banking, our profitability, as well as our profit, continued to improve, with a return on equity from our Banking Group of 11% % 35% The Board of Directors of Dah Sing Financial Holdings Limited (from Left to Right): Mr. Nicholas Mayhew, Mr. Gary Wang, Mr. Derek Wong, Mr. John Chow, Mr. Robert Sze, Mr. Seiji Nakamura, Mr. David Wong, Mr. Eiichi Yoshikawa (alternate Director to Mr. Takashi Morimura), Mr. Lon Dounn, Mr. Toshihide Motoshita, Mr. Blair Pickerell and Dr. Yuan Shu. 12

14 CHAIRMAN S STATEMENT INSURANCE BUSINESS % 35% Our insurance business also reported an improved performance compared with Both our net profit and our overall premium and other insurance income grew, by 14% and 35% respectively. However, new business volumes in the year were down relative to the prior year, due mainly to the migration towards selling life products with higher margin, resulting in a lower sales volume in the year. We continued to roll out new products to suit our customers needs, particularly for longer term protection, savings and investment products. CAPITAL AND REGULATION %16.3% III 2007 After the rights issue concluded in 2014, the equity capital levels of our Banking Group have increased significantly. As at 31 December 2014, our Common Equity Tier 1 ( CET1 ) capital ratio was 11.4% and our overall Capital Adequacy Ratio was 16.3%. We were also well prepared for the new liquidity rules that came into effect on 1 January 2015, and continue to maintain our liquidity ratio at much above the regulatory minimum level. Whilst the process of regulatory change under Basel III has yet to be completed, it is notable that in dollar terms, our CET1 is now more than double the equivalent Core Capital that we maintained in 2007, before the main impact of the financial crisis. This demonstrates how much our capital base has been strengthened over the past few years. A group photo of the Directors and Company Secretary of Dah Sing Financial Group before a Board Meeting. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

15 CHAIRMAN S STATEMENT CHANGES IN BOARD MEMBERS DURING THE YEAR On 20 June 2014, Mr. Muneo Kurauchi ceased to act as an Alternate Director to Mr. Takashi Morimura UFJBTMU BTMU BTMU BTMU UFJ On 27 August 2014, Mr. Hidekazu Horikoshi, due to his new assignment within The Bank of Tokyo-Mitsubishi UFJ, Ltd ( BTMU ) group, resigned as a Non-Executive Director. On the same date, Mr. Toshihide Motoshita was appointed as a Non-Executive Director of the Company and Mr. Eiichi Yoshikawa was appointed as an Alternate Director to Mr. Takashi Morimura. Mr. Motoshita is the Executive Officer, Regional Head for Hong Kong and General Manager of BTMU Hong Kong Branch. Mr. Yoshikawa is the Managing Executive Officer, Deputy Chief Executive of the Global Business Unit, Chief Executive Officer for East Asia of BTMU. BTMU is a wholly-owned commercial banking subsidiary of Mitsubishi UFJ Financial Group, Inc On 15 September 2014, Dr. Yuan Shu resigned as an Independent Non-Executive Director. Following his resignation, Dr. Shu also ceased to act as a member of the Nomination and Remuneration Committee ( NRC ) of the Company. On the same date, Mr. Hon- Hing Wong (Derek Wong) resigned as a member of the NRC of the Company but remains as an Executive Director as well as the Managing Director and Chief Executive of the Company. The Board extends a warm welcome to Mr. Motoshita and Mr. Yoshikawa in joining the Board, and expresses its appreciation to Dr. Shu, Mr. Horikoshi and Mr. Kurauchi for their valuable effort and contributions to the Board during their tenure of service with the Company, and also to Mr. Wong for his effort and time spent in attending to the affairs of the NRC of the Company in the past. Dah Sing Management at the Hong Kong headquarters building celebrating the Chinese New Year of the Horse. 14

16 CHAIRMAN S STATEMENT FUTURE PROSPECTS 2015 We continue to live in uncertain times. Whilst there are some encouraging signs in 2015, notably the continuing recovery of the US economy, other developments mean that we should be cautious. Risks that may affect us during the year include the slowdown in the Mainland China economy, and the credit risk that this may bring, as well as the continuing volatility in financial markets, and the possible change in the policy direction of the Federal Reserve, as it considers whether to start to raise interest rates after an extended period of Federal Funds rates close to zero. All of these potential developments urge caution However, we should not forget that our core market is Hong Kong, and of our banking subsidiaries, our Macau bank is still bigger than our Mainland China bank. Conditions in both Hong Kong and Macau remain steady, and credit quality is extremely good, so we are not overly pessimistic about Our investment in Bank of Chongqing continues to perform well Closing prices of Dah Sing Financial Holdings Limited (Stock code: 0440) and Dah Sing Banking Group Limited (Stock code: 2356) on 31 December Closing price of Hang Seng Index on 31 December DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

17 CHAIRMAN S STATEMENT In the longer term, we continue to see our base in Hong Kong, Mainland China and Macau as one that we can build on, for the benefit of our shareholders, customers and staff alike. Finally, I would like to thank my fellow directors for their valuable contribution and extend, on behalf of the Board, our appreciation to all of our colleagues for their hard work and dedication over the past year, and also our appreciation of the support from our customers and shareholders. David Shou-Yeh Wong Chairman Hong Kong, 25 March

18 GROUP GENERAL MANAGER S STATEMENT % The past year saw satisfactory earnings results among our banking and insurance businesses. Dah Sing Banking Group Limited ( DSBG ) once again reported record earnings and continued to improve the performance in its core banking businesses, producing a higher return on capital. Our insurance operations had a strong performance from the insurance investment portfolio. The combination of these factors, which are further elaborated below, produced the highest ever core profit attributable to shareholders of HK$1,727 million and a return of 9.7% on average shareholders funds for Dah Sing Financial Holdings Limited ( DSFH ) in INSURANCE OPERATIONS % While our Insurance Business reported steady growth in overall premium income, new business volumes were lower than the prior year, due mainly to the migration towards selling products with higher value but lower sales volume by our bancassurance business. Due to the decline in long term interest rates during the year, we experienced a substantial fair value gain in the bond portfolio of our insurance investment portfolios. The strong investment performance was further driven by a good year from our equity investment portfolio. This was offset in part by much higher transfers to actuarial reserves, due to the lower interest rates at the end of the year, resulting in overall growth in net profit from the business of 14% to HK$252 million in the year. Management will strive to make improvements on the core profit drivers of our life and general insurance operations in Hong Kong and Macau, with an objective to enhance returns on capital over time. BANKING OPERATIONS % 11% 21.5% The financial results of DSBG for 2014 were satisfactory, with a profit attributable to shareholders increasing by 15.8% to HK$2,034 million, a record for DSBG, producing a return of 11% on average shareholders funds. Overall, the performance of our wholly-owned businesses was encouraging. Excluding the contribution from Bank of Chongqing ( BOCQ ), profit attributable to shareholders increased by 21.5% to HK$1,431 million, reflecting the continued improvement in the core earnings of the banking businesses that we own and operate. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

19 GROUP GENERAL MANAGER S STATEMENT Mr. Eddie Lau, Executive Director and Head of Commercial Banking Division (Standing: 1st from right) received the award of Best SME Partner Award by Hong Kong General Chamber of Small and Medium Business. BANKING OPERATIONS (Continued) % % III An important management objective is to achieve a satisfactory return on capital in the long term, whilst maintaining strong capital and liquidity ratios as we grow our core banking businesses. While we have improved the return on capital to 11% in 2014 from 7.7% in 2011, in spite of an enlarged capital base further to the completion of the rights issue in 2014, we would caution that generating an attractive return on capital will be more difficult in the next few years. The phasing in of capital requirements pursuant to Basel III should see to that, unless banks in general are able to capture better margins from the products and services provided. While prospects for 2015 indicate a lower growth in business volumes given the slowdown in the Mainland economy, there remain opportunities in those areas of our core banking businesses that have performed well for the Group since We will continue to make investments in our key businesses for the longer term. As explained in my letter last year, the basic banking business is easy to understand but difficult to execute well. We have strived to maintain our focus on the key banking tenets to drive profitability including our deposit franchise, risk-adjusted returns from a diversified portfolio of loans and assets, non-interest income from serving our customers, and prudent management of our risks and costs. Amidst the increased complexity of rules and regulations in financial services, it is important for our colleagues not to lose sight of the simple banking tenets, which continue to be the foundations of our business strategy. 18

20 GROUP GENERAL MANAGER S STATEMENT BANKING OPERATIONS (Continued) % % % 1.76% 7.7% % %2014 Despite the intense competition in the markets in which we operate, we are pleased to report an overall satisfactory performance in our key profit drivers, including the following: Net interest income was up by 6.9% from HK$2,797 million to HK$2,990 million due primarily to a growth in volumes. Net fee and commission income increased by 18.5% from HK$702 million to HK$832 million driven largely by improvements in wealth management, bancassurance, securities brokerage and treasury related businesses, as well as general banking fees. Net interest margin narrowed slightly from 1.79% to 1.76% during the year but broadly held up in spite of higher deposit costs and risk aversion in loan underwriting in view of the challenging credit conditions in the Mainland. Managing expenses and keeping costs under control are vitally important in banking. Managing expenses well means that every dollar we spend should be aligned with our strategy and priorities. This ought to ensure that we are spending money in our key business areas, investing in the right technologies and products, and focusing on our customers as well as our people. In spite of the considerable pressure of cost increases and the need to invest for growth in our core businesses, our operating expenses were contained to an increase of 7.7%. This was moreover outpaced by the increase of 9.1% in operating income from HK$3,817 million to HK$4,165 million (indicating the effects of positive jaws ), which helped to reduce slightly our cost-to-income ratio to 51.1% in However, while the quantum in cost increase was satisfactory in 2014, we need to work smarter and harder to ensure that our spending is deployed effectively in line with our strategy. We believe that managing expenses and resources, if done well, should allow us to realize benefits as our business scale grows over time without diminishing customer experiences or increasing operational risk. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

21 GROUP GENERAL MANAGER S STATEMENT BANKING OPERATIONS (Continued) % A clear blemish during the year was an increase in loan impairment losses and other credit provisions from HK$310 million to HK$473 million, due primarily to an increase in Mainland related delinquent loans. While credit conditions in the Mainland deteriorated along with the slowdown in the economy, it is nonetheless disappointing that we suffered from delinquencies, and we must learn the lessons and improve on underwriting in Mainland related lending going forward. However, credit conditions in our core Hong Kong and Macau markets remained benign, and overall the impaired loan ratio stood at a healthy level of 0.35%. As banking is a risk management business, prudent credit underwriting will continue to be an area of important focus for the management team and our Group. 6 24% 21% %16.95% BOCQ continued to perform well with a contribution of HK$602 million for the year, an increase of 4% over the prior year, a lesser percentage increase than the 21% increase in the underlying earnings growth of BOCQ, due to the dilution of our interest from 20% to 16.95% in BOCQ subsequent to its IPO in late We continued to account for the earnings of BOCQ on the basis that it is an associate of our Group. Unlike the businesses that we own and operate, where items relating to revenue and expense are included in our financial statements, only our proportionate share of net profit of BOCQ is included (as an associate) via a one-line entry in our consolidated income statement. However, whether or not we account for BOCQ as an associate, the value to its shareholders (including our Group) of the earnings and capital of BOCQ is determined by the use to which they are put and the subsequent level of earnings produced by that usage. That value is therefore determined by BOCQ and is not affected by the inclusion or non-inclusion of the share of such earnings in our own reported profit for the year. 20

22 GROUP GENERAL MANAGER S STATEMENT BANKING OPERATIONS (Continued) CAR 16.3% CET % 45.3% % 2011 The growth in earnings, coupled with the relatively modest loan growth during the year, contributed to an improvement in our capital ratios, further to the completion of the Group s rights issue during the second quarter of As at 31 December 2014, our total capital adequacy ratio ( CAR ) was 16.3% and our CET1 1 was 11.4%. We will need to further sharpen our discipline to generate an adequate return from the capital deployed on our loans and assets, as we strive to improve our profitability and further strengthen our capital base over time. We maintained an unvaryingly strong liquidity position, with a liquidity ratio of 45.3% in the year and a loan to deposit ratio of 70.8% at the end of Most of our funding is from customer deposits, which quality we have worked hard to improve over the past few years, with the goal of increasing the share of lower cost deposits through a deeper, more transactional relationship with our customers. We introduced a set of core values and guiding principles for the Group along with our medium term strategy in 2011, with the objective to guide and align the actions of our people at work. Moreover, we emphasize the qualities of energy, intelligence and integrity in our people, who are key to our Group s ability to create value for both our customers and shareholders. We are delighted that the efforts of our people were recognized by the market, with a number of awards received during the year in different areas of our business. Celebration of the 10th anniversary of our Graduate Trainee Programme. 1 1 Common Equity Tier 1 capital DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

23 GROUP GENERAL MANAGER S STATEMENT BANKING OPERATIONS (Continued) I want to thank all of our stakeholders our customers, communities, colleagues and shareholders for helping make 2014 a good year for both DSFH and DSBG. In particular, full credit goes to the leaders of Dah Sing Bank in Hong Kong, including the management of our Commercial Banking, Personal Banking and Treasury businesses, and BCM in Macau, who have been ably supported by our support divisions, for the performance and earnings of these businesses which contributed meaningfully to our Group s results in It has been a privilege to lead the Group and serve you our shareholders as our performance has improved steadily over the past few years. Harold Tsu-Hing Wong Group General Manager Hong Kong, 25 March

24 REVIEW OF OPERATIONS FINANCIAL HIGHLIGHTS The highlights of the Group s consolidated financial performance for the year are summarised in the table below: Variance HK$ Million Operating profit before impairment losses 2, , % Operating profit after impairment losses 1, , % Profit before taxation 2, , % Profit for the year 2, , % Profit attributable to shareholders 1, , % Total assets 201, , % Total liabilities 177, , % Shareholders funds 19,045 16, % Net interest income/operating income 71.2% 74.4% Cost to income ratio 51.7% 52.7% Return on average total assets 0.9% 0.9% Return on average shareholders funds 9.7% 9.3% FINANCIAL REVIEW % 9.7% 2014 was a satisfactory year for the Group, with 15% growth in core profit attributable to shareholders to a record level of HK$1,727 million. The key drivers were strong growth in net fee and commission income and trading income, and overall operating income growth running ahead of the increase in expenses for the year. With a steady contribution from the Bank of Chongqing ( BOCQ ) and higher loan impairment charges, the improved performance resulted in a higher return on equity, reaching 9.7% for the first time since the financial crisis. 7.4% % 16.3% Business conditions remained fairly stable in Hong Kong and Macau, whilst our Mainland China business reported higher credit costs in part due to the continued slowdown in the Mainland China economy. Loan growth slowed in the second half of the year, with full year loan growth at 7.4%, somewhat slower than in the prior year. As a result of the completion of the Group s rights issue during the second quarter of 2014, coupled with the growth in earnings, and relatively modest loan growth during the year, there was an improvement in our capital ratios. As at 31 December 2014, our Banking Group s consolidated Common Equity Tier 1 ( CET1 ) Capital ratio was 11.4% and the overall Capital Adequacy Ratio was 16.3%. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

25 REVIEW OF OPERATIONS FINANCIAL REVIEW (Continued) 16% 4% 2013 Our Banking Business reported growth in earnings of 16%, a little ahead of our Group level earnings growth, due to a strong performance from our Hong Kong and Macau businesses. Our share of the earnings of BOCQ grew by 4%, a slower pace of growth than we have experienced in the recent past, mainly due to the dilution of our shareholding since late 2013, when BOCQ completed its IPO in Hong Kong. 14% Our Insurance Business reported steady growth in overall premium income, and higher investment income, due mainly to appreciation of both bond and equity prices during the year. This was offset in part by much higher transfers to actuarial reserves, due to the lower interest rates at the end of the year, resulting in overall growth in net profit from the business of 14% In 2014, we continued to build on the platform that we had established in 2013, with encouraging results, although it is notable that growth in the second half of the year was slower than that in the first half. Whilst the slowing Mainland economy has impacted our business, with higher credit costs experienced, to date the credit quality of our Banking Business remains strong and credit costs manageable in relation to the scale of our overall business. 10.6% 13% 7.4% 5.6% 15.2% 4.1% All our core revenue lines achieved growth, with 10.6% growth in total operating income, and 13% growth in overall pre-provision operating income, despite more modest volume growth, with loans and advances to customers increasing by 7.4%. Despite higher credit costs attributable to Mainland China exposures in our subsidiary in China, operating profit after impairment losses increased by 5.6%. We reported disposal gains on securities investments during the year, which contributed to growth in profit attributable to shareholders of 15.2%. The profit contribution from our associate BOCQ increased modestly by 4.1% % % Net interest income grew by 6% from HK$3,108 million to HK$3,293 million due mainly to growth in volumes offset slightly by a small decrease in net interest margin. Net fee and commission income increased by 20% from HK$622 million to HK$746 million and net trading income increased substantially from HK$83 million to HK$782 million due to much higher fair value gains in our insurance investment portfolio. The increase in fee income was driven largely by improvements in wealth management and bancassurance revenues, increases in our sales of treasury products to customers, securities services and general banking related fees. 24

26 REVIEW OF OPERATIONS FINANCIAL REVIEW (Continued) 35% Net insurance premium and other insurance income increased by 35% to HK$2,239 million. 10.6%8.5% We reported an overall increase in operating income net of insurance claims by 10.6%, slightly ahead of the increase in operating expenses of 8.5% Loan impairment losses and other credit provisions increased from HK$310 million to HK$473 million. Whilst credit conditions in our core Hong Kong market declined modestly and Macau remained benign, we experienced a further increase in credit cost overall due to a small number of Mainland and Mainland related loans during the year % 21% % 16.95% Our associated company BOCQ continued to perform well with a contribution of HK$602 million for the year, an increase of 4% over the prior year. BOCQ recorded a strong profit growth of 21%. The lower growth rate on our share of BOCQ net profit was due to the dilution of our interest from 20% to 16.95% when BOCQ was listed in November % % Our Insurance Business reported a strong increase in net premium and other insurance income, mainly supported by an increase in renewal premiums, and also a strong increase in the value of the inforce long-term insurance policies (vs a net decrease recorded in 2013). New business volumes were however lower than the prior year, due mainly to the migration towards selling products with higher value but lower sales volume by our bancassurance business, while the new business sales of our agency force in the year were similar to Due to the decline in long term interest rates during the year, we experienced a substantial fair value gain on the bond portfolio of our insurance investment portfolios, as well as a good performance from our insurance equity investment portfolio. This drove very strong investment performance, with an increase year on year of 350% to HK$819 million. However, this was offset in part by much higher transfers to reserves, again as a result of the decline in long term bond yields during the year, and the need to hold higher actuarial reserves against the higher liabilities to policyholders. As a whole, our Insurance Business recorded a 14% increase in net profit to HK$252 million in the year. 2, % % Total assets of the Group reached HK$201.4 billion, an increase of 11% over Shareholders funds as of 31 December 2014 stood at HK$19 billion, up 14% in DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

27 REVIEW OF OPERATIONS BANKING BUSINESS Variance Net interest margin 1.76% 1.79% HK$ Million Operating income 4, , % Operating profit before impairment losses 2, , % Operating profit after impairment losses 1, , % Profit before taxation 2, , % Profit for the year 2, , % Profit attributable to shareholders 2, , % Advances to customers 105,230 97, % Customers deposits 142, , % Certificates of deposit issued 6,110 6, % Total deposits 148, , % Issued debt securities % Subordinated notes 5,432 3, % Loan (excluding trade bills) to deposit (including certificates of deposit issued) ratio 70.8% 72.1% Cost to income ratio 51.1% 51.8% % 11.0% 51.8% 51.1% In 2014, our banking business reported its highest ever core profit and generated a strong improvement in earnings relative to Dah Sing Banking Group s ROE continued to improve, up from 10.8% to 11.0%, and the cost to income ratio reduced from 51.8% to 51.1%. 7%19% 9% Growth in all core revenue lines was satisfactory during the year. Net interest income was up by 7%, due to growth in average assets, offset by contraction in net interest margin. Net fee and commission income increased by 19% driven largely by improvements in wealth management and bancassurance revenues, increases in our sales of treasury products to customers, securities services, credit card and general banking related fees. Net trading income increased by 9% % % Operating income improved by 9.1% from HK$3,817 million to HK$4,165 million, ahead of the increase in operating expenses of 7.7%. 26

28 REVIEW OF OPERATIONS BANKING BUSINESS (Continued) Loan impairment losses and other credit provisions increased from HK$310 million to HK$473 million, mainly caused by Mainland and Mainland related loans over the year % 11.4%2013 1% III As at 31 December 2014, Dah Sing Bank s ( DSB ) consolidated total capital adequacy ratio was 16.3%, and its consolidated CET1 ratio was 11.4%, more than 1% higher than the levels at the end of The improvement was driven largely by the impact of the rights issues of DSFH and DSBG, and the subsequent HK$1.2 billion equity injection to DSB, and completion of a new issue of Basel III compliant Tier 2 subordinated debt of US$225 million in early 2014, whilst profit retention by DSB in the year also contributed to boost our capital ratios was the third full financial year in which we implemented the medium term strategy adopted by the Board in 2011, with a focus on profitability and balance sheet management, core products, customers, service quality, credit risk management, cost control and overall efficiency, and the development of our Mainland China and cross-border businesses, in addition to our core Hong Kong hub. We are encouraged by the results of the strategy implementation in the past three years, both in terms of our financial performance and the progress achieved to date to further improve our prospects and financial strength in the medium term. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT

29 REVIEW OF OPERATIONS HIGHLIGHT OF BUSINESS PERFORMANCE Personal Banking % Our Personal Banking business, serving the consumer finance, vehicle finance, retail banking, VIP banking and private banking market segments, achieved an encouraging increase in net profit in Despite higher loan impairment provisions, mainly due to higher volumes of unsecured consumer lending, the operating profit after impairment losses of our Personal Banking business increased by 16% when compared with 2013, with broad based fee income growth and improved asset yields. 34% % Wealth Management income grew by 34%, driven by expansion of our wealth management activities including unit trust sales, securities brokerage and insurance sales. Focus was placed on the higher value VIP banking segment, which contributed a significant portion of the total income during the year. In 2014, we further upgraded our VIP Banking platform, launching new currency-linked products and enhanced services such as investment seminars, FX market updates and a quarterly investment newsletter. We also continued our efforts to expand and upgrade our retail securities services, with encouraging results: securities fee income increased by 36% when compared with As of the end of 2014, we had a total of 35 retail securities centres in our branch network. Towards the year end, we were one of the first-batch of banks to launch the Shanghai-Hong Kong Stock Connect securities service Our efforts in wealth management services were recognized by various awards, including Outstanding Brand Award Wealth Management Services by Economic Digest 2014, Excellent Brand of Mobile Securities Services, Banking Service and Excellent Brand of On-line Securities Services, Banking Service of Hong Kong Leaders Choice by Metro Broadcast, Outstanding Financial Management Planner Award by Hong Kong Institute of Bankers and IFPHK Accredited Professional Financial Planning Award by Institute of Financial Planners of H.K. 6% Loan growth in the Personal Banking segment in the year was up modestly by 6%, with a similar level of increase in net interest income. 28

30 REVIEW OF OPERATIONS HIGHLIGHT OF BUSINESS PERFORMANCE (Continued) Personal Banking (Continued) Building our current/savings accounts balances was another important focus during the year. We launched our YOU Banking service targeting customers using on-line and mobile channels for banking transactions, and we also rolled out DSB s Mobile Banking App and Facebook page. We promoted our personal loan products during the year, with efforts in enhancing efficiency for customers to gain access to credit needs by launching the first-in-market online personal loan application and credit checking service. We also extended other banking services to personal loan customers, via Tax Loan bundling with deposit offers. TV advertising and other promotion activities were employed to enhance market awareness of our personal loan offering. The marketing campaign in the year was effective in generating new business and gained good market recognition with the awards of Excellent Brand of Bank Personal Loan by Metro Broadcast and Outstanding Personal Loan Banking Service Award by CAPITAL magazine. ONE+ ONE+ m-wallet In the credit card segment, we launched our ONE+ Credit Card, with the associated ONE+ mobile app. We also launched a digital m-wallet employing Near Field Communications technology to enable customers to pay with smart phones. The asset quality of our retail lending portfolio remained benign, with the loan delinquency rate and loan loss rate staying at relatively low levels. The increase in the loan impairment charges was mainly due to increases in the volume of unsecured personal loans of both DSB and our consumer finance subsidiary, OK Finance We continued our branch network upgrade programme with the objective to improve our services and offer better customer experience. At the end of 2014, our branch network included 46 retail branches in Hong Kong under the name of Dah Sing Bank, with 20 VIP Centres and 35 Securities Centres. An additional five branches operate under the OK Finance brand. DAH SING FINANCIAL HOLDINGS LIMITED ANNUAL REPORT