Contents Dah Sing Banking Group Limited 2 Financial Summary 4 Corporate Information 6 Directors and Senior Management s Profile 10 Chairman s Statemen

Transcription

1 Contents Dah Sing Banking Group Limited 2 Financial Summary 4 Corporate Information 6 Directors and Senior Management s Profile 10 Chairman s Statement 15 Review of Operations 25 Corporate Governance Report 35 Report of the Directors 53 Consolidated Income Statement 54 Consolidated Balance Sheet 55 Balance Sheet 56 Consolidated Statement of Changes in Equity 58 Consolidated Cash Flow Statement Supplementary Financial Information 193 Auditors Report Dah Sing Bank, Limited 195 Directors and Corporate Information 196 List of Branches 199 Report of the Directors 204 Consolidated Income Statement 205 Consolidated Balance Sheet 206 Balance Sheet 207 Consolidated Statement of Changes in Equity 209 Consolidated Cash Flow Statement Supplementary Financial Information 363 Auditors Report Annual Report

2 Directors and Corporate Information DAH SING BANK, LIMITED O.B.E. J.P. O.B.E. J.P. BOARD OF DIRECTORS David Shou-Yeh Wong Chairman Chung-Kai Chow O.B.E. J.P. Non-executive Director John William Simpson Independent non-executive Director David Richard Hinde Independent non-executive Director Robert Tsai-To Sze Independent non-executive Director Yiu-Ming Ng Non-executive Director Hon-Hing Wong (Derek Wong) Managing Director and Chief Executive Lung-Man Chiu (John Chiu) Executive Director Gary Pak-Ling Wang Executive Director John Ming-Kiu Tan Executive Director Frederic Suet-Chiu Lau Executive Director Harold Tsu-Hing Wong Executive Director John Cheung-Wah Lam Executive Director John Wai-Wai Chow Alternate to Chung-Kai Chow O.B.E. J.P DSB HX DSBAHKHH REGISTERED OFFICE 36th Floor, Dah Sing Financial Centre 108 Gloucester Road, Hong Kong Tel: Fax: Telex: DSB HX S.W.I.F.T.: DSBAHKHH Web Site: Annual Report

3 List of Branches Branch Address Tel Fax Hong Kong Island Branches 20 Aberdeen 20 Wu Pak Street, Aberdeen Admiralty Centre Shop 10, 1st Floor of the Podium, Admiralty Centre, Harcourt Road, Admiralty 482 Causeway Bay 482 Hennessy Road, Causeway Bay Central Worldwide House, 19 Des Voeux Road Central Fortress Hill G/F., Sunny House, King s Road Gloucester Road G/F., Dah Sing Financial Centre, 108 Gloucester Road A Happy Valley Shop A, G/F., Wong Nai Chung Road, Happy Valley G59 Heng Fa Chuen Unit G59, G/F., Heng Fa Chuen Paradise Mall, Shing Tai Road, Chaiwan 164 Johnston Road 164 Johnston Road, Wanchai North Point Chu Kee Building, King s Road A4 Quarry Bay Flat A4, G/F., 963 King s Road, Quarry Bay G8 Shaukiwan Shop G8, G/F., Tai On Building, Shaukiwan Road Shek Tong Tsui Shop 15, G/F., Pacific Plaza, 410 Des Voeux Road West A Sheung Wan Shop A, G/F., 212 & 214, Des Voeux Road Central Kowloon Branches 4-6A Hunghom Shop A, G/F., Tak Yue Mansion, 4-6 Dock Street, Hunghom Jordan Road 335 Nathan Road, Jordan Kwun Tong G/F. & 1/F., 49 Mut Wah Street, Kwun Tong N95 C Mei Foo Sun Chuen Portion C of Shop N95, First Floor, 1-17 Mount Sterling Mall, Mei Foo Sun Chuen 196 Dah Sing Bank, Limited

4 List of Branches Branch Address Tel Fax 697 Mongkok 697 Nathan Road, Mongkok Ngau Tau Kok Road 301 Ngau Tau Kok Road, Kwun Tong San Po Kong 10 Choi Hung Road, San Po Kong Sham Shui Po G/F., 124 Fuk Wing Street, Shamshuipo F5A-6A Telford Gardens Units F5A-F6A, Level 2, Telford Plaza I, Kowloon Bay A Tokwawan I-Feng Mansion, 237A Tokwawan Road Tseung Kwan O Shop 127, Level 1, Metro City Plaza III, Tseung Kwan O Metro City Plaza Tsimshatsui Golden Crown Court, Nathan Road, Tsimshatsui Yaumatei 561 Nathan Road, Yaumatei New Territories Branches Citygate, Tung Chung Unit 248, 2/F., Citygate, 20 Tat Tung Road, Tung Chung, Lantau C Kwai Fong Block C, G/F., Podium Level, New Kwai Fong Gardens, Kwai Chung H P8 Luk Yeung Sun Chuen Unit P8, Block H, Podium Level, Luk Yeung Sun Chuen, Tsuen Wan Ma On Shan Plaza Shops , Level 2, Ma On Shan Plaza, Sai Sha Road, Ma On Shan, Shatin D-E Maritime Square Shop 108D-E, Maritime Square, 33 Tsing King Road, Tsing Yi Ocean Walk Shop 93-95, Ocean Walk, Wu Chui Road, Tuen Mun Shatin Shop 9, G/F., Lucky Plaza, Shatin D Tai Po Shop 012D, Tai Po Mega Mall, On Chee Road, Tai Po Tai Wai Shop 5, G/F., Kam Shan Building, Tai Wai Road, Tai Wai Annual Report

5 List of Branches Branch Address Tel Fax 132 Tin Shui Wai Chung Fu Shop 132, Chung Fu Shopping Centre Stage 2, Tin Shui Wai Tsuen Wan Dang Fat Mansion, Tai Ho Road, Tsuen Wan Wah Ming Estate Shop 201, Wah Ming Shopping Centre, Wah Ming Estate, Fanling B Yuen Long Tung Cheong Mansion, 59B On Ning Road, Yuen Long Shenzhen Branch 2055 (: ) Shenzhen G/F., Xi Long Building, 2055 Renminnan Road, Shenzhen, China (86-755) (86-755) (Postal Code: ) Others Windsor House 16/F., Windsor House, 311 Gloucester Road Causeway Bay, Hong Kong (Existing office of Pacific Finance (Hong Kong) Limited) Major Banking Subsidiary 572 Banco Comercial Avenida da Praia Grande, No.572, Macau (853) (853) de Macau, S.A Dah Sing Bank, Limited

6 Report of the Directors The Directors submit their report together with the audited financial statements for the year ended 31 December Principal Activities 27 The principal activities of Dah Sing Bank, Limited (the Bank ) are the provision of banking, financial and other related services. The principal activities of the subsidiaries are shown in note 27 to the financial statements. Results and Appropriations 204 The results of the Bank and its subsidiaries (the Group ) for the year ended 31 December 2005 are set out in the consolidated income statement on page ,000,000 The Directors declared an interim dividend of HK$26.00 per share amounting to HK$208,000,000 which was paid on 8 October ,000,000 The Directors recommend the payment of a final dividend of HK$18.00 per share, totalling HK$324,000,000. Reserves 42 Movements in the reserves of the Group and of the Bank during the year are set out in note 42 to the financial statements. Donations 341,146 During the year, the Group made charitable and other donations amounting to HK$341,146. Fixed Assets 28 Details of the movements in fixed assets of the Group and of the Bank are shown in note 28 to the financial statements. Annual Report

7 Report of the Directors Directors The Directors during the year and up to the date of this report are: David Shou-Yeh Wong Chairman O.B.E. J.P. Chung-Kai Chow O.B.E. J.P. John William Simpson David Richard Hinde Robert Tsai-To Sze Yiu-Ming Ng Hon-Hing Wong (Derek Wong) Managing Director and Chief Executive Lung-Man Chiu (John Chiu) Gary Pak-Ling Wang John Ming-Kiu Tan Frederic Suet-Chiu Lau (appointed on 12 January 2005) Harold Tsu-Hing Wong (appointed on 1 September 2005) John Cheung-Wah Lam (appointed on 28 November 2005) O.B.E. J.P. John Wai-Wai Chow Alternate to Chung-Kai Chow O.B.E. J.P. There being no provision in the Bank s Article of Association for retirement by rotation, all Directors continue in office. 200 Dah Sing Bank, Limited

8 Report of the Directors Directors Interests 1 2 / 1 Pursuant to the Share Option Schemes (the Schemes ) approved by the shareholders of Dah Sing Financial Holdings Limited ( DSFH ) and Dah Sing Banking Group Limited ( DSBG ), the Bank s ultimate and immediate holding companies respectively, certain Directors of the Bank were granted options at a consideration of HK$1 per option to subscribe for shares of DSFH and/or DSBG with a par value of HK$2 and HK$1 each respectively. The exercise price per share for the options varied by tranches of grant with particulars set out in the table below. The options can be exercised in varying amounts between the first and the sixth anniversaries of date of grant. Details of the share options outstanding as at 31 December 2005 which have been granted under the Schemes are as follows: / Lapsed/ Exercise period Held at Granted Exercised cancelled Held at Exercise Director 1/1/2005 during 2005 during 2005 during /12/2005 price Grant date From To (Note) 1 / / / / / / HK$ (d/m/y) (d/m/y) (d/m/y) Number of DSBG share options Lung-Man Chiu 250, , /11/ /11/ /11/2010 John Ming-Kiu Tan 250, , /11/ /11/ /11/2010 Frederic Suet-Chiu Lau 250, , /8/ /8/ /8/2011 John Cheung-Wah Lam 250, , /12/ /12/ /12/2011 Number of DSFH share options Hon-Hing Wong 1,000,000 1,000, /11/ /11/ /11/2010 (Derek Wong) 1,000,000 1,000, /8/ /8/ /8/2011 Gary Pak-Ling Wang 400, , /11/ /11/ /11/ , , /8/ /8/ /8/2011 Harold Tsu-Hing Wong 250, , /11/ /11/ /11/ , , /8/ /8/ /8/2011 Annual Report

9 Report of the Directors Directors Interests (Continued) (9) Note: 1. The exercise prices for each tranche of grant were determined in accordance with Rule 17.03(9) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ( SEHK ) prevailing in force, being the closing price of respective shares traded on the SEHK on the date of grant, which was higher than the average closing price of respective shares traded on the SEHK for the five preceding trading days immediately before the date of grant. The closing price of respective shares immediately (the Relevant Closing Price ) before relevant dates of grant are set out below. Relevant Closing Price on the SEHK immediately before the date of grant Date of grant DSFH shares DSBG shares / /(d/m/y) HK$ HK$ 25/11/2004 HK$61.00 HK$ /8/2005 HK$51.05 HK$ /12/2005 N.A. HK$14.35 Apart from the above, at no time during the year was the Bank, its subsidiaries, its fellow subsidiaries or its holding companies a party to any arrangements to enable the Directors of the Bank nor 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. The Directors do not have any service contracts with the Bank. No contracts of significance in relation to the Bank s business to which the Bank, its subsidiaries, its fellow subsidiaries or its holding companies was a party and in which a Director of the Bank had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Management Contracts No contracts concerning the management and administration of the whole or any substantial part of the business of the Bank were entered into or existed during the year. Statement of Compliance The Bank has fully complied with the requirements set out in the Supervisory Policy Manual entitled Financial Disclosure by Locally Incorporated Authorized Institutions issued by the Hong Kong Monetary Authority. 202 Dah Sing Bank, Limited

10 Report of the Directors Auditors The financial statements have been audited by PricewaterhouseCoopers who retire and, being eligible, offer themselves for re-appointment. On behalf of the Board David Shou-Yeh Wong Chairman Hong Kong, 23 March 2006 Annual Report

11 Consolidated Income Statement For the year ended 31 December 2005 Note Restated Interest income 3,002,727 2,164,274 Interest expense (1,774,370) (586,280) Net interest income 6 1,228,357 1,577,994 Fee and commission income 406, ,807 Fee and commission expense (63,841) (54,267) Net fee and commission income 7 342, ,540 Net trading income 8 145,520 71,347 Other operating income 9 37,348 45,308 Operating income 1,753,810 2,063,189 Operating expenses 10 (831,752) (729,529) / Operating profit before impairment losses on loans and advances/charge for bad and doubtful debts 922,058 1,333,660 Impairment losses on loans and advances 12 (121,877) Charge for bad and doubtful debts Continuing operations 12 (194,120) Discontinued operation 12 (9) Operating profit before gains on certain investments and fixed assets 800,181 1,139,531 // Net gain / (loss) from disposal / reversal of revaluation deficits of premises and other fixed assets ,992 (604) Net gain from fair value adjustment on investment properties 74,570 49,839 Net gain on disposal of available-for-sale securities 116,097 Net gain on disposal of non-trading securities 46,703 Share of results of jointly controlled entities 3,104 4,095 Net other contribution from discontinued operation 276 Profit before income tax 1,097,944 1,239,840 Income tax expense Continuing operations 14 (174,199) (146,715) Discontinued operation 14 (47) Profit for the year 923,745 1,093,078 Loss attributable to minority interests 34 Profit attributable to shareholders of the Bank 923,779 1,093,078 Dividends Interim dividend paid , ,000 Proposed final dividend , , , , The notes on pages 210 to 343 are an integral part of these consolidated financial statements. 204 Dah Sing Bank, Limited

12 Consolidated Balance Sheet As at 31 December 2005 Note Restated ASSETS Cash and balances with banks and other financial institutions 18 7,457,193 8,316,111 Placements with banks and other financial institutions maturing between one and twelve months 1,169, ,230 Trading securities 19 5,364,375 6,178,531 Financial assets at fair value through profit or loss 19 1,379,163 Derivative financial instruments ,911 Non-trading securities 21 19,124,031 Advances and other accounts 22,31 45,694,196 33,645,992 Available-for-sale securities 23 22,661,011 Held-to-maturity securities , ,230 Investments in jointly controlled entities 25 30,184 27,080 Goodwill ,690 Intangible assets ,214 Premises and other fixed assets 28 1,372, ,178 Investment properties , ,332 Current tax prepaid 27,590 Non-current assets held for resale ,561 Total assets 87,749,252 69,677,305 LIABILITIES Deposits from banks and other financial institutions 4,997,208 3,369,393 Derivative financial instruments ,431 Trading liabilities 32 6,311,309 6,683,573 Deposits from customers designated at fair value through profit or loss 33 1,696,456 Deposits from customers 34 51,035,782 40,267,390 Certificates of deposit issued 35 7,878,502 8,685,222 Issued debt securities 36 2,287,095 2,332,305 Subordinated notes 37 3,290, ,794 Other accounts and accruals 1,412,949 1,408,550 Current income tax liabilities 40, Deferred income tax liabilities ,334 13,218 Non-current liabilities held for resale ,023 Total liabilities 80,089,652 63,731,757 EQUITY Minority interests 6,110 Equity attributable to the Bank s shareholders Share capital 41 1,800, ,000 Retained earnings 42 4,578,532 4,088,249 Other reserves 42 1,274,958 1,057,299 Shareholders funds 7,653,490 5,945,548 Total equity 7,659,600 5,945,548 Total equity and liabilities 87,749,252 69,677, Approved and authorised for issue by the Board of Directors on 23 March 2006 David Shou-Yeh Wong Frederic Suet-Chiu Lau Director Director Gary Pak-Ling Wang Hon-Hing Wong Director Managing Director The notes on pages 210 to 343 are an integral part of these consolidated financial statements. Annual Report

13 Balance Sheet As at 31 December 2005 Note Restated ASSETS Cash and balances with banks and other financial institutions 18 7,144,584 8,316,060 Placements with banks and other financial institutions maturing between one and twelve months 2,621, ,230 Trading securities 19 5,364,375 6,178,531 Financial assets at fair value through profit or loss 19 1,379,163 Derivative financial instruments ,568 Non-trading securities 21 19,123,942 Advances and other accounts 22,31 38,359,765 33,631,378 Available-for-sale securities 23 21,460,395 Held-to-maturity securities ,230 Investments in jointly controlled entities 25 30,184 27,080 Investments in and loans to subsidiaries 27 2,527,113 10,106 Premises and other fixed assets 28 1,070, ,271 Investment properties , ,716 Current tax prepaid 27,704 Total assets 80,432,110 69,671,248 LIABILITIES Deposits from banks and other financial institutions 6,039,875 3,369,393 Derivative financial instruments ,017 Trading liabilities 32 6,311,309 6,683,573 Deposits from customers designated at fair value through profit or loss 33 1,696,456 Deposits from customers 34 43,846,266 40,309,380 Certificates of deposit issued 35 7,358,937 8,685,222 Loans from a subsidiary 39 2,287,095 2,332,305 Subordinated notes 37 3,290, ,794 Other accounts and accruals 1,332,268 1,386,528 Current income tax liabilities 25, Deferred income tax liabilities ,725 13,218 Total liabilities 72,801,110 63,751,725 EQUITY Share capital 41 1,800, ,000 Retained earnings 42 4,571,875 4,078,032 Other reserves 42 1,259,125 1,041,491 Total equity 7,631,000 5,919,523 Total equity and liabilities 80,432,110 69,671,248 Approved and authorised for issue by the Board of Directors on 23 March 2006 David Shou-Yeh Wong Director Frederic Suet-Chiu Lau Director Gary Pak-Ling Wang Director Hon-Hing Wong Managing Director The notes on pages 210 to 343 are an integral part of these consolidated financial statements. 206 Dah Sing Bank, Limited

14 Consolidated Statement of Changes in Equity For the year ended 31 December 2005 Attributable to the shareholders of the Bank Share Other Retained Minority Total capital Reserves earnings interests equity Balance at 1 January 2005 as per below 800,000 1,057,299 4,088,249 5,945, Opening adjustment for the adoption of HKAS 39 (12,347) 126, ,157 Balance at 1 January 2005, as restated 800,000 1,044,952 4,214,753 6,059,705 Fair value gains on available-far-sale securities 56,482 56,482 Disposal of available-for-sale securities (116,097) (116,097) Deferred tax asset recognised on fair value gains and disposal of available-for-sale securities 10,806 10,806 Fair value gain on revaluation of bank premises 337, ,967 Deferred tax liabilities recognised on premises revaluation (59,152) (59,152) Net income recognised directly in equity 230, ,006 Profit for the year 923,779 (34) 923,745 Total recognised income for , ,779 (34) 1,153,751 Acquisition of subsidiaries 5,950 5,950 Further equity contribution by minority interests to a subsidiary of the Group Issue of share capital 1,000,000 1,000, final dividend (352,000) (352,000) 2005 interim dividend (208,000) (208,000) 1,000,000 (560,000) 6, ,144 Balance at 31 December ,800,000 1,274,958 4,578,532 6,110 7,659,600 Year ended 31 December Proposed final dividends in retained earnings 324, ,000 Annual Report

15 Consolidated Statement of Changes in Equity (Continued) For the year ended 31 December 2005 (Continued) Attributable to the shareholders of the Bank Share Other Retained Total capital reserves earnings equity Balance at 1 January 2004, as previously reported 800,000 1,067,800 3,419,171 5,286,971 Deferred tax arising from the revaluation of investment properties (7,074) (7,074) Balance at 1 January 2004, as restated 800,000 1,060,726 3,419,171 5,279,897 Fair value gains on non-trading securities 41,930 41,930 Deferred tax liabilities recognised on fair value gains on and disposal of non-trading securities (278) (278) Deferred tax liabilities recognised on premises revaluation (594) (594) Disposal of non-trading securities (46,703) (46,703) Disposal of a subsidiary as part of reorganisation (1,173) (1,173) Fair value gains on revaluation of premises 3,391 3,391 Net expense recognised directly in equity (3,427) (3,427) Profit for the year 1,093,078 1,093,078 Total recognised (expense)/income / for 2004 (3,427) 1,093,078 1,089, final dividend (200,000) (200,000) 2004 interim dividend (224,000) (224,000) (424,000) (424,000) Balance at 31 December 2004, as restated 800,000 1,057,299 4,088,249 5,945, The notes on pages 210 to 343 are an integral part of these consolidated financial statements. 208 Dah Sing Bank, Limited

16 Consolidated Cash Flow Statement For the year ended 31 December 2005 Note Restated Cash flows from operating activities / Net cash (used in)/from operating activities 43(a) (3,748,297) 2,788,960 Cash flows from investing activities Acquisition of subsidiaries (net of cash and cash equivalents acquired) 43(b) 474,562 Disposal of a subsidiary (net of cash and cash equivalents disposed of) (1,284) Purchase of fixed assets (26,726) (25,495) Proceeds from disposal of fixed assets 235 1,755 Investment in limited partnership for taxation purposes (57,979) / Net cash from/(used in) investing activities 448,071 (83,003) Cash flows from financing activities Certificates of deposit issued 2,145,975 1,967,692 Certificates of deposit redeemed (3,346,356) (1,396,980) Debt securities issued 2,329,556 Debt securities redeemed (31,118) Issue of subordinated notes 2,334,960 Issue of ordinary shares 1,000,000 Dividends paid on ordinary shares (560,000) (424,000) Net cash from financing activities 1,574,579 2,445,150 / Net (decrease)/increase in cash and cash equivalents (1,725,647) 5,151,107 Cash and cash equivalents at beginning of the year 9,092,440 3,941,333 Cash and cash equivalents at end of the year 43(c) 7,366,793 9,092, The notes on pages 210 to 343 are an integral part of these consolidated financial statements. Annual Report

17 1. 1. General information Dah Sing Bank, Limited (the Bank ) and its subsidiaries (together the Group ) provides retail, commercial banking and related financial services in Hong Kong, Macau, and the People s Republic of China. The Bank is a financial institution incorporated in Hong Kong. The address of its registered office is 36th Floor, Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong. The ultimate holding company is Dah Sing Financial Holdings Limited, a listed company in Hong Kong. 2. These consolidated financial statements are presented in thousands of Hong Kong dollars (HK$ 000), unless otherwise stated. These consolidated financial statements have been approved for issue by the Board of Directors on 23 March Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the reporting years presented, unless otherwise stated Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs which is a collective term including all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Statements of Standard Accounting Practice ( SSAPs ) and Interpretations) issued by Hong Kong Institute of Certified Public Accountants ( HKICPA ), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of properties (including investment properties), available-for-sale financial assets, financial assets and financial liabilities held for trading, financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. 210 Dah Sing Bank, Limited

18 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) 4 The preparation of financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4. / The adoption of new/revised HKFRS / In 2005, the Group adopted the new/revised HKFRSs as set out below, which are relevant to its operations. The 2004 comparatives have been amended as required. 1 HKAS 1 Presentation of Financial Statements 7 HKAS 7 Cash Flow Statements 8 HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 10 HKAS 10 Events after the Balance Sheet Date 16 HKAS 16 Property, Plant and Equipment 17 HKAS 17 Leases 21 HKAS 21 The Effects of Changes in Foreign Exchange Rates 24 HKAS 24 Related Party Disclosures 27 HKAS 27 Consolidated and Separate Financial Statements 28 HKAS 28 Investments in Associates 30 HKAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions 32 HKAS 32 Financial Instruments: Disclosures and Presentation Annual Report

19 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) 36 HKAS 36 Impairment of Assets 38 HKAS 38 Intangible Assets 39 HKAS 39 Financial Instruments: Recognition and Measurement 40 HKAS 40 Investment Property HKAS-Int 12 Scope of HKAS-Int 12 Consolidation Special Purpose Entities 12 HKAS-Int 15 Operating Leases Incentives 15 HKAS-Int 21 Income Taxes Recovery of Revalued Non-Depreciated 21 Assets HKFRS 2 Share-based Payments 2 HKFRS 3 Business Combinations 3 HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Dah Sing Bank, Limited

20 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) / The adoption of new/revised HKASs 1, 7, 8, 10, 16, 21, 24, 27, 28 and HKAS- Ints 12 and 15 did not result in substantial changes to the Group s accounting policies. In summary: 1 HKAS 1 has affected the presentation of minority interests, share of net after-tax results of associates and other disclosures. 21 In HKAS 21, the functional currency of each of the consolidated entities has been re-evaluated based on the guidance in the revised standard. 24 HKAS 24 has affected the identification of related parties and some other related-party disclosures. 30 HKAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions The adoption of HKAS 30 has resulted in a change in the presentation of certain items on the face of the income statement and the balance sheet. Treasury bills and certificates of deposit held are now included in the respective categories of financial instruments under HKAS HKAS 39 Financial Instruments: Recognition and Measurement 39 The adoption of HKAS 39 has resulted in a change in the accounting policy relating to the classification of financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities. 40 HKAS 40 Investment Property 40 The adoption of revised HKAS 40 has resulted in a change in accounting policy as changes in fair values are now recorded in the income statement. In prior years, the increases in fair value were credited to the investment properties revaluation reserve. Decreases in fair values were first set off against increases over earlier valuations on a portfolio basis and thereafter were expensed in the income statement. Annual Report

21 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) 2 HKFRS 2 Share-based Payments 2 The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments pursuant to which the fair value of the liability on cash-settled share-based transactions is determined at each reporting date by way of an option pricing model until it is settled. The changes in the fair value are taken to the income statement. As a transitional provision, retrospective application to the extent the liability is still outstanding as at 1 January 2005 is made and the corresponding comparatives have been restated. 21 HKAS-Int 21 Income Taxes-Recovery of Revalued Non-Depreciated Assets 21 The adoption of revised HKAS-Int 21 has resulted in a change in the accounting policy relating to the measurement of the deferred tax liability arising from the revaluation of investment properties. Such deferred tax liability is measured on the basis of tax consequences that would follow from recovery of the carrying amount of those assets through use. In prior years, the carrying amount of those assets was expected to be recovered through sale. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. All standards adopted by the Group require retrospective application other than: HKAS 39 does not permit recognition, derecognition and measurement of financial assets and liabilities in accordance with the standard on a retrospective basis. The Group continues to apply the previous standard, SSAP 24 Accounting for investments in securities, to investments in securities and also to hedge relationships for the 2004 comparative information. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1 January Dah Sing Bank, Limited

22 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) 40 HKAS 40 does not require the Group to restate the comparative information, any adjustment should be made to the retained earnings as at 1 January 2005, including the reclassification of any amount held in revaluation surplus for investment property HKAS-Int 15 does not require adjustment for the recognition of incentives for lease terms beginning before 1 January HKFRS 3: applied prospectively after the adoption date. HKFRS 5: applied prospectively after the adoption date. Annual Report

23 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) Estimated effect of changes in the accounting policies on the 2005 financial statements Consolidated Balance Sheet as at 31 December HKAS 32 HKAS and 39 HKFRS 2 Int-21 Total Increase/(decrease) in assets as / at 31 December 2005 Trading Securities (1,204) (1,204) Financial assets designated at fair value through profit or loss 1,379,163 1,379,163 Derivative financial instruments 154, ,911 Non-trading securities (22,564,878) (22,564,878) Advances and other accounts 210, ,517 Available-for-sale securities 22,661,011 22,661,011 Held-to-maturity securities (1,477,610) (1,477,610) Deferred income tax assets (18,262) (18,262) Increase/(decrease) in liabilities as / at 31 December , ,648 Derivative financial instruments 504, ,431 Trading liabilities 2,238 2,238 Deposits from customers designated at fair value through profit or loss 1,696,456 1,696,456 Deposits from customers at amortised cost (1,935,910) (1,935,910) Certificates of deposit issued and designated at fair value through profit or loss 4,690,325 4,690,325 Certificates of deposit issued at amortised cost (4,813,041) (4,813,041) Issued debt securities and designated at fair value through profit or loss 1,123,830 1,123,830 Issued debt securities at amortised cost (1,163,265) (1,163,265) Subordinated notes designated at fair value through profit or loss 2,127,077 2,127,077 Subordinated notes at amortised cost (2,132,652) (2,132,652) Other accounts and accruals (129) 4,216 4,087 Current income tax liabilities 24,079 (737) 23,342 Deferred income tax liabilities 8,221 11,896 20,117 Increase/(decrease) in equity as / at 31 December ,660 3,479 11, , Investment revaluation reserve 38,757 38,757 Premises revaluation reserve (9,359) (9,359) Retained earnings 126,503 (926) 125,577 Income statement 46,728 (2,553) (2,537) 41, ,988 (3,479) (11,896) 196, , , Dah Sing Bank, Limited

24 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) Estimated effect of changes in the accounting policies on the 2005 financial statements (Continued) Balance Sheet as at 31 December HKAS 32 HKAS and 39 HKFRS 2 Int-21 Total Increase/(decrease) in assets as / at 31 December 2005 Trading Securities (1,204) (1,204) Financial assets designated at fair value through profit or loss 1,379,163 1,379,163 Derivative financial instruments 154, ,568 Non-trading securities (21,364,262) (21,364,262) Advances and other accounts 210, ,575 Available-for-sale securities 21,460,395 21,460,395 Held-to-maturity securities (1,477,610) (1,477,610) Deferred income tax assets (18,262) (18,262) Increase/(decrease) in liabilities as / at 31 December , ,363 Derivative financial instruments 504, ,017 Trading liabilities 2,238 2,238 Deposits from customers designated at fair value through profit or loss 1,696,456 1,696,456 Deposits from customers at amortised cost (1,935,910) (1,935,910) Certificates of deposit issued and designated at fair value through profit or loss 4,690,325 4,690,325 Certificates of deposit issued at amortised cost (4,813,041) (4,813,041) Issued debt securities and designated at fair value through profit or loss 1,123,830 1,123,830 Issued debt securities at amortised cost (1,163,265) (1,163,265) Subordinated notes designated at fair value through profit or loss 2,127,077 2,127,077 Subordinated notes at amortised cost (2,132,652) (2,132,652) Other accounts and accruals 4,216 4,216 Current income tax liabilities 24,079 (737) 23,342 Deferred income tax liabilities 8,221 11,896 20,117 Increase/(decrease) in equity as / at 31 December ,375 3,479 11, , Investment revaluation reserve 38,757 38,757 Premises revaluation reserve (9,359) (9,359) Retained earnings 126,503 (926) 125,577 Income statement 46,728 (2,553) (2,537) 41, ,988 (3,479) (11,896) 196, , ,363 Annual Report

25 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) Estimated effect of changes in the accounting policies on the 2005 financial statements (Continued) Consolidated Income Statement for the year ended 31 December HKAS 32 HKAS and 39 HKFRS 2 Int-21 Total Decrease in interest income (180,120) (180,120) Decrease in interest expenses 92,601 92,601 Increase in net trading income 123, ,897 36,378 36,378 Increase in operating expenses (3,094) (3,094) Increase/(decrease) in operating profit before impairment / losses on loans and advances 36,378 (3,094) 33,284 Decrease in impairment losses on loans and advances 20,231 20,231 Increase/(decrease) in operating profit before gains on certain investments / and fixed assets 56,609 (3,094) 53,515 Increase/(decrease) in profit before / income tax 56,609 (3,094) 53,515 / (Increase)/decrease in income tax expense current income tax (24,079) 541 (23,538) deferred income tax 14,198 (2,537) 11,661 / Increase/(decrease) in profit for the year 46,728 (2,553) (2,537) 41, Dah Sing Bank, Limited

26 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) Estimated effect of changes in the accounting policies on the 2004 financial statements Consolidated Balance Sheet as at 31 December HKAS HKFRS 2 Int-21 Total Increase/(decrease) in liabilities as / at 31 December 2004 Other accounts and accruals 1,122 1,122 Current income tax liabilities (196) (196) Deferred income tax liabilities 9,359 9, ,359 10,285 Decrease in equity as at 31 December 2004 Premises revaluation reserve (9,359) (9,359) Retained earnings (926) (926) (926) (9,359) (10,285) Annual Report

27 Summary of significant accounting policies (Continued) 2.1 Basis of preparation (Continued) Estimated effect of changes in the accounting policies on the 2004 financial statements (Continued) Balance Sheet as at 31 December HKAS HKFRS 2 Int-21 Total Increase/(decrease) in liabilities as / at 31 December 2004 Other accounts and accruals 1,122 1,122 Current income tax liabilities (196) (196) Deferred income tax liabilities 9,359 9, ,359 10,285 Decrease in equity as at 31 December 2004 Premises revaluation reserve (9,359) (9,359) Retained earnings (926) (926) (926) (9,359) (10,285) Consolidated Income Statement for the year ended 31 December HKFRS 2 Increase in operating expenses (1,122) Decrease in profit before income tax (1,122) Decrease in income tax expense current income tax 196 Decrease in profit for the year (926) 220 Dah Sing Bank, Limited

28 2. 2. Summary of significant accounting policies (Continued) Basis of preparation (Continued) The HKICPA has issued a number of new and revised HKFRSs which are effective for accounting periods beginning on or after 1 January The Group has not early adopted the following new Standards and Amendments, or Interpretations: 39 HKAS 39 (Amendment) Cash Flow Hedge Accounting and Forecast Intragroup Transactions 39 HKAS 39 (Amendment) Financial Guarantee Contracts HKFRS 7 Financial Instruments: Disclosures 7 The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these HKFRSs would have a significant impact on its results of operations and financial position Consolidation The consolidated financial statements include the financial statements of the Bank and all its subsidiaries made up to 31 December. Subsidiaries are those entities in which the Bank, directly or indirectly, controls the composition of the Board of Directors, controls more than half the voting power or holds more than half of the issued share capital. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Annual Report

29 2. 2. Summary of significant accounting policies (Continued) Consolidation (Continued) The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In the Company s balance sheet the investments in subsidiaries are stated at cost less allowances for impairment. The results of subsidiaries are accounted for by the Bank on the basis of dividends, received and receivable Jointly controlled entities A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity, which is subject to joint control and none of the participating parties has unilateral control over the economic activity. The consolidated income statement includes the Group s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group s share of the net assets of the jointly controlled entities Interest income and expense From 1 January 2004 to 31 December 2004 Interest income and interest expense were recognised in the income statement as they accrued using the relative contract or coupon interest rates, except in the case of doubtful debts where interest was suspended and netted off in the balance sheet against the relevant balances. 222 Dah Sing Bank, Limited

30 2. 2. Summary of significant accounting policies (Continued) Interest income and expense (Continued) From 1 January 2005 onwards / Interest income and expense are recognised in the income statement for all instruments measured at amortised cost, available-for-sale securities and certain financial assets/liabilities designated at fair value through profit or loss using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss Fee and commission income and expense Loan syndication fees are recognised as revenue when the syndication has been completed and the Group retained no part of the loan package for itself or retained a part at the same effective interest rate for the other participants. Wealth management, financial planning and custody services that are continuously provided over an extended period of time are recognised rateably over the period the service is provided Financial assets From 1 January 2004 to 31 December 2004 All financial assets were stated at cost or amortised cost, net of impairment allowances, except for investments in securities classified as non-trading securities and trading securities. Annual Report

31 2. 2. Summary of significant accounting policies (Continued) Financial assets (Continued) From 1 January 2004 to 31 December 2004 (Continued) (a) Non-trading securities Non-trading securities were stated at fair value on the balance sheet. Fair value represented the quoted market price for securities that were actively traded in a liquid market. For securities which were not actively traded or were unlisted, fair value was estimated by way of various pricing techniques including discounted cash flow and divided yield analyses. / Changes in the fair value of non-trading securities were recognised in the investment revaluation reserve until the security was sold, or was determined to be impaired, at which time the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant security, together with any surplus/deficit transferred from the investment revaluation reserve, was dealt with in the income statement. (b) Trading securities Trading securities were stated at fair value on the balance sheet. Fair value represented the quoted market price for securities that were actively traded in a liquid market. For securities which were not actively traded or were unlisted, fair value was estimated by way of various pricing techniques including discounted cash flow and dividend yield analyses. Changes in the fair value of trading securities were recognised in the income statement as they arose. Profits and losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, were recognised in the income statement as they arose. 224 Dah Sing Bank, Limited

32 2. 2. Summary of significant accounting policies (Continued) Financial assets (Continued) From 1 January 2005 onwards The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-tomaturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are measured at fair value with all holding gains and loss recognised in the income statement. A financial asset is typically classified as fair value through profit or loss at inception if it meets the following criteria: (i) (i) It eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an accounting mis- match ) that would otherwise arise from measuring assets or recognising the gains and losses on them on different bases; or (ii) (ii) A group of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and this is the basis on which information about the assets is provided internally to the key management personnel such as the Board of Directors and Chief Executive Officer; or (iii) (iii) Financial assets with embedded derivatives where the characteristics and risks of the embedded derivatives are not closely related to the host contracts. Annual Report

33 2. 2. Summary of significant accounting policies (Continued) Financial assets (Continued) (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets in this category are carried at amortised cost less any impairment loss. (c) Available-for-sale Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. (d) Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group s management has the positive intention and ability to hold to maturity. Assets in this category are carried at amortised cost less any impairment loss. Purchases and sales of financial assets are recognised on the trade date the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. 226 Dah Sing Bank, Limited

34 2. 2. Summary of significant accounting policies (Continued) Financial assets (Continued) Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should be recognised in the income statement. However, interest calculated using the effective interest method is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the Group s right to receive payment is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances Impairment of financial assets From 1 January 2004 to 31 December 2004 Provisions were made against specific loans and advances as and when the directors had doubts on the ultimate recoverability of principal or interest in full. Specific provision was made to reduce the carrying value of the asset, net of any collateral, to the expected net realisable value based on the directors assessment of the potential losses on those identified loans and advances on a case-by-case basis. For loans and advances where assets had been repossessed, provision was made for any shortfall between the expected net realisable value of the repossessed assets and the outstanding advances. Annual Report