CONTENTS Financial Summary 2 Corporate Information 4 Directors and Senior Management s Profi le 6 Chairman s Statement 12 Managing Director and Chief

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2 CONTENTS Financial Summary 2 Corporate Information 4 Directors and Senior Management s Profi le 6 Chairman s Statement 12 Managing Director and Chief Executive s Statement 15 Review of Operations 20 Corporate Governance Report 32 Report of the Directors 55 Consolidated Income Statement 73 Consolidated Statement of Comprehensive Income 74 Consolidated Statement of Financial Position 75 Statement of Financial Position 76 Consolidated Statement of Changes in Equity 77 Consolidated Statement of Cash Flows 79 Notes to the Financial Statements 80 Unaudited Supplementary Financial Information 259 Independent Auditor s Report 285 Major Banking Subsidiaries Lists of Branches 287 DAH SING BANKING GROUP LIMITED ANNUAL REPORT

3 FINANCIAL SUMMARY HK$ Million Shareholders funds 12,335 13,311 15,403 17,050 19,941 Subordinated notes 4,684 3,698 3,979 3,762 5,432 Deposits from customers 97, , , , ,580 Certificates of deposit issued 4,746 3,164 5,753 6,133 6,110 Total deposits 102, , , , ,690 Total liabilities (including subordinated notes) 118, , , , ,372 Advances to customers (excluding trade bills) 71,900 80,867 86,174 97, ,230 Total assets 130, , , , ,328 Profit attributable to shareholders 1,135 1,147 1,480 1,756 2,034 Total dividend distribution HK$ 2 Basic earnings per share (Note 2) Dividends per share Percentage % 3 Loan to deposit ratio (Note 3) 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 Loan to deposit ratio is calculated as the ratio of total advances to customers (excluding trade bills) to total deposits (including certificates of deposit issued). 2

4 FINANCIAL SUMMARY Advances to customers / Total deposits HK$ Million Total assets HK$ Million 150, , , , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,027 71, ,533 80,867 86,174 97, Total deposits 123, , , ,230 % Advances to customers (excluding trade bills) Loan (excluding trade bills) to deposit (including certificates of deposit issued) ratio 0 200, , , , , ,000 80,000 60,000 40,000 20, , , , , , Total assets Shareholders funds HK$ Million Basic earnings per share / Dividends per share HK$ 20, ,000 19, ,000 14,000 15,403 17, ,000 10,000 12,335 13, ,000 6, ,000 2, Shareholders funds Dividends per share Basic earnings per share DAH SING BANKING GROUP LIMITED ANNUAL REPORT

5 CORPORATE INFORMATION DAH SING BANKING GROUP LIMITED BOARD OF DIRECTORS David Shou-Yeh Wong Chairman Hon-Hing Wong (Derek Wong) Vice Chairman Robert Tsai-To Sze Independent Non-Executive Director Andrew Kwan-Yuen Leung Independent Non-Executive Director Seng-Lee Chan Independent Non-Executive Director Yuen-Tin Ng Independent Non-Executive Director Shoji Hirai Non-Executive Director Harold Tsu-Hing Wong Managing Director and Chief Executive Gary Pak-Ling Wang Executive Director AUDIT COMMITTEE Robert Tsai-To Sze Chairman Seng-Lee Chan Yuen-Tin Ng NOMINATION AND REMUNERATION COMMITTEE Robert Tsai-To Sze Chairman Andrew Kwan-Yuen Leung Seng-Lee Chan David Shou-Yeh Wong REGISTERED OFFICE 36th Floor, Dah Sing Financial Centre 108 Gloucester Road, Hong Kong Tel: Fax: S.W.I.F.T.: DSBAHKHH Website: 4

6 CORPORATE INFORMATION FCIS, FCS COMPANY SECRETARY Doris Wai-Nar Wong FCIS, FCS SENIOR MANAGEMENT Nicholas John Mayhew Executive Director of Dah Sing Financial Holdings Limited and Deputy Chief Executive of Dah Sing Bank, Limited Eddie Shing-Tat Lau Executive Director and Alternate Chief Executive of Dah Sing Bank, Limited Phoebe Mei-Chun Wong Executive Director and Alternate Chief Executive of Dah Sing Bank, Limited Vincent Ho-Wing Yau Chief Executive Officer and Director of Dah Sing Bank (China) Limited Eddie Yiu-Fai Kong Chief Executive Officer and Director of Banco Comercial de Macau, S.A. AUDITORS PricewaterhouseCoopers Certified Public Accountants in Hong Kong SOLICITORS Herbert Smith Freehills SHARE REGISTRAR AND TRANSFER OFFICE Computershare Hong Kong Investor Services Limited Shops , 17th Floor, Hopewell Centre 183 Queen s Road East, Wan Chai, Hong Kong SHARE LISTING AND STOCK CODE The Stock Exchange of Hong Kong Limited: 2356 MAJOR BANKING SUBSIDIARIES Dah Sing Bank, Limited Dah Sing Bank (China) Limited Banco Comercial de Macau, S.A. (Please see pages 287 to 292 of this annual report for respective list of branches.) DAH SING BANKING GROUP 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 Financial Holdings Limited ( DSFH ), 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 DSFH. 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 the Company, Vice Chairman of DSB and DSLA, and an Executive Director of the Company s other key operating banking and fellow insurance subsidiaries. Mr. Hon-Hing Wong (Derek Wong) Vice Chairman H 17% 35 Mr. Wong, aged 62, was appointed as the Managing Director of the Company in 2004 and promoted as Vice Chairman in April He was appointed as Director of Dah Sing Financial Holdings Limited ( DSFH ) in 1993 and promoted as its Managing Director in January He joined Dah Sing Bank, Limited ( DSB ), a key operating subsidiary of the Company, in 1977 and has served and managed various departments before appointed as a Director in 1989 and was promoted as its Managing Director in 2000 and Vice Chairman in April He ceased to be a member of the Nomination and Remuneration Committee of both the Company and DSFH 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. 6

8 DIRECTORS AND SENIOR MANAGEMENT S PROFILE 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 Financial Holdings Limited ( DSFH ), 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 DSFH, and 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 DSFH, 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). Mr. Andrew Kwan-Yuen Leung Independent Non-Executive Director Mr. Leung, aged 64, was appointed as an Independent Non-Executive Director of the Company in 2004 and Dah Sing Bank, Limited, a key operating subsidiary of the Company, in He serves as a member of the Nomination and Remuneration Committee of the Company since He is currently a Legislative Councillor (Industrial First), the Honorary President of Federation of Hong Kong Industries and Textile Council of Hong Kong, and a Council Member of the Hong Kong Trade Development Council. He is also a Director of The Hong Kong Mortgage Corporation Limited, and an Independent Non-Executive Director of China South City Holdings Limited, CN Innovations Holdings Limited and Harbour Centre Development Limited. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

9 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Seng-Lee Chan Independent Non-Executive Director Mr. Chan, aged 68, was appointed as an Independent Non-Executive Director of the Company in August 2008 upon his retirement in June 2008 as the Chief Executive Officer of Heidelberg China Limited. He serves as a member of the Audit Committee and the Nomination and Remuneration Committee of the Company since May He is an Independent Non-Executive Director of Dah Sing Bank, Limited, a key operating subsidiary of the Company, and was appointed in May Mr. Chan has over 40 years of experience primarily in the Print Media Industry and with a sound knowledge of the Asian markets, particularly in China. Mr. Yuen-Tin Ng Independent Non-Executive Director Mr. Ng, aged 63, was appointed as an Independent Non-Executive Director and a member of the Audit Committee of the Company in April He is also an Independent Non-Executive Director of Dah Sing Bank, Limited ( DSB ) and Dah Sing Bank (China) Limited (the Company s banking subsidiaries), appointed in October 2012 and February 2013 respectively. He serves as a member of the Risk Management and Compliance Committee of DSB since May Mr. Ng is also an Independent Non-Executive Director of Chinney Alliance Group Limited, a public company listed in Hong Kong. Mr. Ng is an Associate of The Chartered Institute of Bankers (UK) and a Fellow and an honorary advisor of The Hong Kong Institute of Bankers. Mr. Ng has 40 years of extensive experience in banking and financial industry with a focus on the corporate and institutional banking business management for the last 12 years prior to his retirement from Hang Seng Bank Limited in Mr. Shoji Hirai Non-Executive Director UFJ BTMU Nominees (HK) Limited 2011 UFJ UFJ 25 Mr. Hirai, aged 49, was appointed as a Non-Executive Director of the Company in August He is currently Deputy General Manager of The Bank of Tokyo-Mitsubishi UFJ, Ltd. ( BTMU ) Hong Kong Branch and a Director of BTMU Nominees (HK) Limited. He served and managed various divisions in BTMU before appointed as General Manager of Hongqiao Sub-Branch of Bank of Tokyo-Mitsubishi UFJ (China), Ltd. Shanghai Branch in Mr. Hirai has over 25 years of extensive experience in corporate banking, as well as corporate planning. 8

10 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Harold Tsu-Hing Wong Managing Director and Chief Executive Mr. Wong, aged 45, was appointed as an Executive Director of the Company in 2004 and promoted as the Managing Director and Chief Executive in April He 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 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 Dah Sing Financial Holdings Limited. 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 Financial Holdings 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 BANKING GROUP LIMITED ANNUAL REPORT

11 DIRECTORS AND SENIOR MANAGEMENT S PROFILE SENIOR MANAGEMENT Mr. Nicholas John Mayhew Executive Director of Dah Sing Financial Holdings Limited and Deputy Chief Executive of Dah Sing Bank Mr. Mayhew, aged 47, joined Dah Sing Financial Holdings Limited ( DSFH ) in 1998 and is currently an Executive Director of DSFH, 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. Eddie Shing-Tat Lau Executive Director and Alternate Chief Executive of Dah Sing Bank Mr. Lau, aged 52, joined Dah Sing Bank, Limited ( DSB ), a key operating subsidiary of the Company, in He was appointed as an Executive Director of DSB in May 2012 and an Alternate Chief Executive of DSB in May He is currently the Head of Commercial Banking Division, responsible for overseeing and supervising commercial banking business. He is also a committee member of SME Standing Committee of The Chinese Manufacturers Association of Hong Kong in Mr. Lau has over 25 years of experience in commercial banking. Ms. Phoebe Mei-Chun Wong Executive Director and Alternate Chief Executive of Dah Sing Bank Ms. Wong, aged 48, joined Dah Sing Bank, Limited ( DSB ), a key operating subsidiary of the Company, as the Head of Retail Banking business in February 2012, responsible for the development and management of overall retail banking, bancassurance, retail brokerage, wealth management businesses, private banking and vehicle financing. She was appointed as an Executive Director of DSB in May 2012 and an Alternate Chief Executive of DSB in May Ms. Wong has over 25 years of experience in retail and personal banking business with other banks operating in Hong Kong, including Standard Chartered Bank and CITIC Bank International. 10

12 DIRECTORS AND SENIOR MANAGEMENT S PROFILE Mr. Vincent Ho-Wing Yau Chief Executive Officer and Director of Dah Sing Bank (China) Limited Mr. Yau, aged 52, joined Dah Sing Bank, Limited ( DSB ) and was appointed as the Alternate Chief Executive Officer and Head of Business Development of Dah Sing Bank (China) Limited ( DSB China ), a key operating subsidiary of the Company, in September He was appointed as an Executive Director of DSB China in December 2014 and the Chief Executive Officer of DSB China in February Mr. Yau has 28 years of experience in the banking industry in China and Hong Kong, and had assumed various senior executive positions in Standard Chartered Bank before joining DSB. Mr. Eddie Yiu-Fai Kong Chief Executive Officer and Director of Banco Comercial de Macau, S.A Mr. Kong, aged 52, joined Dah Sing Bank, Limited and was appointed as the Chief Executive Officer and Director of Banco Comercial de Macau, S.A. (incorporated in Macau) in July Mr. Kong has over 25 years of experience in banking and finance business with other banks in Hong Kong including Daiwa Bank, Standard Chartered Bank, and with particular focus in corporate and institutional banking business management for the last 12 years in DBS Bank (Hong Kong) Limited. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

13 CHAIRMAN S STATEMENT % 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 reported another year of record profits, with an increase of 16% in profit attributable to shareholders to HK$2,034 million. 11% 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, our profitability, as well as our profit, continued to improve, with a return on equity of 11% % 11.4% After the rights issue of the Company, supported by Dah Sing Financial Holdings Limited s own rights issue, completed in the second quarter of 2014, our capital position continued to strengthen, with our overall Capital Adequacy Ratio of 16.3%, and Common Equity Tier 1 capital ratio of 11.4% as at 31 December III 2007 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. The Board of Directors of Dah Sing Banking Group Limited (from Left to Right): Mr. Derek Wong, Mr. Shoji Hirai, Mr. Robert Sze, Mr. Andrew Leung, Mr. David Wong, Mr. Harold Wong, Mr. Seng-Lee Chan, Mr. Yuen-Tin Ng and Mr. Gary Wang. 12

14 CHAIRMAN S STATEMENT CHANGES IN BOARD MEMBERS DURING THE YEAR There was no change in the Board composition of the Company during the year. Mr. Hon-Hing Wong (Derek Wong) resigned as a member of the Nomination and Remuneration Committee of the Company with effect from 15 September 2014, but remains as an Executive Director and the Vice Chairman of the Company FUTURE PROSPECTS 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. A group photo of the Directors and Company Secretary of Dah Sing Financial Group before a Board Meeting. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

15 CHAIRMAN S STATEMENT FUTURE PROSPECTS (Continued) 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 2015 Dah Sing Management at the Hong Kong headquarters building celebrating the Chinese New Year of the Horse. 14

16 MANAGING DIRECTOR AND CHIEF EXECUTIVE S STATEMENT %11% 21.5% Our Group s financial results for 2014 were satisfactory, with a profit attributable to shareholders increasing by 15.8% to HK$2,034 million, a record for our Group, 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 % % 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. 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. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

17 MANAGING DIRECTOR AND CHIEF EXECUTIVE S STATEMENT 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. 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: % 29 9 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. 1.79% 1.76% 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. 7.7% % %2014 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 16

18 MANAGING DIRECTOR AND CHIEF EXECUTIVE S STATEMENT 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 % 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 Closing prices of Dah Sing Financial Holdings Limited (Stock code: 440) and Dah Sing Banking Group Limited (Stock code: 2356) on 31 December Closing price of Hang Seng Index on 31 December DAH SING BANKING GROUP LIMITED ANNUAL REPORT

19 MANAGING DIRECTOR AND CHIEF EXECUTIVE S STATEMENT 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 CAR 16.3% CET % 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. 45.3% % 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. 1 1 Common Equity Tier 1 capital 18

20 MANAGING DIRECTOR AND CHIEF EXECUTIVE S STATEMENT Celebration of the 10th anniversary of our Graduate Trainee Programme I want to thank all of our stakeholders our customers, communities, colleagues and shareholders for helping make 2014 a good year. 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 Managing Director and Chief Executive Hong Kong, 25 March 2015 DAH SING BANKING GROUP LIMITED ANNUAL REPORT

21 REVIEW OF OPERATIONS : FINANCIAL HIGHLIGHTS The highlights of the Group s consolidated financial performance for the year are summarised in the table below: Variance Net interest margin 1.76% 1.79% HK$ Million Operating profit before impairment losses 2, , % Operating profit after impairment losses 1, , % 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, % Total assets 185, , % Total liabilities 165, , % Shareholders funds 19,941 17, % Net interest income/operating income 71.8% 73.3% Cost to income ratio 51.1% 51.8% Return on average total assets 1.2% 1.1% Return on average shareholders funds 11.0% 10.8% Loan (excluding trade bills) to deposit (including certificates of deposit issued) ratio 70.8% 72.1% 20

22 REVIEW OF OPERATIONS % 11% FINANCIAL REVIEW 2014 was a satisfactory year for the Group, with 16% growth in core profit attributable to shareholders to a record level of HK$2,034 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 11% for the first time since the financial crisis. 7.4% 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 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 business remains strong and credit costs manageable in relation to the scale of our overall business. 9.1% 10.6% 7.4% 2.1% 15.8% 4.1% All our core revenue lines achieved growth, with 9.1% growth in total operating income, and 10.6% 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 2.1%. We reported disposal gains on securities investments during the year, which contributed to growth in profit attributable to shareholders of 15.8%. The profit contribution from our associate BOCQ increased modestly by 4.1% % % Net interest income grew by 7% from HK$2,797 million to HK$2,990 million due mainly to growth in volumes offset slightly by a small decrease in net interest margin. Net fee and commission income increased by 18.5% from HK$702 million to HK$832 million. 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. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

23 REVIEW OF OPERATIONS 9.1% 7.7% FINANCIAL REVIEW (Continued) We reported an overall increase in operating income by 9.1%, slightly ahead of the increase in operating expenses of 7.7% 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. 62 4% 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 , % % Total assets of the Group reached HK$185.3 billion, an increase of 11% over Shareholders funds as of 31 December 2014 stood at HK$20 billion, up 17% on % 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 Common Equity Tier 1 ( 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 the Company and Dah Sing Financial Holdings Limited, 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. 22

24 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. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

25 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. 24

26 REVIEW OF OPERATIONS HIGHLIGHT OF BUSINESS PERFORMANCE (Continued) Commercial Banking Commercial Banking recorded double digit growth in both loan assets and net profit. 11% 13% Loans plus trade bills rose by 11% which was driven by mainland cross-border related trade financing, commercial lending and syndicated loans. Deposits grew by 13%, largely contributed by growth in low cost current and savings deposits. 7% 2013 Net interest income was up 7%, due both to loan growth and also the gradual shift towards higher yield products. Non-interest income recorded moderate growth, against a higher base recorded in 2013, particularly relating to sales of treasury products to corporate customers. DS-Direct isme We worked hard to launch new products to meet our customers needs, including new insurance products, and upgraded internet banking platforms (DS-Direct and isme). : Our dedication to customers was recognized by the market and public. During the year, we have won five awards from the industry with extensive media coverage as listed below: Elite Award Best Commercial Banking from Ming Pao Weekly Best Corporate Banking Award from Metro Prosperity Capital Merits of Achievement Internet Banking Services Award from Capital Magazine Best SME Partner Award from the Hong Kong General Chamber of Small and Medium Business ( HKGCSMB ) Asia Excellence Brand Award from Yazhou Zhoukan Commercial Banking continued to support SMEs in Hong Kong by promoting the Government guaranteed financing scheme including the SME Financing Guarantee Scheme offered by the Hong Kong Mortgage Corporation as well as the Special Guaranteed Scheme offered by the Trade and Industry Department of HKSAR Government. DAH SING BANKING GROUP LIMITED ANNUAL REPORT

27 REVIEW OF OPERATIONS 2014 HIGHLIGHT OF BUSINESS PERFORMANCE (Continued) Commercial Banking (Continued) As a local SME oriented bank, we sponsored a wide range of SME events and conferences. We were the platinum sponsor for the Hong Kong Award for Industries, which aimed to recognize the outstanding achievements of Hong Kong enterprises in their move towards higherend technology and high value-added activities; the sole sponsor for the World SME Summit in two consecutive years, held by HKGCSMB at the 2014 World SME Expo; and also the annual event organized by the Hong Kong Trade Development Council. We were very pleased to be able to add value and to contribute to the SME, development of trade and manufacturing businesses managed or based in Hong Kong, and in the Pearl River Delta region Treasury Our Treasury division recorded record profit in 2014, due both to much stronger net interest income and non-interest income in the year Global markets were mixed in Whilst broadly bond and equity markets performed well, there was some volatility during the year. Foreign exchange markets were also volatile. During the year, the US Federal Reserve ended its market purchase of assets (or Quantitative Easing ), and the market began to look towards a gradual rise in the benchmark US Federal Funds rate in the medium term. The RMB moved both up and down during the course of the year, in contrast with its relatively steady appreciation during the years prior to 2013, and ended 2014 somewhat weaker against the US dollar compared with year end Nevertheless, compared with the extreme volatility experienced in a number of years in the recent past, overall market conditions during the year were generally stable. Against this backdrop, our Treasury took action to reposition the investment and deployment of surplus funds to achieve improved yields and a better asset allocation, balancing liquidity, credit and interest rate risks. Major activities of our Treasury business, including the investment book, money market business and sales and marketing, outperformed the prior year, bringing to the Group higher investment and trading income. 26

28 REVIEW OF OPERATIONS HIGHLIGHT OF BUSINESS PERFORMANCE (Continued) Treasury (Continued) Close collaboration with our Commercial Banking division in serving our commercial customers and meeting customers needs for treasury products and services contributed to our Treasury division s higher fee and trading income. 6 As part of our efforts to rebalance our investment portfolio, we continued to make securities disposals in the year to improve the risk profile as well as to manage down the duration of the portfolio which realised a small disposal gain. With the reduction in risk exposure during the course of the year, we considered it appropriate to write back HK$60 million of the collective impairment provision previously made against the higher risk securities investments Banco Comercial de Macau Banco Comercial de Macau ( BCM ) provides a comprehensive range of commercial and retail banking products and services to customers in Macau. As of the end of 2014, BCM operated a total of 14 branches in Macau % 12.5% BCM s loans and deposits grew 12.7% and 12.5% respectively relative to the end of Loan growth was driven largely by mortgage loan and syndicated loan increases, while commercial loan and consumer finances also recorded solid growth. 9.3% % Due to stronger asset growth and improved loan yields, and tight control of deposit cost, BCM recorded an increase of 9.3% in net interest income. Together with stronger fee, commission and net trading income, BCM s operating income increased by 11.1% when compared with % Operating expenses, despite local inflation and additional business support and operational control cost pressure, were well controlled. Asset quality remained very benign, maintaining minimal loan losses, with no additional loan impairment provision required in the year. BCM s 2014 net profit, adjusting for the amortisation of intangible assets (recognised at the initial acquisition of BCM) and some Group level adjustments, was 20% higher than DAH SING BANKING GROUP LIMITED ANNUAL REPORT

29 REVIEW OF OPERATIONS 2008 HIGHLIGHT OF BUSINESS PERFORMANCE (Continued) Dah Sing Bank (China) Dah Sing Bank (China) Limited ( DSB China ) is a wholly owned subsidiary of DSB and was locally incorporated in China in Affected by higher credit cost, DSB China recorded a net loss in Our loan portfolio slightly contracted in 2014 as more cautious new business and lending were pursued, in addition to adopting tighter credit underwriting standards. Against the outlook of a slower rate of economic growth in China, we will continue to develop DSB China s commercial banking and retail banking businesses in a highly cautious manner in DSB China now operates in 6 major cities in China, with a network comprising the Shenzhen headquarters, and branches in Shanghai, Nanchang, Zhenjiang, Guangzhou (with a sub-branch in Foshan), and a sub-branch in Shenzhen, offering a variety of commercial and retail banking lending, deposits and related banking services to our customers in China Bank of Chongqing BOCQ is the leading city commercial bank in Chongqing, which is the largest city in Western China with a population of over 33 million people, and is one of the 4 leading municipalities in China reporting directly to Beijing. BOCQ operates a branch network of over 120 branches and sub-branches, including branches and sub-branches in Chengdu, Guiyang and Xian % 33%63.4% 0.69% 31% 19.2% BOCQ s business performance and financial results in 2014 continued to be strong, as reflected in its net profit increase at 21% over 2013, growth in total assets by 33%, loan to deposit ratio at 63.4%, nonperforming loan ratio at 0.69%, cost to income ratio (excluding business tax and surcharges) at 31%, and 19.2% ROE % 16.95% % Following the completion of BOCQ s IPO in late 2013, our interest was diluted from 20% to 16.95%. Our share of BOCQ net profit continued to be recognized on an equity accounting basis, with the total amount of our share of BOCQ net profit increased mildly from HK$579 million in 2013 to HK$602 million, an increase of 4%, incorporating the effect of the dilution of our shareholding. 28

30 REVIEW OF OPERATIONS RISK MANAGEMENT During the year, we enhanced our risk governance and control framework, including the revision of the new product approval processes as well as further development of stress testing framework. Preparation was also made to ensure the transition to the new regulatory liquidity standard, and the compliance with the new Liquidity Maintenance Ratio by January On credit risk management, we strengthened our procedures in data collection for financial and regulatory reporting. Continuous efforts were also made to streamline our credit approval and documentation handling to enhance efficiency. CAPITAL AND LIQUIDITY Banking Business Capital base of banking subsidiaries (HK$ million) at 31 December Common Equity Tier 1 14,443 12,069 Tier 1 14,443 12,069 Tier 2 6,226 4,714 Total capital base after deductions 20,670 16,783 * Capital adequacy ratio* Common Equity Tier % 10.4% Tier % 10.4% Total 16.3% 14.5% ( ) Liquidity ratio (average for the year) 45.3% 46.2% * III * The capital adequacy ratio as at 31 December 2014 and 31 December 2013 represents the consolidated position of DSB (covering BCM and DSB China) computed on Basel III basis with reference to the Banking (Capital) Rules. This consolidated capital adequacy ratio takes into account market risk and operational risk. The Group s business maintained healthy capital adequacy ratios over the past two years, whilst the Group pursued its growth strategy and implemented changes to comply with the new regulatory capital rules. DAH SING BANKING GROUP LIMITED ANNUAL REPORT