Quality Solutions We at BEA keep close watch on market trends, delivering solutions that cater to the ever-changing needs of our customers. We offer a

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1 Report of the Directors (continued) 48 The Bank of East Asia, Limited Annual Report 2004

2 Quality Solutions We at BEA keep close watch on market trends, delivering solutions that cater to the ever-changing needs of our customers. We offer a full range of tailormade retail and wholesale banking solutions that ensure an exceptional banking experience

3 REPORT Report of the Directors OF (continued) THE DIRECTORS The Directors have pleasure in presenting their annual report together with the audited accounts for the year ended 31st December, PRINCIPAL ACTIVITIES The Bank and its subsidiaries (the Group ) are engaged in the provision of banking and related financial services, and business, corporate and investor services. PROFIT The consolidated profit of the Group for the year ended 31st December, 2004, together with particulars of the appropriations that have been made therefrom or that are recommended, and the state of the Bank s and the Group s affairs as at that date are set out in the accounts on pages 70 to 138. MAJOR CUSTOMERS The Directors believe that the five largest customers of the Group accounted for less than 30% of the total of interest income and other operating income of the Group for the year. DONATIONS Donations made by the Group during the year for charitable and community purposes amounted to approximately HK$2,043,000 (2003: HK$3,881,000). FIXED ASSETS Details of the movements in fixed assets are set out in Note 26 on the accounts. SHARE CAPITAL During the year, a sum of HK$33,203,000 standing to the credit of the share premium account was capitalised and applied in paying up in full at par 13,281,026 shares of HK$2.50 each that were allotted and issued to shareholders who had elected to receive new shares in lieu of the 2003 final dividend and the 2004 interim dividend. During the year, 11,264,000 shares of HK$2.50 each were issued for cash of HK$172,389,000 on the exercise of options granted under the approved Staff Share Option Schemes. DEALINGS IN LISTED SECURITIES OF THE BANK There was no purchase, sale or redemption by the Bank, or any of its subsidiaries, of listed securities of the Bank during the year ended 31st December, DIRECTORS The present Directors of the Bank are shown on page 42. TAN Man-kou was appointed an Independent Non-executive Director of the Bank on 1st December, He, being eligible, offers himself for re-election at the Annual General Meeting to be held on Friday, 8th April, 2005 ( 2005 AGM ). In accordance with the Articles of Association of the Bank, all Directors, including Non-executive Directors, are subject to retirement by rotation and re-election at the annual general meeting. Accordingly, LI Fook-wo, Joseph PANG Yuk-wing, Thomas KWOK Ping-kwong and Richard LI Tzar-kai will retire and, being eligible, offer themselves for re-election at the 2005 AGM. No Director proposed for re-election at the 2005 AGM has an unexpired service contract that is not determinable by the Bank or any of its subsidiaries within one year without payment of compensation, other than normal statutory obligations. No contracts of significance to which the Bank or any of its subsidiaries was a party and in which a Director of the Bank had a material interest subsisted at the end of the year or at any time during the year. None of the Directors of the Bank is interested in any business apart from the Bank s business that competes or is likely to compete, either directly or indirectly, with the Bank s business. At no time during the year was the Bank or any of its subsidiaries a party to any arrangement to enable the Directors or Chief Executive of the Bank or their spouses or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Bank or any other body corporate with the exception of the Staff Share Option Schemes, details of which are set out in the following section under the heading Information on Share Options, and Notes 2(p)(iv) and 37 on the accounts. 50 The Bank of East Asia, Limited Annual Report 2004

4 % 2,043, ,881, ,203,000 13,281, ,264, ,389, (p)(iv) 37 18

5 Report of the Directors (continued) The Bank has received independence confirmation from the Independent Non-executive Directors, namely: WONG Chunghin, LEE Shau-kee, Allan WONG Chi-yun, Winston LO Yau-lai, Thomas KWOK Ping-kwong and TAN Man-kou, and considers them to be independent. The Chairman received HK$200,000 and each of the other Directors, including the Independent Non-executive Directors, received HK$100,000, as directors fees for the year ended 31st December, The fee to the Director who was appointed during the year was paid in accordance with his length of service. AUDIT COMMITTEE The composition of the Audit Committee is shown on page 42. TAN Man-kou was appointed as a member of the Audit Committee on 1st December, All the members are Independent Non-executive Directors. The Audit Committee is responsible for reviewing the financial controls, internal control and risk management systems, annual report and accounts, and half-year report. All issues raised have been addressed by management. The work and findings of the Committee have been reported to the Board. During the year, no issues brought to the attention of management and the Board were of sufficient importance to require disclosure in the Annual Report. The Audit Committee met three times during Winston LO Yau-lai and Allan WONG Chi-yun attended all three meetings; WONG Chung-hin and Thomas KWOK Ping-kwong attended two meetings each; TAN Man-kou attended one meeting (the only meeting held following his appointment to the Audit Committee). The Chairman received HK$20,000 and each of the other members of the Audit Committee received HK$10,000 as remuneration for the year ended 31st December, The Nomination Committee is responsible for recommending to the Board all new appointments of Directors, senior management and key personnel of the Bank, and for review of management succession planning for senior management and key personnel of the Bank. No remuneration was paid to the Chairman or members of the Nomination Committee for the year ended 31st December, REMUNERATION COMMITTEE The Remuneration Committee is chaired by Allan WONG Chiyun. The other members are Simon LI Fook-sean, Aubrey LI Kwok-sing, Winston LO Yau-lai and Thomas KWOK Ping-kwong. The Remuneration Committee is responsible for making recommendations to the Board regarding the Bank s remuneration policy, and for the formulation and review of the specific remuneration packages of all Executive Directors and senior management of the Bank. The Chairman received HK$20,000 and each of the other members of the Remuneration Committee received HK$10,000 as remuneration for the year ended 31st December, OTHER COMMITTEES There are ten other specialised committees formed under the Board, namely: Sealing Committee, Executive Committee, Risk Management Committee, Credit Committee, Asset and Liability Management Committee, Operational and Other Risks Management Committee, Investment Committee, Policy Committee, Crisis Management Committee and Steering Committee for the Basel Project. The roles, functions and composition of these committees are disclosed in Part (6) of Unaudited Supplementary Financial Information. NOMINATION COMMITTEE The Nomination Committee is chaired by Simon LI Fook-sean. The other members are David LI Kwok-po, LI Fook-wo, LEE Shaukee, Allan WONG Chi-yun and Aubrey LI Kwok-sing. 52 The Bank of East Asia, Limited Annual Report 2004

6 200, , ,000 10, ,000 10,

7 Report of the Directors (continued) DIRECTORS AND CHIEF EXECUTIVE S INTERESTS As at 31st December, 2004, interests and short positions of the Directors and Chief Executive in the shares, underlying shares and debentures of the Bank or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO )) disclosed in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) were as follows: I. Long positions in shares of the Bank % of issued Name Capacity and nature No. of shares Total share capital David LI Kwok-po Beneficial owner 19,742,844 Interest of spouse 647,600 20,390, LI Fook-wo Beneficial owner 1,235,804 Founder of discretionary trust 30,955,378 32,191, WONG Chung-hin Beneficial owner 46,810 Interest of spouse 344, , LEE Shau-kee Beneficial owner 647,985 Interest of corporation 1,000,000 1,647, Simon LI Fook-sean Beneficial owner 894,000 Interest of spouse 3,152,800 Founder of discretionary trust 43,405,385 47,452, Allan WONG Chi-yun Interest of spouse 124 Founder of discretionary trust 10,482,901 10,483, Aubrey LI Kwok-sing Beneficial owner 23,391 Interest of spouse 34,154 Beneficiary of discretionary trust 30,955,378 31,012, Joseph PANG Yuk-wing Beneficial owner 349, , William MONG Man-wai Beneficial owner 807,693 Interest of corporation 5,242,661 6,050, CHAN Kay-cheung Beneficial owner 348, , Winston LO Yau-lai Trustee of trust 258, , KHOO Kay-peng Interest of corporation 1,000,000 1,000, Thomas KWOK Ping-kwong Nil Nil Richard LI Tzar-kai Nil Nil TAN Man-kou Nil Nil 54 The Bank of East Asia, Limited Annual Report 2004

8 XV I. 19,742, ,600 20,390, ,235,804 30,955,378 32,191, , , , ,985 1,000,000 1,647, ,000 3,152,800 43,405,385 47,452, ,482,901 10,483, ,391 34,154 30,955,378 31,012, , , ,693 5,242,661 6,050, , , , , ,000,000 1,000,

9 Report of the Directors (continued) Notes: 1 David LI Kwok-po was the beneficial owner of 19,742,844 shares and he was deemed to be interested in 647,600 shares through the interests of his spouse, Penny POON Kam-chui. 2 LI Fook-wo was the beneficial owner of 1,235,804 shares. The remaining 30,955,378 shares were held by The Fook Wo Trust, of which LI Fook-wo was the founder, but he had no influence on how the trustee exercised his discretion. The disclosure of these 30,955,378 shares was made on a voluntary basis. Aubrey LI Kwok-sing was also interested in this same block of 30,955,378 shares as one of the discretionary beneficiaries of the trust (please refer to note 7 below). 3 WONG Chung-hin was the beneficial owner of 46,810 shares and he was deemed to be interested in 344,131 shares through the interests of his spouse, LAM Mei-lin. 4 LEE Shau-kee was the beneficial owner of 647,985 shares. LEE Shau-kee was deemed to be interested in 1,000,000 shares held through Superfun Enterprises Limited ( Superfun ). Superfun was wholly owned by The Hong Kong and China Gas Company Limited, which was 36.91% held by Henderson Investment Limited, which in turn was 73.48% held by Kingslee S.A., a wholly-owned subsidiary of Henderson Land Development Company Limited ( Henderson Land ). Henderson Land was 61.87% held by Henderson Development Limited ( Henderson Development ). Hopkins (Cayman) Limited ( Hopkins ) as trustee of a unit trust (the Unit Trust ) owned all the issued ordinary shares of Henderson Development. Rimmer (Cayman) Limited ( Rimmer ) and Riddick (Cayman) Limited ( Riddick ), as trustees of respective discretionary trusts, held units in the Unit Trust. The entire issued share capital of Hopkins, Rimmer and Riddick were owned by LEE Shau-kee. 5 Simon LI Fook-sean was the beneficial owner of 894,000 shares and he was deemed to be interested in 3,152,800 shares through the interests of his spouse, YANG Yen-ying. The remaining 43,405,385 shares were held by two discretionary trusts, Settlement of Dr. Simon F.S. Li and The Longevity Trust, of which Simon LI Fook-sean was the founder, but he had no influence on how the trustee exercised his discretion. The disclosure of these 43,405,385 shares was made on a voluntary basis. 6 Allan WONG Chi-yun was deemed to be interested in 124 shares through the interests of his spouse, Margaret KWOK Chi-wai. He was also deemed to be interested in 10,482,901 shares held by a discretionary trust, The Wong Chung Man 1984 Trust, of which Allan WONG Chi-yun was a founder. 7 Aubrey LI Kwok-sing was the beneficial owner of 23,391 shares and he was deemed to be interested in 34,154 shares through the interests of his spouse, Elizabeth WOO. The remaining 30,955,378 shares were held by The Fook Wo Trust, a discretionary trust in which Aubrey LI Kwok-sing was one of the discretionary beneficiaries. LI Fook-wo had also made disclosure in respect of the same block of 30,955,378 shares as founder of the discretionary trust (please refer to note 2 above). 8 William MONG Man-wai was the beneficial owner of 807,693 shares. Of the remaining 5,242,661 shares, (i) 4,502,798 shares were held through Shun Hing Electronic Trading Co. Ltd., (ii) 668,323 shares were held through Shun Hing Technology Co. Ltd., and (iii) 71,540 shares were held through Shun Hing Advertising Co. Ltd. Such corporations are accustomed to act in accordance with the directions or instructions of William MONG Man-wai, who is the Chairman of these corporations. 9 Winston LO Yau-lai was deemed to be interested in 258,390 shares that were held by K.S. Lo Foundation of which he was a trustee. 10 KHOO Kay-peng was deemed to be interested in 1,000,000 shares that were held through Bonham Industries Limited, a company beneficially owned by him. 56 The Bank of East Asia, Limited Annual Report 2004

10 1 19,742, , ,235,804 30,955,378 The Fook Wo Trust 30,955,378 30,955, , , ,985 Superfun Enterprises Limited Superfun1,000,000 Superfun Kingslee S.A % 36.91% Kingslee S.A % Hopkins (Cayman) Limited Hopkins Rimmer (Cayman) Limited Rimmer Riddick (Cayman) Limited RiddickHopkins Rimmer Riddick 5 894,000 3,152,80043,405,385 Settlement of Dr. Simon F.S. Li The Longevity Trust 43,405, The Wong Chung Man 1984 Trust 10,482, ,391 34,15430,955,378 The Fook Wo Trust 30,955, ,693 5,242,661 (i) 4,502,798(ii) 668,323 (iii) 71,540 9 K.S. Lo Foundation K.S. Lo Foundation 258, Bonham Industries Limited 1,000,

11 Report of the Directors (continued) II. Long positions in (in respect of equity derivatives) underlying shares of the Bank Share options, being unlisted physically settled equity derivatives, to subscribe for the ordinary shares of the Bank were granted to David LI Kwok-po, Joseph PANG Yuk-wing and CHAN Kay-cheung pursuant to the approved Staff Share Option Schemes. Information in relation to these share options during the year ended 31st December, 2004 is shown in the following section under the heading Information on Share Options. III. Interests in debentures of the associated corporation of the Bank Name Issuer Capacity and nature Amount of debentures Total Simon LI Fook-sean East Asia Financial Beneficial owner US$1,000,000 Holding (BVI) Limited Founder of discretionary trust US$1,000,000 US$2,000,000 Note: Simon LI Fook-sean was the beneficial owner of the debentures of East Asia Financial Holding (BVI) Limited ( EAFH (BVI) ) in the amount of US$1,000,000 and he was deemed to be interested in the debentures of EAFH (BVI) in the amount of US$1,000,000 held by a discretionary trust, Settlement of Dr. Simon F.S. Li, of which Simon LI Fook-sean was the founder, but he had no influence on how the trustee exercised his discretion. The disclosure of the US$1,000,000 debentures held by the discretionary trust was made on a voluntary basis. Save as disclosed above, as at 31st December, 2004, under Part XV of the SFO, none of the Directors or the Chief Executive of the Bank had, nor were they taken to or deemed to have, any interests or short positions in the shares, underlying shares or debentures of the Bank or any of its associated corporations (within the meaning of Part XV of the SFO) or any interests that are required to be entered into the register kept by the Bank pursuant to section 352 of the SFO or any interests that are required to be notified to the Bank and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules. 58 The Bank of East Asia, Limited Annual Report 2004

12 II III. East Asia Financial 1,000,000 Holding (BVI) Limited 1,000,000 2,000,000 1,000,000 East Asia Financial Holding (BVI) Limited EAFH (BVI) Settlement of Dr. Simon F.S. Li 1,000,000 EAFH (BVI) 1,000, XV XV

13 Report of the Directors (continued) INFORMATION ON SHARE OPTIONS Information in relation to share options disclosed in accordance with the Listing Rules was as follows: (1) Movement of share options during the year ended 31st December, 2004: Number of Share Options Date of Outstanding Outstanding Name Grant a At 1/1/2004 Granted Exercised Lapsed at 31/12/2004 David LI Kwok-po 21/4/ , ,000 c Nil 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/2003 1,000,000 1,000,000 22/4/2004 1,000,000 b 1,000,000 Joseph PANG Yuk-wing 21/4/ , ,000 c Nil 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/ , ,000 22/4/ ,000 b 500,000 CHAN Kay-cheung 21/4/ , ,000 c Nil 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/ , ,000 22/4/ ,000 b 500,000 Aggregate of other 21/4/ , ,000 c Nil Employees* 20/4/2000 3,293,000 2,218,000 c 1,075,000 19/4/2001 1,785,000 1,250,000 c 535,000 18/4/2002 1,800, ,000 c 1,145,000 02/5/ ,165,000 6,405,000 c 190,000 6,570,000 22/4/ ,495,000 b 450,000 13,045,000 * Employees working under employment contracts that were regarded as Continuous Contracts for the purpose of the Hong Kong Employment Ordinance. 60 The Bank of East Asia, Limited Annual Report 2004

14 (1) /1/ /12/2004 a 21/4/ , ,000 c 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/2003 1,000,000 1,000,000 22/4/2004 1,000,000 b 1,000,000 21/4/ , ,000 c 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/ , ,000 22/4/ ,000 b 500,000 21/4/ , ,000 c 20/4/ , ,000 19/4/ , ,000 18/4/ , ,000 02/5/ , ,000 22/4/ ,000 b 500,000 21/4/ , ,000 c * 20/4/2000 3,293,000 2,218,000 c 1,075,000 19/4/2001 1,785,000 1,250,000 c 535,000 18/4/2002 1,800, ,000 c 1,145,000 02/5/ ,165,000 6,405,000 c 190,000 6,570,000 22/4/ ,495,000 b 450,000 13,045,000 *

15 Report of the Directors (continued) (2) No share options were cancelled during the year ended 31st December, (3) The accounting policy adopted for share options is set out in Note (2(p)(iv)) on the accounts. Notes: a Particulars of share options: Exercise Price Per Share Date of Grant Vesting Period Exercise Period HK$ 21/4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /5/ /5/ /5/ /5/ /5/ /4/ /4/ /4/ /4/ /4/ b (i) The closing price of the shares of the Bank immediately before 22nd April, 2004 on which the options were granted was HK$ (ii) Value of share options granted during the year ended 31st December, 2004: The Directors consider that it is not appropriate to disclose the value of options granted during the year ended 31st December, 2004, since any valuation of the options would be subject to a number of assumptions that would be subjective and uncertain. The Directors believe that the evaluation of options based upon speculative assumptions would not be meaningful and would be misleading to shareholders. c Annual weighted average ( AWA ) closing price of the shares of the Bank immediately before the date on which the Options were exercised during the year ended 31st December, 2004: Exercise Price No. of Options Per Share AWA Closing Price Date of Grant Exercised HK$ HK$ 21/4/ , /4/2000 2,218, /4/2001 1,250, /4/ , /5/2003 6,405, Save as disclosed above, as at 31st December, 2004, none of the Directors or Chief Executive of the Bank or their spouses or children under 18 years of age were granted or exercised any right to subscribe for any equity or debt securities of the Bank or any of its associated corporations. 62 The Bank of East Asia, Limited Annual Report 2004

16 (2) (3) 2(p)(iv) a 21/4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /5/ /5/ /5/ /5/ /5/ /4/ /4/ /4/ /4/ /4/ b (i) (ii) c /4/ , /4/2000 2,218, /4/2001 1,250, /4/ , /5/2003 6,405,

17 Report of the Directors (continued) INFORMATION ON SHARE OPTION SCHEME The following is a summary of the Staff Share Option Scheme 2002 that was adopted on 26th March, 2002 (the Scheme ) disclosed in accordance with the Listing Rules: 1 Purpose of the Scheme: (a) The Scheme is a share incentive scheme and is established to recognise and acknowledge the contributions that eligible persons had made or may make to the Group. (b) The Scheme will provide the eligible persons with an opportunity to have a personal stake in the Bank with the view to motivating the eligible persons to optimise their performance and efficiency for the benefit of the Group. 2 Participants of the Scheme: The Board may at its discretion grant options to any employees including Executive Directors and Chief Executive of the Group. 3 Total number of shares available for issue under the Scheme and % of issued share capital at 31st December, 2004: The number of shares available for issue under the Scheme is 71,696,959 shares representing 4.81% of the issued share capital at 31st December, Maximum entitlement of each participant under the Scheme: No options may be granted to any eligible persons, which if exercised in full would result in the total number of shares issued and to be issued upon exercise of the share options already granted or to be granted to such eligible person under the Scheme or any other schemes of the Bank (including exercised, cancelled and outstanding share options) in the 12-month period up to and including the date of such new grant exceeding 1% of the issued share capital as at the date of such new grant. Any grant of further options above this limit shall be subject to certain requirements as stipulated in the rules of the Scheme. 5 The period within which the shares must be taken up under an option: Beginning on the first anniversary of the Date of Grant of such options and ending on the fifth anniversary thereof. 6 The minimum period for which an option must be held before it can be exercised: From the Date of Grant of such options up to the day immediately before the first anniversary thereof. 7 The amount payable on application or acceptance of the option and the period within which payments or calls must or may be made or loans for such purposes must be paid: N/A 8 The basis of determining the exercise price: The exercise price is determined by the Directors and being not less than the highest of: (a) the closing price of the Bank s shares in the Stock Exchange s daily quotations sheet on the date of grant of the relevant options; (b) an amount equivalent to the average closing price of the Bank s shares as stated in the Stock Exchange s daily quotation sheets for the 5 business days immediately preceding the date of grant of the relevant options; and (c) the nominal value of the Bank s shares. 9 The remaining life of the Scheme: The Scheme Period will end on 25th March, The Bank of East Asia, Limited Annual Report 2004

18 (a) (b) ,696, % 4 1% (a) (b) (c)

19 Report of the Directors (continued) INTEREST OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS Save as disclosed below, as at 31st December, 2004, the Directors were not aware of any person (other than a Director or Chief Executive of the Bank or his respective associate(s)) who had an interest or short position in the shares or underlying shares of the Bank that would fall to be disclosed to the Bank under Division 2 and 3 of Part XV of the SFO. Long positions in shares of the Bank: Name Capacity and nature No. of shares % on issued share capital East Asia International Trustees Limited Trustee 113,301,397* 7.59 * East Asia International Trustees Limited was deemed to be interested in these 113,301,397 shares held by various trusts of which this company was the trustee. PUBLIC FLOAT As at the date of this Report, the Bank has maintained the prescribed public float under the Listing Rules, based on the information that is publicly available to the Bank and within the knowledge of the Directors. COMPLIANCE (1) In preparing the accounts for 2004, the Bank has fully complied with the guideline set out in the Supervisory Policy Manual Financial Disclosure by Locally Incorporated Authorized Institutions issued by the Hong Kong Monetary Authority. (2) The Bank has complied with the Code of Best Practice as set out in Appendix 14 of the Listing Rules throughout the year ended 31st December, (3) During the year, the Bank established its own code of securities transactions by Directors and Chief Executive ( Own Code ) on terms no less exacting than the required standard set out in Appendix 10 Model Code for Securities Transactions by Directors of Listed Issuers ( Model Code ), of the Listing Rules. Having made specific enquiry of all Directors of the Bank, during the period ended 31st December, 2004 from adoption of the Own Code, Directors of the Bank have complied with the required standard set out in the Model Code and in the Own Code, which is incorporated in the Bank s Policy on Insider Trading Directors and Chief Executive. AUDITORS A resolution for the re-appointment of KPMG as auditors of the Bank is to be proposed at the forthcoming Annual General Meeting. On behalf of the Board David LI Kwok-po Chairman and Chief Executive Hong Kong, 3rd February, The Bank of East Asia, Limited Annual Report 2004

20 XV 2 3 : East Asia International Trustees Limited 113,301,397* 7.59 * East Asia International Trustees Limited 113,301,397 (1) 2004 (2) (3)