1. PRINCIPAL ACCOUNTING POLICIES (Continued) (c) Consolidation (Continued) In the Bank s balance sheet the investments in subsidiaries are stated at c

1. PRINCIPAL ACCOUNTING POLICIES (a) Principal activities The principal activities of the Group and the Bank are the provision of banking, financial and other related services. (b) Basis of preparation The accounts have been prepared under the historical cost convention as modified by the revaluation of certain premises, investment properties and investments in securities, and in accordance with accounting principles generally accepted in Hong Kong and comply with Statements of Standard Accounting Practice ( SSAPs ) issued by the Hong Kong Society of Accountants ( HKSA ). In the current year, the Group has adopted the following SSAPs issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2003: SSAP 12 (revised) : Income taxes SSAP 34 (revised) : Employee benefits The changes to the Group s accounting policies and the effect of adopting these revised policies are set out below. The consolidated accounts have been prepared in accordance with the requirements set out in the guideline on Financial Disclosure by Locally Incorporated Authorized Institutions issued by the Hong Kong Monetary Authority. (c) Consolidation The consolidated accounts include the accounts of the Bank and the Group made up to 31st December. Subsidiaries are those entities in which the Group 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. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances within the Group are eliminated on consolidation. 136

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (c) Consolidation (Continued) In the Bank s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Bank on the basis of dividends received and receivable. (d) Associates An associate is a company, not being a subsidiary, in which an equity interest is held for the long term and significant influence is exercised in its management. The consolidated profit and loss account includes the Group s share of the results of associates for the year. The consolidated balance sheet includes the Group s share of the net assets of the associates. In the Bank s balance sheet the investments in associates are stated at cost less provision for impairment losses. The results of associates are accounted for by the Bank on the basis of dividends received and receivable. Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate. (e) 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 profit and loss account 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. In the Bank s balance sheet, the investments in jointly controlled entities are stated at cost less provision for impairment losses. The results of jointly controlled entities are accounted for by the Bank on the basis of dividends received and receivable. 2003 137

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (f) Income recognition i) Interest income Interest income is recognised in the profit and loss account as it accrues. Interest accrual ceases when the loans have no prospect of eventual recovery. Interest accrual is typically suspended if a loan is overdue for three months except for (1) residential mortgage loans where the net 1 realisable value of collateral is sufficient to cover the outstanding principal and accrued interest; and (2) loans that are restructured and serviced in 2 accordance with revised credit facilities. 1 For (1), interest accrual is suspended if a residential mortgage loan is in arrears for more than twelve months, irrespective of the net realisable value of the collateral. For (2), interest accrual on the restructured loans 2 will only be made if the relevant loans have been properly serviced in accordance with the terms of the restructured credit facilities. Interest accrual for credit card receivables and consumer loans managed on a portfolio basis is suspended if the loan is overdue for three months. Any interest previously recognised and remaining uncollected is reversed from the profit and loss account. ii) Fees and commission income Fees and commission income are accounted for in the period when receivable, except for fees receivable in advance which are deferred and recognised over the relevant period. iii) Dividend income Dividend income is recognised when the right to receive payment is established. (g) Advances to customers and other accounts Advances to customers and other accounts are generally reported in the balance sheet at the principal amount outstanding net of provisions for bad and doubtful debts. Cash rebates granted in relation to residential mortgage loans are capitalised and amortised on a straight line basis over the prepayment penalty period not exceeding three years. All advances are recognised when cash is advanced to borrowers. 138

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (h) Provisions for bad and doubtful debts Provisions are made against specific loans and advances as and when the Credit Committee with authority delegated by the Board of Directors have doubts on the ultimate recoverability of principal or interest in full. Specific provisions are made to reduce the carrying value of an asset, net of any collateral, to the expected net realisable value based on the Credit Committee s assessment of the potential losses on those identified loans and advances on a case-by-case basis. Where it is not possible to reliably estimate the loss, the Group applies predetermined provisioning levels to the unsecured portion of loans and advances based on the Group s loan classification procedures. / / The Group internally classifies loans and advances into five broad categories: Pass, Special Mention, Substandard, Doubtful and Loss. The classification of loans and advances is largely based on an assessment of the borrower s capacity to repay and on the degree of doubt about the collectibility of interest and / or principal. One important indicator of collectibility is the period that payments of interest and / or principal have been overdue. 20% 33% Specific provisions ranging from 20% to 33% of the unsecured exposure of an overdue loan classified as Substandard is made depending on the type of loans. Further specific provisions are made if the relevant loans overdue period lengthens, or if additional credit information indicates that more severe credit deterioration requires downgrading of the loans. Full specific provision is normally made against the outstanding unsecured exposure of an overdue loan classified as Loss. In the case of unsecured personal bankruptcy loans, 100% specific provision is made whenever bankruptcy petitions are filed against or by the borrowers and the loan balance is immediately written off. In addition, amounts have been set aside as a general provision for doubtful debts. General provision is not specifically earmarked against any individual loan and is provided based on a predetermined percent of the loan book after excluding Government guaranteed loans and cash collateralised lending. Both specific and general provisions are deducted from Advances to customers and other accounts and Trade bills in the balance sheet. When there is no realistic prospect of recovery, the outstanding debt is written off. 2003 139

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (i) Finance leases and hire purchase loans The amounts due from finance lease and hire purchase customers are included in Advances to customers and are stated at net investment. Income on contracts determined on a fixed interest rate basis is accrued and earned using the sum of digits method. In previous years, commissions paid to dealers on hire purchase loans were amortised using a straight line basis over the term of the loan. The amortisation charge was included as part of fees and commission expense in the profit and loss account. With effect from 1st January 2003, such commissions are amortised using an income-matching method which matches the amortisation charge with the amount of interest income earned from the underlying loans in each period. The amortisation charge is included as part of net interest income in line with market practice. The effect of this change in amortisation basis and accounts classification to the 2002 accounts is not significant and accordingly, no restatement of the amounts reported in last year is made. (j) Repossessed assets Advances with repossessed collateral assets will continue to be accounted for as customer advances. Upon the repossession of collateral assets for realisation in recovering customer advances, the advances are adjusted to the net realisable value of the repossessed assets, which are revalued periodically. Specific provisions are made on the shortfall between the expected sales proceeds from realisation of the repossessed assets and the outstanding advances. (k) Translation of foreign currencies Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates of exchange ruling at the balance sheet date. All exchange differences are dealt with in the profit and loss account. 140

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (l) Deferred taxation Deferred taxation is recognised in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax liabilities are recognised on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. In the prior year, deferred taxation was accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the revised SSAP 12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy. 14,485,0005,393,000 56,303,000 63,207,0002002 50,840,000 71,411,000 23,351,000 14,259,000 As detailed in note 31 to the accounts, opening shareholders funds at 1st January 2002 and 2003 have been reduced by HK$14,485,000 and HK$5,393,000 respectively, which represent the unrecognised net deferred tax liabilities. This change has resulted in deferred tax assets and deferred tax liabilities totalling HK$56,303,000 and HK$63,207,000 at 31st December 2003 (2002: HK$50,840,000 and HK$71,411,000 respectively). For the year ended 31st December 2002, the profit of the Group and the Bank had been increased by HK$23,351,000 and the amount charged to equity of the Group and the Bank was HK$14,259,000. 2003 141

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Fixed assets i) Premises Premises are stated at cost or valuation less accumulated impairment losses and depreciation calculated to write off the assets over their estimated useful lives on a straight line basis as follows: Leasehold land is depreciated over the remaining period of the lease or up to 30th June 2047 whichever is shorter. Buildings are depreciated over a total estimated useful life of 50 years. On revaluation, the revalued amount is depreciated on a straight line basis over the remaining portion of the useful life. Premises are valued as necessary at fair value, and in any case at intervals of not more than three years by independent professional valuers. The valuations are on an open market value basis related to individual properties. The valuations are incorporated in the annual accounts. Increases in valuation are credited to the Premises revaluation reserve. However, a revaluation increase is recognised as income only to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense. Decreases are first set off against increases on previous valuations of the same asset and thereafter are debited to the profit and loss account. Upon disposal of the premises, the relevant portion of the revaluation reserve realised in respect of previous valuations is released and transferred from the Premises revaluation reserve to Retained earnings. 142

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Fixed assets (Continued) ii) Investment properties Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential, any rental income being negotiated at arm s length. Investment properties held on leases with unexpired periods greater than 20 years are valued annually by independent professional valuers. The valuations are on an open market value basis related to individual properties and separate values are not attributed to land and buildings. The valuations are incorporated in the annual accounts. Increases in valuation are credited to the Investment properties revaluation reserve. Decreases in valuation are first set off against increases on previous valuations on a portfolio basis and thereafter are debited to the profit and loss account. Any subsequent increases in valuation are credited to the profit and loss account to the extent of the deficit previously charged. Investment properties held on leases with unexpired periods of 20 years or less are depreciated over the remaining portion of the leases. Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the Investment properties revaluation reserve to the profit and loss account. iii) Furniture, fixtures, equipment and motor vehicles Furniture, fixtures, equipment and motor vehicles are stated at cost less accumulated impairment losses and depreciation calculated to write off the assets on a straight line basis over their estimated useful lives, which are generally between 5 and 10 years. iv) Impairment and gain or loss on sale At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that the book value of premises, furniture, fixtures, equipment and motor vehicles are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the carrying cost of the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account except where the asset is carried at valuation and the impairment loss does not exceed the revaluation surplus for that same asset, in which case it is treated as a revaluation decrease. 2003 143

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Fixed assets (Continued) iv) Impairment and gain or loss on sale (Continued) The gain or loss on disposal of a fixed asset other than investment properties is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained earnings and is shown as a movement in reserves. (n) Investments in securities i) Held-to-maturity securities Held-to-maturity securities are dated debt securities which the Group has the expressed intention and ability to hold to maturity. These securities are stated at cost adjusted for the amortisation of premiums or discounts arising on acquisition over the periods to maturity, less provision for diminution in their value other than temporary. Provisions are made for the amount of the carrying value which the Group does not expect to recover and are recognised as an expense in the profit and loss account as they arise. The amortisation of premiums or discounts arising on acquisition of dated debt securities is included as part of interest income. Profits or losses on realisation of held-to-maturity securities are accounted for in the profit and loss account as they arise. ii) Trading securities Trading securities are securities which are acquired for the purpose of generating a profit from short-term fluctuations in price and are stated at fair value. Fair value represents the quoted market price for securities that are actively traded in a liquid market. For securities which are not actively traded or are unlisted, fair value is estimated by seeking quotations from unrelated financial institutions actively dealing in the securities. Changes in the fair value of trading securities are recognised in the profit and loss account as they arise. Profits and losses on disposal of trading securities, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise. 144

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (n) Investments in securities (Continued) iii) Non-trading securities Non-trading securities include debt securities held for liquidity purposes which are held primarily to maintain the liquidity ratio as defined in the Fourth Schedule of the Hong Kong Banking Ordinance and other debt and equity securities and interests in investment funds which are not held for trading purposes. Non-trading securities are stated at fair value on the balance sheet. Fair value represents the quoted market price for securities that are actively traded in a liquid market. For securities which are not actively traded or are unlisted, fair value is estimated by seeking quotations from unrelated financial institutions actively dealing in the securities or by way of various pricing techniques generated internally. / Changes in the fair value of non-trading securities are recognised in the Investment revaluation reserve until the security is sold or determined to be impaired, at which time the cumulative gain or loss representing the difference between the net sales proceeds or the expected recoverable amount and the carrying amount of the relevant security, together with any surplus / deficit transferred from the investment revaluation reserve, is included in the profit and loss account. (o) Operating leases Leases where substantially all of the rewards and risks of ownership of the asset remain with the leasing company are accounted for as operating leases. Rentals applicable to such operating leases net of any incentives received from the lessor are charged to the profit and loss account on a straight line basis over the lease term. Where the Group is the lessor, the assets subject to the lease are included in fixed assets in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned fixed assets. Rental income from operating leases is recognised on a straight line basis over the lease term. Initial direct costs incurred specifically to earn revenue from an operating lease are recognised as an expense in the profit and loss account in the period in which they are incurred. 2003 145

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (p) Off-balance sheet financial instruments Off-balance sheet financial instruments arise from futures, forward, swap and option transactions undertaken by the Group in the foreign exchange, equity and interest rate markets. Accounting for these instruments is dependent upon the purpose for which the transactions are undertaken. / Transactions undertaken for trading purposes are re-measured to their fair value. Fair values are obtained periodically from various sources, including quoted market prices, discounted cash flow models and option pricing models as appropriate. The gains and losses arising from trading in foreign exchange instruments are recognised in the profit and loss account as Net gain / (loss) from foreign exchange trading. The gains and losses arising from trading in interest rate and other financial instruments are recognised in the profit and loss account and included as part of other operating income. The major methods and assumptions used by the Group in estimating the fair value of trading derivatives are set out in note 35(c) to the accounts. Unrealised gains on transactions which are marked to market are included in Advances to customers and other accounts in the balance sheet. Unrealised losses on transactions which are marked to market are included in Other accounts and accruals. On the date a derivative contract is entered into, the Group may designate certain derivative transactions as hedges. Derivatives are classified as a hedge when a formal linkage between the hedging instruments and the hedged items is clearly identified and documented at the inception of the hedging transactions. The risk mitigation effectiveness of the hedging instruments is reviewed by the Group Risk Division and is monitored on an on-going basis. Transactions designated as hedges are valued on an equivalent basis to the assets, liabilities or net positions that they are hedging. Any profit or loss is recognised on the same basis as that arising from the related assets, liabilities or net positions. If the derivative transaction no longer meets the criteria for a hedge set out above, the derivative is deemed to be held for trading purposes and is accounted for as set out above. 146

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (p) Off-balance sheet financial instruments (Continued) Derivative transactions are offset only when the Group has the ability to insist on net settlement such as by means of entering into a master netting agreement or other legally enforceable arrangements. Any right to insist on a net settlement that is contingent is only taken into account when the Group is able to enforce net settlement in all situations of default by the other party or parties including insolvency of any parties to the contract, and the ability to insist on a net settlement is assured beyond doubt. Derivative transactions are not offset unless the related settlement currencies are the same, or are denominated in freely convertible currencies for which quoted exchange rates are available in an active market. (q) Provisions Provisions are recognised when the Group has a present legal or constructive obligation which, as a result of past events, makes it probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. The Group provides for costs related to restructuring of the Group s operations which are subject to detailed formal plans that are under implementation or have been communicated to those affected by the plans. Restructuring provisions mainly comprise employee termination payments. Provision is made when it is probable that an outflow of economic benefits will arise and the amounts can be reliably estimated. (r) Employee benefits i) Employee leave entitlements Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date. ii) Bonus plans Liabilities for bonus plans due wholly within twelve months after the balance sheet date are recognised when the Group has a present or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. 2003 147

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (r) Employee benefits (Continued) iii) Pension obligations The Group offers a mandatory provident fund scheme and a number of defined contribution plans, the assets of which are generally held in separate trustee-administered funds. These pension plans are generally funded by payments from employees and by the relevant Group companies. The Group s contributions to the mandatory provident fund schemes and defined contribution retirement schemes are expensed as incurred. Other than mandatory provident fund contribution, the Group s contributions may be reduced by contributions forfeited by those employees who leave prior to vesting fully in the contributions. iv) Equity compensation benefits Share options of the ultimate holding company are granted to directors and senior executives under the Executive Share Option Scheme. Equity compensation benefits resulting from the issue of share options to the Group s employees at less than the fair value at which those instruments would be issued to a third party are not recognised in the Group s accounts. (s) Contingent liabilities and contingent assets A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes to the accounts when an inflow of economic benefits is probable. When such inflow is virtually certain, an asset is recognised. 148

1. PRINCIPAL ACCOUNTING POLICIES (Continued) (t) Cash and cash equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise treasury bills held for trading purposes and balances with less than three months maturity from the date of acquisition including cash, balances with banks and other financial institutions, treasury bills and certificates of deposit. 2. INTEREST INCOME 2003 2002 Interest income on listed investments 214,443 164,873 Interest income on unlisted investments 404,949 416,155 Other interest income 1,680,405 1,928,177 2,299,797 2,509,205 3. OTHER OPERATING INCOME 2003 2002 Fees and commission income 419,077 440,481 Less: Fees and commission expense (Note) (50,814) (81,649) Net fees and commission income 368,263 358,832 Net gain from foreign exchange trading 24,869 33,968 Net gain from trading securities and derivatives 56,317 90,447 Dividend income from investments in securities Listed investments 161 327 Unlisted investments 8,988 13,611 Gross rental income from investment properties 11,900 13,709 Other rental income 5,417 4,669 Others 5,806 5,790 481,721 521,353 26,990,000 Note: In previous years, commissions paid to dealers on hire purchase loans were amortised using a straight line basis over the term of the loan. The amortisation charge in 2002 of HK$26,990,000 was included as part of fees and commission expense. With effect from 1st January 2003, such commissions are amortised using an income-matching method which matches the amortisation charge with the amount of interest income earned from the underlying loans in each period. The amortisation charge is included as part of net interest income in line with market practice. The effect of this change in amortisation basis and accounts classification to the 2002 accounts is not significant and accordingly, no restatement of the amounts reported in last year is made. 2003 149

4. OPERATING EXPENSES 2003 2002 Staff costs (including directors remuneration) (Note 5) 440,820 467,476 Premises and other fixed assets Rental of premises 41,512 40,436 Others 53,423 54,715 Depreciation (Note 23) 60,756 56,577 Auditors remuneration 1,672 1,767 Other operating expenses 118,400 158,141 716,583 779,112 Rental of premises under operating leases is stated net of rental income received from sub-lease agreements with third parties. 5. STAFF COSTS 2003 2002 Wages and salaries 417,148 437,688 Termination benefits 3,393 Pension costs defined contribution plans 23,672 26,395 440,820 467,476 6. CHARGE FOR BAD AND DOUBTFUL DEBTS 2003 2002 Net charge for bad and doubtful debts Specific provisions charged new provisions 568,320 693,476 releases (27,862) (14,440) recoveries (40,472) (27,591) 499,986 651,445 / General provisions (written back) / charged (5,092) 17,037 Net charge to profit and loss account (Note 18) 494,894 668,482 150

7. NET LOSS ON DISPOSAL AND DEFICIT ON REVALUATION OF FIXED ASSETS 2003 2002 Deficit on revaluation of investment properties 19,022 32,528 Deficit on revaluation of premises 45,187 Gain on disposal of investment properties (590) Loss on disposal of other fixed assets 860 4,313 64,479 36,841 8. NET GAIN ON DISPOSAL OF NON-TRADING AND HELD-TO-MATURITY SECURITIES 2003 2002 Net gain on disposal of non-trading securities 195,938 5,734 Net loss on disposal of held-to-maturity securities (3,221) Net gain on transfers of held-to-maturity securities to non-trading securities (note) 74,230 195,938 76,743 Note: The disposal and transfer of held-to-maturity securities in 2002 were brought about by changes in the Group s intention of holding the securities to maturity as a result of restructuring of the investment portfolio due to change in investment strategy, after taking into consideration changes in market conditions. All remaining holdings in the held-tomaturity securities portfolio kept in the investment book but excluding those held in the short-term money market book (as reflected in Treasury bills under Cash and short-term funds (Note 13)) were redesignated as non-trading securities at the time of transfer. 9. DIRECTORS EMOLUMENTS 2003 2002 Fees 300 210 Salaries, housing, benefits in kind and other allowances 48,326 50,876 Pensions 1,560 1,634 50,186 52,720 2003 151

2002 6,593,000 2002 10,395,000 9. DIRECTORS EMOLUMENTS (Continued) The benefits arising from the exercise of share options are included in the above as benefits in kind and are determined based on the difference between the closing market price of shares of Dah Sing Financial Holdings Limited ( DSFH ) upon exercise of the options and the predetermined exercise price of the option shares. During the year, share option benefits amounting to HK$6,593,000 (2002: HK$10,395,000) had been received by four (2002: three) Directors. 243,7502002 550,000 26.28 17.5% 2002 16% 16%/ 17.5% In addition to the above emoluments, options to purchase 243,750 (2002: 550,000) shares of DSFH granted to certain Directors on 3rd April 2000 remained outstanding as at 31st December 2003. These options are exercisable at various amounts between the first and fifth anniversaries of the dates of grant and have an exercise price of HK$26.28 per share. 10. TAXATION Hong Kong profits tax has been calculated at the rate of 17.5% (2002:16%) on the estimated assessable profit for the year. In 2003, the Hong Kong Government enacted a change in the profits tax rate from 16% to 17.5% for the fiscal year 2003/2004. The amount of taxation charged to the consolidated profit and loss account represents: 2003 2002 Hong Kong profits tax on estimated assessable profit for the year 149,839 116,603 Attributable share of estimated Hong Kong profits tax losses arising from investments in partnerships (69,591) (116,264) 80,248 339 Investments in partnerships written off 53,287 91,248 133,535 91,587 Over-provision in prior years (6) (15,178) Deferred taxation (Note 26) relating to the origination and reversal of temporary differences (7,619) (8,173) resulting from an increase in the tax rate (4,139) 121,771 68,236 152

10. TAXATION (Continued) The Group s investments in partnerships are written off in the same year as the taxation benefits resulting from those investments are received and utilised. The taxation on the Group s profit before taxation differs from the theoretical amount that would arise using the taxation rate of Hong Kong as follows: 2003 2002 Profit before taxation 989,595 875,562 17.5% 2002 16% Calculated at a taxation rate of 17.5% (2002: 16%) 173,179 140,090 Tax effect of: Income not subject to taxation (58,722) (58,519) Expenses not deductible for taxation purposes 20,738 21,720 Tax losses not recognised 45 83 Utilisation of previously unrecognised tax losses (323) Increase in opening net deferred tax assets resulting from an increase in tax rates (4,139) Over-provision in prior years (6) (15,178) Terminal return on investments in partnerships 6,980 5,379 Attributable share of estimated Hong Kong profits tax losses arising from investments in partnerships (69,591) (116,264) Investments in partnerships written off 53,287 91,248 Taxation charge 121,771 68,236 868,970,0002002 816,992,000 11. PROFIT ATTRIBUTABLE TO SHAREHOLDERS The profit attributable to shareholders is dealt with in the accounts of the Bank to the extent of HK$868,970,000 (2002: HK$816,992,000). 12. DIVIDENDS 2003 2002 25.00 First Interim, paid, of HK$25.00 2002 25.00 (2002: HK$25.00) per share 200,000 200,000 12.50 Second interim, paid, of HK$12.50 2002 (2002: Nil) per share 100,000 Final, proposed on 1st March 2004, of HK$20.00 20.002002 per share (2002: proposed on 3rd March 2003, 30.00 of HK$30.00 per share) 200,000 240,000 500,000 440,000 2003 153

13. CASH AND SHORT-TERM FUNDS Group Bank 2003 2002 2003 2002 Cash and balances with banks and other financial institutions 390,555 394,876 390,464 394,768 Money at call and short notice 4,748,488 2,645,305 4,748,488 2,645,305 Treasury bills (including Exchange Fund Bills) (Note 32) 5,390,931 5,595,710 5,390,931 5,595,710 10,529,974 8,635,891 10,529,883 8,635,783 Group and Bank 2003 2002 An analysis of treasury bills held is as follows: Trading securities, at fair value Unlisted 1,391,323 248,680 Non-trading securities, at fair value Unlisted 3,999,608 Held-to-maturity securities, at amortised cost Unlisted 5,347,030 5,390,931 5,595,710 14. TRADE BILLS Group and Bank 2003 2002 Trade bills 744,998 582,268 General provision (Note 18) (7,450) (5,822) 737,548 576,446 154

15. CERTIFICATES OF DEPOSIT HELD Group and Bank 2003 2002 Non-trading securities, at fair value (Note 32) Unlisted 204,400 455,137 16. TRADING SECURITIES Group and Bank 2003 2002 At fair value: Debt securities (Note 32) Listed in Hong Kong 2,173,363 1,198,309 Unlisted 613,968 1,299,554 2,787,331 2,497,863 Equity securities Listed in Hong Kong 1,883 74 2,789,214 2,497,937 Trading securities are analysed by issuer as follows: Central governments and central banks 2,242,304 1,188,628 Public sector entities 488,592 1,219,997 Banks and other financial institutions 56,527 89,312 Corporate entities 1,791 2,789,214 2,497,937 2003 155

17. ADVANCES TO CUSTOMERS AND OTHER ACCOUNTS (a) Advances to customers and other accounts: Group Bank 2003 2002 2003 2002 Advances to customers (Note 32) 27,424,042 27,661,272 27,424,042 27,661,272 Provisions for bad and doubtful debts Specific (Note 18) (231,520) (219,380) (231,520) (219,380) General (Note 18) (269,213) (275,967) (269,213) (275,967) 26,923,309 27,165,925 26,923,309 27,165,925 Accrued interest 408,920 402,492 408,920 402,492 Other accounts 1,227,436 1,218,900 1,221,307 1,214,370 Provisions against other accounts General (Note 18) (120) (86) 1,636,236 1,621,306 1,630,227 1,616,862 28,559,545 28,787,231 28,553,536 28,782,787 (b) Non-performing loans to customers are analysed as follows: Group Bank 2003 2002 2003 2002 Non-performing loans to customers 427,971 461,661 427,971 461,661 Specific provisions (206,694) (199,844) (206,694) (199,844) 221,277 261,817 221,277 261,817 Amount of interest in suspense 24,169 34,338 24,169 34,338 Non-performing loans are loans and advances to customers on which interest is being placed in suspense or on which interest accrual has ceased. 1.56% 2002 1.67 % Non-performing loans to customers represent 1.56% (2002: 1.67%) of total advances to customers of the Group and of the Bank. The above specific provisions were made after taking into account the value of collateral in respect of such advances as at 31st December. 156

17. ADVANCES TO CUSTOMERS AND OTHER ACCOUNTS (Continued) (c) Advances to customers include finance lease receivables, analysed as follows: Group Bank 2003 2002 2003 2002 Gross investment in finance leases, receivable: Not later than one year 1,344,141 1,400,569 1,344,141 1,400,569 Later than one year and not later than five years 1,545,659 1,677,620 1,545,659 1,677,620 Later than five years 1,576,555 1,774,732 1,576,555 1,774,732 4,466,355 4,852,921 4,466,355 4,852,921 Unearned future finance income on finance leases (830,789) (999,260) (830,789) (999,260) Net investment in finance leases 3,635,566 3,853,661 3,635,566 3,853,661 The maturity of net investment in finance leases is analysed as follows: Not later than one year 1,180,353 1,197,423 1,180,353 1,197,423 Later than one year and not later than five years 1,263,323 1,339,191 1,263,323 1,339,191 Later than five years 1,191,890 1,317,047 1,191,890 1,317,047 3,635,566 3,853,661 3,635,566 3,853,661 2002 There is no unguaranteed residual value included in the gross investment in finance leases above as at 31st December 2003 (2002: Nil). 29,673,000 2002 29,166,00029,673,000 2002: 29,166,000 The allowance for uncollectable finance lease receivables included in the provision for loan losses as at 31st December 2003 for the Group and the Bank amounted to HK$29,673,000 (2002: HK$29,166,000) and HK$29,673,000 (2002: HK$29,166,000) respectively. 2003 157

18. PROVISIONS FOR BAD AND DOUBTFUL DEBTS Provisions for bad and doubtful debts Suspended Group Specific General Total Interest At 1st January 2003 219,380 281,875 501,255 34,338 Amounts written off (528,318) (528,318) (19,524) Recoveries of advances written off in previous years 40,472 40,472 / Charge/ (write-back) to profit and loss account (Note 6) 499,986 (5,092) 494,894 Interest suspended during the year 9,355 At 31st December 2003 231,520 276,783 508,303 24,169 Deducted from: Trade bills (Note 14) 7,450 7,450 Advances to customers (Note 17(a)) 231,520 269,213 500,733 Accrued interest and other accounts (Note 17(a)) 120 120 231,520 276,783 508,303 Provisions for bad and doubtful debts Suspended Bank Specific General Total Interest At 1st January 2003 219,380 281,789 501,169 34,338 Amounts written off (528,236) (528,236) (19,524) Recoveries of advances written off in previous years 40,472 40,472 / Charge/ (write-back) to profit and loss account 499,904 (5,126) 494,778 Interest suspended during the year 9,355 At 31st December 2003 231,520 276,663 508,183 24,169 Deducted from: Trade bills (Note 14) 7,450 7,450 Advances to customers (Note 17(a)) 231,520 269,213 500,733 231,520 276,663 508,183 158

18. PROVISIONS FOR BAD AND DOUBTFUL DEBTS (Continued) Provisions for bad and doubtful debts Suspended Group Specific General Total Interest At 1st January 2002 305,223 264,838 570,061 53,123 Amounts written off (764,879) (764,879) (26,497) Recoveries of advances written off in previous years 27,591 27,591 Charge to profit and loss account (Note 6) 651,445 17,037 668,482 Interest suspended during the year 7,712 At 31st December 2002 219,380 281,875 501,255 34,338 Deducted from: Trade bills (Note 14) 5,822 5,822 Advances to customers (Note 17(a)) 219,380 275,967 495,347 Accrued interest and other accounts (Note 17(a)) 86 86 219,380 281,875 501,255 Provisions for bad and doubtful debts Suspended Bank Specific General Total Interest At 1st January 2002 304,999 264,159 569,158 53,123 Amounts written off (764,660) (764,660) (26,497) Recoveries of advances written off in previous years 23,887 23,887 Charge to profit and loss account 655,154 17,262 672,416 Transfer from the business of a subsidiary 368 368 Interest suspended during the year 7,712 At 31st December 2002 219,380 281,789 501,169 34,338 Deducted from: Trade bills (Note 14) 5,822 5,822 Advances to customers (Note 17(a)) 219,380 275,967 495,347 219,380 281,789 501,169 2003 159

19. HELD-TO-MATURITY SECURITIES Group and Bank 2003 2002 Balance as at 1st January 4,433,955 Amortisation of discount 737 8,270 Additions 80,917 3,827,848 Repayments (685,806) Securities sold during the year (7,584,267) Balance as at 31st December 81,654 Unlisted securities, at amortised cost 81,654 Held-to-maturity securities are analysed by issuer as follows: Banks and other financial institutions 81,654 20. NON-TRADING SECURITIES Group and Bank 2003 2002 At fair value: Debt securities (Note 32) Listed in Hong Kong 1,384,656 2,343,957 Listed outside Hong Kong 7,650,441 6,146,886 Unlisted 7,681,483 7,366,438 16,716,580 15,857,281 Equity securities Listed in Hong Kong 71,515 2,879 Unlisted Interests in investment funds 292,633 Shares in other unlisted companies 875 814 365,023 3,693 17,081,603 15,860,974 160

20. NON-TRADING SECURITIES (Continued) Group and Bank 2003 2002 Non-trading securities are analysed by issuer as follows: Central governments and central banks 3,940,712 6,729,179 Public sector entities 2,600,245 1,740,652 Banks and other financial institutions 6,428,781 4,404,462 Corporate entities 4,110,412 2,985,228 Others 1,453 1,453 17,081,603 15,860,974 21. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES Group 2003 2002 Unlisted shares, at cost 20,000 20,000 Loan receivable from a jointly controlled entity 31,000 31,000 51,000 51,000 Share of post-acquisition reserves (28,015) (26,000) 22,985 25,000 Bank 2003 2002 Unlisted shares, at cost 20,000 20,000 Provision for impairment loss (20,000) (20,000) Loan receivable from a jointly controlled entity 31,000 31,000 Provision for bad and doubtful debts (8,015) (6,000) 22,985 25,000 2003 161

21. INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (Continued) The following are the jointly controlled entities as at 31st December 2003: Place of Principal activities Percentage of Name incorporation and place of operation interest in ownership Bank Consortium Holding Limited Hong Kong Investment holding, Hong Kong 13.333% Bank Consortium Trust Company Limited Hong Kong Trustee and custodian services 13.333% for retirement fund schemes, Hong Kong The Group s interest in Bank Consortium Holding Limited is directly held by the Bank. Bank Consortium Trust Company Limited is a wholly owned subsidiary of Bank Consortium Holding Limited. 22. INVESTMENTS IN SUBSIDIARIES Bank 2003 2002 Unlisted shares, at cost 19,077 19,077 Amounts due from subsidiaries 9,927 9,068 Amounts due to subsidiaries (17,819) (18,019) 11,185 10,126 / The amounts due from / to subsidiaries are unsecured, interest free and have no fixed repayment terms. 162

22. INVESTMENTS IN SUBSIDIARIES (Continued) The following is a list of the principal wholly-owned subsidiaries as at 31st December 2003: / Place of incorporation / Particulars of issued Name of company Principal activity operation ordinary shares Dah Sing Finance Limited Dormant Hong Kong HK$25,000,000 Dah Sing Properties Limited Investment holding Hong Kong HK$10,000 Dah Sing Nominees Limited Nominee services Hong Kong HK$100,000 Dah Sing Property Agency Limited Property agency Hong Kong HK$100,000 Dah Sing Insurance Agency Limited Insurance agency Hong Kong HK$500,000 Dah Sing Computer Systems Limited Dormant Hong Kong HK$20 Dah Sing Insurance Brokers Limited Insurance broking Hong Kong HK$200,000 Vanishing Border Investment Services Limited Property investment Hong Kong HK$20 Dah Sing MTN Financing Limited Dormant British Virgin Islands US$1 Dah Sing SAR Financing Limited Dormant British Virgin Islands US$1 The above companies are all directly held by the Bank. 2003 163

23. FIXED ASSETS Furniture, Investment Fixtures & Motor Group Properties Premises Equipment Vehicles Total Cost or valuation At 1st January 2003 200,747 672,750 220,907 2,328 1,096,732 Additions 50,564 239 50,803 Reclassification 21,646 (21,646) Disposals / written off (5,600) (32,919) (38,519) Deficit on revaluation (19,022) (79,519) (98,541) At 31st December 2003 197,771 571,585 238,552 2,567 1,010,475 Accumulated depreciation At 1st January 2003 17,305 111,051 1,242 129,598 Charge for the year (Note 4) 15,863 44,381 512 60,756 Disposals / written off (31,931) (31,931) Written back on revaluation (33,168) (33,168) At 31st December 2003 123,501 1,754 125,255 Net book value At 31st December 2003 197,771 571,585 115,051 813 885,220 At 31st December 2002 200,747 655,445 109,856 1,086 967,134 The analysis of cost or valuation of the above assets is as follows: At 31st December 2003 At cost 238,552 2,567 241,119 At professional valuation In 2003 197,771 571,585 769,356 197,771 571,585 238,552 2,567 1,010,475 At 31st December 2002 At cost 220,907 2,328 223,235 At professional valuation In 2002 200,747 200,747 In 2001 672,750 672,750 200,747 672,750 220,907 2,328 1,096,732 164

23. FIXED ASSETS (Continued) Furniture, Investment Fixtures & Motor Bank Properties Premises Equipment Vehicles Total Cost or valuation At 1st January 2003 200,131 671,915 220,907 2,328 1,095,281 Additions 50,564 239 50,803 Reclassification 21,646 (21,646) Disposals / written off (5,600) (32,919) (38,519) Deficit on revaluation (19,022) (79,492) (98,514) At 31st December 2003 197,155 570,777 238,552 2,567 1,009,051 Accumulated depreciation At 1st January 2003 17,265 111,050 1,242 129,557 Charge for the year 15,837 44,379 512 60,728 Disposals / written off (31,931) (31,931) Write back on revaluation (33,102) (33,102) At 31st December 2003 123,498 1,754 125,252 Net book value At 31st December 2003 197,155 570,777 115,054 813 883,799 At 31st December 2002 200,131 654,650 109,857 1,086 965,724 The analysis of cost or valuation of the above assets is as follows: At 31st December 2003 At cost 238,552 2,567 241,119 At professional valuation In 2003 197,155 570,777 767,932 197,155 570,777 238,552 2,567 1,009,051 At 31st December 2002 At cost 220,907 2,328 223,235 At professional valuation In 2002 200,131 200,131 In 2001 671,915 671,915 200,131 671,915 220,907 2,328 1,095,281 2003 165

23. FIXED ASSETS (Continued) Investment properties and premises were revalued on 31st December 2003 on an open market value basis by an independent professional chartered surveyor, Knight Frank Hong Kong Limited. 430,892,000 2002 472,457,000428,130,000 2002 469,739,000 Had the premises of the Group and the Bank been stated at cost less accumulated depreciation, the carrying amount of the premises would have been HK$430,892,000 (2002: HK$472,457,000) and HK$428,130,000 (2002: HK$469,739,000) respectively. The net book value of investment properties and premises comprises: 2003 2002 Investment Investment Group Properties Premises Properties Premises Leaseholds Held in Hong Kong on medium-term lease (between 10 50 years) 197,155 570,801 200,131 654,671 Held outside Hong Kong on medium-term lease (between 10 50 years) 616 784 616 774 197,771 571,585 200,747 655,445 2003 2002 Investment Investment Bank Properties Premises Properties Premises Leaseholds Held in Hong Kong on medium-term lease (between 10 50 years) 197,155 570,777 200,131 654,650 166

24. DEPOSITS FROM CUSTOMERS Group Bank 2003 2002 2003 2002 Demand deposits and current account 3,201,319 2,048,117 3,219,219 2,066,195 Savings deposits 6,858,001 5,327,772 6,858,001 5,327,772 Time, call and notice deposits 26,591,658 27,155,396 26,599,058 27,164,396 36,650,978 34,531,285 36,676,278 34,558,363 6,379,969,0002002 5,290,428,000 25. OTHER ACCOUNTS AND ACCRUALS Included in Other accounts and accruals as at 31st December 2003 is a short position in treasury bills, treasury notes and other public sector debt securities totalling HK$6,379,969,000 for the Group and the Bank (2002: HK$5,290,428,000) (Note 28). 26. CURRENT AND DEFERRED TAX LIABILITIES Group Bank 2003 2002 2003 2002 Current tax 53,712 (11,032) 53,737 (11,069) Deferred tax 6,904 20,571 6,904 20,571 60,616 9,539 60,641 9,502 17.5% 2002: 16% Deferred tax is calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2002:16%) / The movement on the deferred tax liabilities/(assets) account is as follows: Group and Bank 2003 2002 At 1st January 20,571 14,485 Deferred taxation credited to profit and loss account (Note 10) (11,758) (8,173) / Taxation (credited)/ charged to equity (Note 31) (1,909) 14,259 At 31st December 6,904 20,571 2003 167

/ 26. CURRENT AND DEFERRED TAX LIABILITIES (Continued) The deferred tax (credited) / charged to equity during the year is as follows: Group and Bank 2003 2002 Fair value reserve in shareholders equity premises (Note 31) 1,369 (524) non-trading securities (Note 31) (3,278) 14,783 (1,909) 14,259 The movements in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the year are as follows: Deferred tax liabilities: Accelerated tax Premises Investment depreciation revaluation revaluation Total Group and Bank 2003 2002 2003 2002 2003 2002 2003 2002 At 1st January 6,694 9,060 48,773 49,297 15,944 1,161 71,411 59,518 Credited to profit and loss account (6,295) (2,366 ) (6,295) (2,366 ) / Charged / (credited) to equity 1,369 (524 ) (3,278) 14,783 (1,909) 14,259 At 31st December 399 6,694 50,142 48,773 12,666 15,944 63,207 71,411 Deferred tax assets: Provisions Others Total Group and Bank 2003 2002 2003 2002 2003 2002 At 1st January 49,246 45,465 1,594 (432) 50,840 45,033 Credited to profit and loss account 4,455 3,781 1,008 2,026 5,463 5,807 At 31st December 53,701 49,246 2,602 1,594 56,303 50,840 Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet. 168