For immediate release DAO HENG BANK REPORTS NET INCOME OF HK$1,646 million FOR 12-MONTHS ENDED 30 JUNE 2001 * * * Loans grow 5.3%, while NPLs decline to 3.4% Hong Kong, 17 September 2001: Dao Heng Bank (DHB) today reported a net income of HK$1,646 million for the twelve months ended 30 June 2001, representing a 4.6% decline from the corresponding twelve months period ended 30 June 2000. During the period ended 30 June 2001, DHB s 4.1% increase in operating income was supported by strong loan growth of 5.3% and non-interest income growth of 30.1%. Earnings during the period were impacted by a more challenging environment in the housing loans market and accounting adjustments made to bring DHB accounting policies in line with those of its new parent, DBS Group Holdings (DBSH). DHB s net profits were not consolidated by DBSH in its 30 June 2001 statements as DHB only became a subsidiary of DBSH on 29 June 2001. DHB has changed its financial year end to 31 December and its accounts will be consolidated by DBSH with effect from 1 July 2001. - End - For further information, please contact: Ms. Dora Kuo Corporate Communications Manager Dao Heng Bank Tel : 852-2218 8492 Fax: 852-2285 3899
A. RESULTS DAO HENG BANK LIMITED 2000/2001 SECOND INTERIM RESULTS PRESS RELEASE The Board of Directors of Dao Heng Bank Limited ( the Bank ) is pleased to announce the unaudited consolidated second interim results of the Bank and its subsidiaries (the Group ) for the twelve months ended 30th June, 2001 together with comparative figures for the corresponding period last year as follows: Consolidated Profit and Loss Account Change Note % Interest income 8,860,461 8,640,294 Interest expense (5,937,367) (5,610,019) Net interest income 2,923,094 3,030,275-3.5 Other operating income 1,160,006 891,636 +30.1 Operating income 4,083,100 3,921,911 +4.1 Operating expenses (1,797,690) (1,567,942) +14.7 Operating profit before provisions 2,285,410 2,353,969 Provisions for bad and doubtful loans and advances (507,088) (365,910) +38.6 Operating profit 1,778,322 1,988,059-10.5 Profit/(loss) on disposal of fixed assets 15,261 (33,701) Share of profit of a jointly controlled entity 53,009 31,250 Profit before taxation 1,846,592 1,985,608 Taxation 1 (201,425) (267,644) Profit after taxation 1,645,167 1,717,964 Minority interests 1,183 6,955 Profit attributable to shareholders 1,646,350 1,724,919-4.6 Dividends (623,324) (833,917) Retained profit for the period 1,023,026 891,002 Profit retained in: Bank and subsidiaries 978,869 865,064 Jointly controlled entity 44,157 25,938 1,023,026 891,002 1
Consolidated Balance Sheet Note ASSETS Cash and short-term funds 35,897,996 30,886,869 Placements with banks and other financial institutions maturing between one and twelve months 17,498,714 10,654,760 Certificates of deposit held 412,190 588,417 Other investments in securities 2,490,477 1,787,925 Advances to customers less provisions 2 68,801,218 65,337,115 Other assets 2,821,273 2,292,957 Held to maturity securities and investment securities 20,083,107 25,360,050 Interest in a jointly controlled entity 65,130 35,973 Fixed assets 4,932,649 5,032,880 153,002,754 141,976,946 LIABILITIES Deposits and balances of banks and other financial institutions 5,488,278 4,415,026 Current, fixed, savings and other deposits of customers 105,780,416 101,936,175 Certificates of deposit issued 6,432,596 7,060,751 Other accounts and provisions 18,875,343 12,780,716 Proposed dividend 344,544 625,611 Amount due to a jointly controlled entity 724,006 591,358 7.75% Fixed rate subordinated notes 2,040,571 2,039,459 139,685,754 129,449,096 SHAREHOLDERS FUNDS Share capital 5,200,000 5,200,000 Reserves 3 8,117,000 7,156,978 Shareholders funds 13,317,000 12,356,978 MINORITY INTERESTS 170,872 13,317,000 12,527,850 153,002,754 141,976,946 2
Notes: 1. TAXATION Hong Kong profits tax 187,586 255,971 Overseas taxation 4,987 6,361 192,573 262,332 Share of a jointly controlled entity s taxation 8,852 5,312 201,425 267,644 The provision for Hong Kong profits tax is calculated at 16% (2000 : 16%) of the estimated assessable profits for the period. Taxation for overseas subsidiaries and branches is charged at the appropriate current rates of taxation ruling in the countries in which they operate. No provision for deferred tax is made as there are no material timing differences which would result in a liability payable in the foreseeable future. 2. ADVANCES TO CUSTOMERS (a) Advances to customers Advances to customers 70,363,972 66,877,100 General provisions (836,583) (821,012) Specific provisions (726,171) (718,973) 68,801,218 65,337,115 3
(b) Advances to customers - by industry sectors The information concerning advances to customers by industry sectors has been classified according to the usage of the loan and is stated gross of any provisions. Loans for use in Hong Kong Industrial, commercial and financial - Property development 103,914 234,701 - Property investment 6,880,762 7,158,136 - Financial concerns 320,216 417,826 - Stockbrokers 44,987 75,374 - Wholesale and retail trade 1,255,449 1,705,808 - Manufacturing 2,295,398 2,246,998 - Transport and transport equipment 7,119,780 5,646,859 - Others 3,161,233 2,587,422 Individuals - Loans for the purchase of flats in the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 4,742,075 4,496,430 - Loans for the purchase of other residential properties 29,188,195 27,247,698 - Credit card advances 4,435,408 3,646,333 - Others 3,560,950 3,129,058 63,108,367 58,592,643 Trade finance 5,970,958 5,476,979 Loans for use outside Hong Kong 1,284,647 2,807,478 70,363,972 66,877,100 (c) Advances to customers - by geographical areas 30th June, 2001, over 90% of the gross advances to customers and the related non-performing loans and overdue advances were located in Hong Kong after taking into account the transfer of risks. In general, transfer of risks applies when an advance is guaranteed by a party in a country which is different from that of the counterparty. 4
(d) Non-performing loans The total advances, net of suspended interest, on which interest has been placed in suspense or has ceased to accrue are as follows: 30th June 2001 30th June 2000 % of Total % of Total advances advances Gross advances 2,367,067 3.36 2,612,377 3.91 Specific provisions (650,984) (664,264) 1,716,083 1,948,113 Suspended interest 453,555 387,906 The specific provisions were made after taking into account the value of collateral in respect of such advances. (e) Overdue advances to customers The gross amount of advances, net of accrued interest that has been capitalised but accrued to suspense account, which have been overdue for: 30th June 2001 30th June 2000 % of Total % of Total advances advances Six months or less but over three months 530,279 0.75 482,630 0.72 One year or less but over six months 524,420 0.74 576,335 0.86 Over one year 1,002,934 1.43 1,348,089 2.02 2,057,633 2.92 2,407,054 3.60 Market value of securities held against the secured advances 1,718,168 1,979,328 Secured overdue advances 1,326,912 1,578,012 Unsecured overdue advances 730,721 829,042 2,057,633 2,407,054 Specific provisions made 618,774 572,665 5
(f) Rescheduled advances to customers 30th June 2001 30th June 2000 % of Total % of Total advances advances Rescheduled advances 570,247 0.81 827,639 1.24 Rescheduled advances are those advances which have been restructured due to the financial difficulties of borrowers, resulting in the agreement of revised repayment schedules. Rescheduled advances which have performed in accordance with the revised repayment schedules for six months will be reclassified as normal advances. Those which have been overdue for more than three months under revised repayment schedules are included in Overdue advances. (g) Reconciliation of overdue advances to non-performing loans Overdue advances to customers as per above item (2e) 2,057,633 2,407,054 Less: Advances which are overdue for more than three months and on which interest is still being accrued (273,456) (345,146) Add: Advances which are overdue for three months or less, or which are not yet overdue, and on which interest is being placed in suspense or on which interest accrual has ceased - included in rescheduled advances 293,050 350,860 - others 289,840 199,609 Non-performing loans as per above item (2d) 2,367,067 2,612,377 3. RESERVES Share premium 31,351 31,351 General reserve 683,249 683,249 Revaluation reserve 627,151 633,660 Capital reserve 11,636 11,636 Retained earnings 6,763,613 5,797,082 8,117,000 7,156,978 6
4. OFF-BALANCE SHEET EXPOSURES (a) Contingent liabilities and commitments The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments: Direct credit substitutes 725,698 606,011 Transaction-related contingencies 177,097 206,611 Trade-related contingencies 2,050,578 2,203,314 Other commitments with an original maturity of under 1 year or which are unconditionally cancellable 33,824,602 27,045,777 36,777,975 30,061,713 Aggregate credit risk-weighted amount 1,069,338 1,050,339 (b) Financial contracts The following is a summary of the notional amounts of each significant type of financial contracts entered into by the Group: Exchange rate contracts Spot and forwards 5,085,560 4,258,239 Swaps 71,524,725 29,349,482 Options purchased 101,034 93,874 Options written 7,156 30,198 Interest rate contracts Forwards and futures 8,200,365 4,000,131 Swaps 35,695,776 24,647,868 Options purchased 38,999 38,978 Others Options purchased 585,775 131,547 Options written 585,775 131,547 121,825,165 62,681,864 Aggregate credit risk-weighted amount 341,917 185,965 Aggregate replacement cost 586,501 363,898 The increase in financial contracts reflects increased customer demands, higher business volumes and the Group s active hedging strategy to reduce funding costs and to manage risk. The notional amounts of these instruments indicate the volume of transactions outstanding at the balance sheet date. They do not represent amounts at risk. The replacement costs and credit risk-weighted amounts of the off-balance sheet exposures do not take into account the effects of bilateral netting arrangements. 7
5. CAPITAL ADEQUACY RATIOS The components of total capital base after deductions Core capital (Tier I capital) Paid up ordinary share capital 5,200,000 5,200,000 Reserves (eligible for inclusion in core capital) 7,406,413 6,487,919 Minority interests 170,872 Eligible supplementary capital (Tier II capital) Reserve on revaluation of land and interests in land (at 70%) 432,841 437,398 General provisions for doubtful debts 836,583 821,012 Term subordinated debt 2,040,571 2,039,459 Total capital base before deductions 15,916,408 15,156,660 Deductions from total capital base (589,158) (106,984) Total capital base after deductions 15,327,250 15,049,676 Total risk-weighted assets 68,232,757 66,532,781 Total risk-weighted assets adjusted for market risk 68,731,127 67,840,108 Capital adequacy ratios at 30th June Before adjusting for market risk Tier I (%) 18.48 17.82 Tier I and Tier II (after deductions) (%) 22.46 22.62 After adjusting for market risk Tier I (%) 18.34 17.48 Tier I and Tier II (after deductions) (%) 22.30 22.18 The unadjusted capital adequacy ratio is computed on the consolidated basis as required by the Hong Kong Monetary Authority for its regulatory purposes, and is in accordance with the Third Schedule to the Hong Kong Banking Ordinance. The adjusted capital adequacy ratio which takes into account market risk as at the balance sheet date is computed in accordance with the Guideline Maintenance of Adequate Capital against Market Risks issued by the Hong Kong Monetary Authority and on the same consolidated basis as for unadjusted capital adequacy ratio. 8
6. LIQUIDITY RATIOS For the twelve months ended 30th June Average liquidity ratio for the period (%) 51.22 49.02 The average liquidity ratio for the period is the simple average of each calendar month s average liquidity ratio, which is computed for Hong Kong offices of the Bank, and is in accordance with the Fourth Schedule to the Hong Kong Banking Ordinance. 7. FOREIGN CURRENCIES EXPOSURE 30th June 2001 US$ Others Total HK$ M HK$ M HK$ M Spot assets 42,249 7,376 49,625 Spot liabilities 40,296 7,529 47,825 Forward purchases 38,649 5,997 44,646 Forward sales 38,395 5,716 44,111 Net options position 4 4 Net long non-structural position 2,207 132 2,339 Net structural position 212 212 The net options position is calculated using the worst case approach and the net structural position represents the Group s investment in Philippines. B. REVIEW OF ACTIVITIES The unaudited consolidated profit attributable to shareholders of the Group for the twelve months ended 30th June, 2001 was HK$1,646 million, which represents a decrease of 4.6% compared to the corresponding 12 months period ended June 2000. The decrease in profit is a reflection of the competitive operating environment as loan growth was mild and interest margins were tighter. Additionally, higher noninterest income helped to offset the increase in expenses. As at 30th June, 2001, total customer deposits were HK$105.8 billion, reflecting a growth rate of 3.8% compared with the previous financial year. Total loans grew 5.3% to HK$68.8 billion, which was better growth than the market growth rate and reflected the Groups strong competitive position in attracting lending business. The sale of HK$1.1 billion in mortgage loans to the Hong Kong Mortgage Corporation also somewhat moderated the on-balance sheet loan growth. However a few sectors, including credit card receivables, taxi financing and personal loans, expanded at double-digit rates, as a part of the Group s ongoing programme to increase its penetration in these areas. The Group s loans to customer deposits ratio of 65% and loans to assets ratio of 45% continue to remain at very conservative levels, providing ample opportunity for growth when loan demand picks up. Shareholders funds increased 7.8% to HK$13.3 billion with the consolidated capital adequacy ratio at a solid 22.3%. The Group continued to exhibit a highly liquid balance sheet, with 49.9% of total assets held in the form of government securities, interbank placements, and negotiable securities. 9
Net interest income decreased 3.5%, as a result of a 27 basis point reduction in Net Interest Margin to 2.33% due to greater competition for loans, particularly in the mortgage loan portfolio. Other operating income increased by 30.1% over the corresponding period last year, due to broad based growth in fees and commissions, foreign exchange earnings and other exceptionally strong market related trading income. As a consequence, non-interest income accounted for 28.4% of operating income. The Group continued to pursue its ambitious long term initiatives to invest in information technology, especially in developing alternate delivery channels including advanced call centre, mobile phone, and internet banking capabilities. As a result, operating expenses increased by 14.7%, also due in part to a change in accounting estimate that resulted in a more rapid depreciation rate for information technology related fixed assets. The cost to income ratio increased to 44% from 40% in the previous period. Loan quality indicators continued to improve during the period. Non-performing loans decreased from 3.91% to 3.36% of total loans. Loans overdue for more than 90 days improved, from 3.60% to 2.92% of total loans, and rescheduled loans declined from 1.24% to 0.81% of total loans, both as of 30th June, 2001. Charges for specific loan loss provisions increased by HK$123 million for the prior year, partly as a result of the implementation of DBS policies for provision accounting. C. CHANGE OF FINANCIAL YEAR END DATE The Bank has become a subsidiary of DBS Group Holdings Limited ( DBS Group ) on 29th June, 2001 due to the change of control of Dao Heng Bank Group Limited, holding company of the Bank. As the financial year end date of DBS Group is 31st December, the Board of Directors of the Bank has resolved to change the financial year end date from 30th June to 31st December to facilitate the preparation of group consolidated accounts. The second interim results of the Bank were thus prepared for a period of 12 months from 1st July, 2000 to 30th June, 2001. D. STATEMENT OF COMPLIANCE In preparing the second interim results for the twelve months ended 30th June, 2001, the Bank has fully complied with the Recommendations on Interim Financial Disclosure by Authorized Institutions incorporated in Hong Kong issued by the Hong Kong Monetary Authority on 13th June, 2001. Hong Kong, 17th September, 2001 By Order of the Board Doris W.N. Wong Company Secretary 10