大新金融(00440) - 2020 - 中期财报

I. Financial Statements Condensed Consolidated Income Statement For the six months ended June 30, 2020, the Group's profit for the period significantly decreased by 32.4% to HK$988 million, primarily due to reduced net interest income and a substantial increase in credit impairment losses | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net interest income | 1,872,520 | 2,067,057 | (9.4) | | Net fee and commission income | 571,632 | 571,078 | 0.1 | | Net trading income | 131,786 | 38,673 | 240.8 | | Operating income after insurance claims | 2,751,094 | 2,837,837 | (3.1) | | Operating expenses | (1,469,948) | (1,434,343) | 2.5 | | Operating profit before impairment losses | 1,281,146 | 1,403,494 | (8.7) | | Credit impairment losses | (365,245) | (92,747) | 293.8 | | Profit before tax | 1,149,967 | 1,661,573 | (30.8) | | Profit for the period | 988,268 | 1,462,058 | (32.4) | | Earnings per share (basic and diluted) | HK$2.33 | HK$3.41 | (31.7) | Condensed Consolidated Statement of Comprehensive Income For the six months ended June 30, 2020, the Group's total comprehensive income significantly decreased to HK$393 million, an 81.1% year-on-year reduction, mainly due to a shift from gain to loss in fair value changes of equity investments and expanded exchange differences on translation of overseas entities' financial statements | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Profit for the period | 988,268 | 1,462,058 | (32.4) | | Net fair value changes on equity investments (may be reclassified to profit or loss) | (540,090) | 346,370 | (256.0) | | Exchange differences on translation of overseas entities' financial statements | (128,579) | (18,228) | 605.4 | | Other comprehensive (loss) / income for the period after tax | (595,653) | 619,146 | (196.2) | | Total comprehensive income for the period after tax | 392,615 | 2,081,204 | (81.1) | Condensed Consolidated Statement of Financial Position As of June 30, 2020, the Group's total assets increased to HK$259.94 billion, a 3.8% rise from the end of 2019, with total liabilities also growing, and customer deposits remaining the primary source of liabilities | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total assets | 259,941,401 | 250,311,979 | 3.8 | | Advances and other accounts | 148,828,876 | 146,239,992 | 1.8 | | Financial assets at fair value through other comprehensive income | 48,162,614 | 45,511,057 | 5.8 | | Financial assets at amortised cost | 21,356,004 | 15,742,992 | 35.7 | | Total liabilities | 226,215,115 | 216,507,438 | 4.5 | | Customer deposits | 187,080,907 | 182,115,297 | 2.7 | | Certificates of deposit issued | 8,388,218 | 6,750,825 | 24.2 | | Subordinated notes | 3,860,820 | 5,510,181 | (29.9) | | Total equity | 33,726,286 | 33,804,541 | (0.2) | Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2020, equity attributable to company shareholders slightly decreased, mainly due to reduced profit for the period and other comprehensive loss, partially offset by changes in retained earnings | Indicator | June 30, 2020 (HK$ thousand) | January 1, 2019 (HK$ thousand) | Change (2020 vs Jan 2019) (%) | | :--- | :--- | :--- | :--- | | Share capital | 4,248,559 | 4,248,559 | 0.0% | | Other reserves | 944,934 | 1,436,507 | (34.3)% | | Retained earnings | 21,570,453 | 21,120,164 | 2.1% | | Equity attributable to company shareholders | 26,763,946 | 26,805,230 | (0.2)% | | Non-controlling interests | 6,962,340 | 6,999,311 | (0.5)% | | Total equity | 33,726,286 | 33,804,541 | (0.2)% | - Profit for the period in the first half of 2020 was HK$745 million, a 33.1% year-on-year decrease from HK$1.114 billion in the same period of 2019[9] - Other comprehensive loss in the first half of 2020 was HK$596 million, compared to comprehensive income of HK$619 million in the same period of 2019[9] Condensed Consolidated Cash Flow Statement For the six months ended June 30, 2020, the Group's net cash inflow from operating activities significantly increased, but net cash outflow from financing activities substantially expanded, leading to a year-on-year decrease in net increase in cash and cash equivalents | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net cash flows from operating activities | 3,158,913 | 2,602,913 | 21.4 | | Net cash flows used in investing activities | (51,204) | (43,847) | 16.8 | | Net cash flows used in financing activities | (2,453,418) | (1,319,767) | 85.9 | | Net increase in cash and cash equivalents | 654,291 | 1,239,299 | (47.2) | | Cash and cash equivalents at end of period | 26,571,978 | 17,708,943 | 49.9 | - Net cash outflow from financing activities significantly increased, primarily due to the repayment of HK$1.747 billion in subordinated notes and the distribution of HK$345 million in ordinary share dividends[13] II. Notes to the Financial Statements 2.1 General Information Dah Sing Financial Group Limited and its subsidiaries (the Group) primarily provide banking, insurance, financial, and other related services in Hong Kong, Macau, and Mainland China - The Group primarily provides banking, insurance, financial, and other related services in Hong Kong, Macau, and Mainland China[14] 2.2 Unaudited Financial Statements and Accounting Policies These condensed interim consolidated financial statements are prepared in accordance with HKAS 34 and adopt new revised standards effective January 1, 2020, including those related to interest rate benchmark reform, but the impact of HKFRS 17 Insurance Contracts has not yet been assessed - The financial statements are prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants[14] - New revised standards effective January 1, 2020, have been adopted, including amendments to HKAS 1 and HKAS 8 "Definition of Material", HKFRS 3 "Definition of a Business", the revised Conceptual Framework for Financial Reporting, and "Interest Rate Benchmark Reform" amendments to HKFRS 9, HKAS 39, and HKFRS 7[16] - HKFRS 17 "Insurance Contracts" will be effective for annual periods beginning on or after January 1, 2023, and the Group has not yet assessed its impact on the consolidated financial statements[19] 2.3 Net Interest Income For the six months ended June 30, 2020, net interest income decreased by 9.4% year-on-year to HK$1.873 billion, mainly due to reduced interest income, particularly from securities investments and advances and other accounts | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total interest income | 3,447,007 | 3,713,427 | (7.2) | | - Interest income from securities investments | 794,980 | 871,361 | (8.8) | | - Interest income from advances and other accounts | 2,486,604 | 2,569,434 | (3.2) | | Total interest expense | 1,574,487 | 1,646,370 | (4.4) | | Net interest income | 1,872,520 | 2,067,057 | (9.4) | 2.4 Net Fee and Commission Income For the six months ended June 30, 2020, net fee and commission income remained stable, slightly increasing by 0.1% to HK$572 million, with significant growth in securities brokerage commissions offsetting declines in credit card and credit-related service fees | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total fee and commission income | 675,271 | 723,941 | (6.7) | | - Securities brokerage commissions | 82,257 | 54,238 | 51.7 | | - Credit card related income | 125,480 | 173,850 | (27.8) | | - Credit related service fees and commissions | 83,576 | 95,446 | (12.4) | | Total fee and commission expense | 103,639 | 152,863 | (32.2) | | Net fee and commission income | 571,632 | 571,078 | 0.1 | 2.5 Net Trading Income For the six months ended June 30, 2020, net trading income surged by 240.8% to HK$132 million, primarily driven by significant increases in net gains from foreign exchange trading and net gains from derivative instruments held for trading purposes | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net gains / (losses) from foreign exchange trading | 71,244 | (6,055) | (1276.8) | | Net gains / (losses) from derivative instruments held for trading purposes | 81,556 | (2,959) | (2855.6) | | Net trading income | 131,786 | 38,673 | 240.8 | 2.6 Other Operating Income For the six months ended June 30, 2020, other operating income slightly increased by 7.9% to HK$91.27 million, mainly from dividend income on equity instruments at fair value through other comprehensive income | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Dividend income from equity instruments at fair value through other comprehensive income | 52,429 | 47,242 | 10.9 | | Gross rental income from investment properties | 18,464 | 18,607 | (0.8) | | Total other operating income | 91,271 | 84,603 | 7.9 | 2.7 Operating Expenses For the six months ended June 30, 2020, operating expenses slightly increased by 2.5% year-on-year to HK$1.47 billion, primarily due to higher staff costs and benefits | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Staff costs and benefits | 1,033,359 | 986,935 | 4.7 | | Depreciation | 183,065 | 184,642 | (0.8) | | Total operating expenses | 1,469,948 | 1,434,343 | 2.5 | 2.8 Credit Impairment Losses For the six months ended June 30, 2020, credit impairment losses significantly increased by 293.8% to HK$365 million, mainly due to a substantial rise in new provisions for customer loans | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | New provisions (net of reversals) | 408,006 | 124,593 | 227.5 | | Recoveries of amounts previously written off | (42,761) | (31,846) | 34.3 | | Total credit impairment losses | 365,245 | 92,747 | 293.8 | | - Customer loans | 336,289 | 87,342 | 285.0 | 2.9 Impairment Loss on Investment in an Associate As of June 30, 2020, the Group recognized an additional impairment provision of HK$200 million on its investment in Bank of Chongqing, reducing its value to HK$3.841 billion, due to its fair value remaining below carrying amount - An additional impairment provision of HK$200 million was recognized on the investment in Bank of Chongqing as of June 30, 2020[39] - The investment value was adjusted down to HK$3.841 billion[39] - As of December 31, 2019, cumulative impairment provisions of HK$1.735 billion had been recognized[39] 2.10 Taxation For the six months ended June 30, 2020, tax expense decreased by 19.0% year-on-year to HK$162 million, primarily due to lower Hong Kong profits tax and overseas tax | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Hong Kong profits tax | 144,162 | 176,239 | (18.2) | | Overseas tax | 9,211 | 19,084 | (51.7) | | Deferred tax | 8,326 | 4,192 | 98.6 | | Total taxation | 161,699 | 199,515 | (19.0) | 2.11 Basic and Diluted Earnings Per Share For the six months ended June 30, 2020, basic and diluted earnings per share were HK$2.33, a 31.7% year-on-year decrease, mainly due to reduced profit for the period and a slight decrease in the weighted average number of ordinary shares outstanding | Indicator | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Earnings per share (basic and diluted) | HK$2.33 | HK$3.41 | (31.7) | | Profit for the period (HK$ thousand) | 744,768 | 1,113,821 | (33.1) | | Weighted average number of ordinary shares outstanding (shares) | 319,575,100 | 327,025,376 | (2.3) | 2.12 Trading Securities and Financial Assets at Fair Value Through Profit or Loss As of June 30, 2020, total trading securities and financial assets at fair value through profit or loss amounted to HK$7.553 billion, a 16.7% decrease from the end of 2019, primarily due to a significant reduction in financial assets at fair value through profit or loss | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Trading securities | 7,356,540 | 8,387,953 | (12.3) | | Financial assets at fair value through profit or loss | 196,032 | 680,731 | (71.2) | | Total | 7,552,572 | 9,068,684 | (16.7) | - Debt securities include HK$3.043 billion in treasury bills (cash equivalents) and HK$4.237 billion in other treasury bills[47] 2.13 Derivative Financial Instruments As of June 30, 2020, total derivative financial instrument assets increased to HK$611 million, and total liabilities increased to HK$2.948 billion, mainly driven by a substantial rise in interest rate swap liabilities designated for fair value hedging, with credit risk-weighted amounts also significantly increasing | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total derivative financial instrument assets | 611,292 | 577,930 | 5.8 | | Total derivative financial instrument liabilities | 2,947,777 | 1,093,028 | 169.7 | | - Interest rate swap liabilities designated for fair value hedging | 2,611,586 | 722,672 | 261.4 | | Total credit risk-weighted amount | 1,027,744 | 803,928 | 27.8 | 2.14 Advances and Other Accounts As of June 30, 2020, total advances and other accounts increased to HK$148.829 billion, with total customer loans rising to HK$138.235 billion; impairment allowances significantly increased, and the percentage of credit-impaired loans to total customer loans rose to 1.02% | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total advances and other accounts | 148,828,876 | 146,239,992 | 1.8 | | Total customer loans | 138,234,951 | 136,946,773 | 0.9 | | Total impairment allowance | (1,172,256) | (1,008,586) | 16.2 | | Credit-impaired loans and advances | 1,410,390 | 1,049,226 | 34.4 | | Percentage of credit-impaired loans and advances to total customer loans and advances | 1.02% | 0.77% | 0.25pp | 2.14.1 Impaired, Overdue and Restructured Assets As of June 30, 2020, credit-impaired loans and advances increased to HK$1.41 billion, total overdue loans rose to HK$914 million, with a significant increase in loans overdue for over one year, and restructured loans also showed an upward trend | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Credit-impaired loans and advances | 1,410,390 | 1,049,226 | 34.4 | | Total overdue loans | 914,323 | 749,681 | 22.0 | | - Overdue for over one year | 519,620 | 318,703 | 63.0 | | Restructured loans (customer loans) | 386,030 | 270,909 | 42.5 | 2.14.2 Repossessed Collateral As of June 30, 2020, total repossessed collateral amounted to HK$271 million, a slight decrease from the end of 2019, with a reduction in repossessed properties but an increase in other collateral | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Repossessed properties | 244,708 | 287,397 | (14.8) | | Other repossessed collateral | 26,459 | 7,782 | 240.0 | | Total repossessed collateral | 271,167 | 295,179 | (8.2) | - Repossessed collateral is sold as soon as practicable, and the proceeds are used to reduce the borrower's outstanding debt[72] 2.15 Loss Allowance (ECL) As of June 30, 2020, the Group's total Expected Credit Loss (ECL) allowance increased to HK$1.322 billion, a 14.2% rise from January 1, 2020, mainly due to increased Stage 1 and Stage 3 provisions, reflecting deteriorating credit risk | Indicator | June 30, 2020 (HK$ thousand) | January 1, 2020 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Stage 1 ECL allowance | 647,022 | 614,722 | 5.2 | | Stage 2 ECL allowance | 174,121 | 161,309 | 7.9 | | Stage 3 ECL allowance | 500,952 | 381,197 | 31.4 | | Total ECL allowance | 1,322,095 | 1,157,228 | 14.2 | | - Customer loans | 1,172,256 | 1,008,586 | 16.2 | | - Loan commitments and financial guarantees | 149,839 | 148,642 | 0.8 | - Transfers from Stage 1 to Stage 3 amounted to HK$186 million, and from Stage 2 to Stage 3 amounted to HK$128 million, indicating a deterioration in credit quality[76] 2.16 Financial Assets at Fair Value Through Other Comprehensive Income As of June 30, 2020, total financial assets at fair value through other comprehensive income increased to HK$48.163 billion, a 5.8% rise from the end of 2019, driven by growth in debt securities and equity securities listed outside Hong Kong | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Debt securities | 44,096,176 | 42,155,937 | 4.6 | | Equity securities | 4,066,438 | 3,355,120 | 21.2 | | Total | 48,162,614 | 45,511,057 | 5.8 | - Debt securities include HK$4.699 billion in treasury bills (cash equivalents) and HK$5.600 billion in other treasury bills[81] 2.17 Financial Assets at Amortised Cost As of June 30, 2020, total financial assets at amortised cost increased to HK$21.356 billion, a significant 35.7% rise from the end of 2019, primarily driven by debt securities listed in and outside Hong Kong | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Debt securities | 21,376,332 | 15,754,600 | 35.7 | | - Listed in Hong Kong | 7,591,927 | 4,531,678 | 67.5 | | - Listed outside Hong Kong | 9,156,033 | 6,534,167 | 40.1 | | Impairment allowance | (20,328) | (11,608) | 75.1 | | Total | 21,356,004 | 15,742,992 | 35.7 | 2.18 Property, Plant and Equipment As of June 30, 2020, the net book value of premises and other fixed assets slightly decreased to HK$2.123 billion, with right-of-use assets and lease liabilities also significantly reduced | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net book value of premises and other fixed assets | 2,122,831 | 2,169,210 | (2.1) | | Right-of-use assets (properties) | 250,342 | 417,042 | (40.0) | | Lease liabilities | 267,931 | 434,681 | (38.4) | 2.18.1 Premises and Other Fixed Assets As of June 30, 2020, the net book value of premises and other fixed assets was HK$2.123 billion, with additions of HK$51.232 million and depreciation expense of HK$91.144 million during the period | Indicator | June 30, 2020 (HK$ thousand) | January 1, 2020 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Net book value at beginning of period | 2,169,210 | 2,083,070 (Jan 2019) | 4.1 | | Additions | 51,232 | 105,651 (2019) | (51.5) | | Depreciation expense | (91,144) | (192,221) (2019) | (52.6) | | Net book value at end of period | 2,122,831 | 2,169,210 (Dec 2019) | (2.1) | 2.18.2 Leases As of June 30, 2020, right-of-use assets (properties) amounted to HK$250 million and lease liabilities to HK$268 million, both showing significant decreases from the end of 2019 | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Right-of-use assets (properties) | 250,342 | 417,042 | (40.0) | | Lease liabilities | 267,931 | 434,681 | (38.4) | 2.19 Investment Properties As of June 30, 2020, the book value of investment properties remained stable at HK$1.167 billion, consistent with the end of 2019, following a revaluation and fair value loss recorded in 2019 | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Book value at end of period | 1,166,842 | 1,166,842 | 0.0 | | Fair value loss on revaluation in 2019 | – | (75,717) | N/A | - Investment properties were revalued by independent professional chartered surveyors as of December 31, 2019[92] 2.20 Deposits from Customers As of June 30, 2020, total customer deposits increased to HK$187.081 billion, a 2.7% rise from the end of 2019, with growth in both demand and current accounts and time deposits | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Demand and current accounts | 42,223,446 | 40,416,625 | 4.5 | | Savings deposits | 33,284,281 | 33,074,715 | 0.6 | | Time, notice and call deposits | 111,573,180 | 108,623,957 | 2.7 | | Total customer deposits | 187,080,907 | 182,115,297 | 2.7 | 2.21 Certificates of Deposit Issued As of June 30, 2020, total certificates of deposit issued increased to HK$8.388 billion, a 24.2% rise from the end of 2019, primarily driven by a substantial increase in certificates of deposit at amortised cost | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | At fair value through profit or loss designated to hedge interest rate risk | 2,231,918 | 4,911,274 | (54.6) | | At amortised cost | 6,156,300 | 1,839,551 | 234.7 | | Total certificates of deposit issued | 8,388,218 | 6,750,825 | 24.2 | - The amount contractually payable by the Group at maturity for these certificates of deposit was HK$2 million higher than the carrying amount (HK$6 million higher at December 31, 2019)[96] 2.22 Subordinated Notes As of June 30, 2020, total subordinated notes decreased to HK$3.861 billion, a 29.9% reduction from the end of 2019, mainly due to the full repayment of US$225 million fixed-rate subordinated notes maturing in 2020 | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | US$225 million fixed-rate subordinated notes due 2020 | – | 1,755,635 | (100.0) | | US$250 million fixed-rate subordinated notes due 2026 | 1,977,184 | 1,946,445 | 1.6 | | US$225 million fixed-rate subordinated notes due 2029 | 1,883,636 | 1,808,101 | 4.2 | | Total subordinated notes | 3,860,820 | 5,510,181 | (29.9) | - Dah Sing Bank fully repaid US$225 million fixed-rate subordinated notes due 2020 on February 11, 2020[100] - The amount contractually payable by the Group at maturity for these subordinated notes was HK$179 million lower than the carrying amount (HK$59 million lower at December 31, 2019)[105] 2.23 Other Accounts and Accruals As of June 30, 2020, total other accounts and accruals increased to HK$14.213 billion, a 13.6% rise from the end of 2019, primarily driven by an increase in amounts payable for securities purchased awaiting settlement | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Lease liabilities | 267,931 | 434,681 | (38.4) | | Amounts payable for securities purchased awaiting settlement | 4,324,882 | 3,383,281 | 27.8 | | Other liabilities and accruals | 9,620,668 | 8,698,832 | 10.6 | | Total | 14,213,481 | 12,516,794 | 13.6 | 2.24 Shareholders' Funds As of June 30, 2020, total shareholders' funds slightly decreased to HK$26.764 billion, with a significant reduction in investment revaluation reserve and an increase in retained earnings | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Share capital | 4,248,559 | 4,248,559 | 0.0 | | Investment revaluation reserve | 216,158 | 612,443 | (64.7) | | Exchange reserve | (371,030) | (275,321) | 34.8 | | Retained earnings | 21,570,453 | 21,120,164 | 2.1 | | Total shareholders' funds | 26,763,946 | 26,805,230 | (0.2) | - Dah Sing Bank is required to maintain regulatory reserves to comply with the Hong Kong Banking Ordinance and prudential supervision requirements, which restrict the amount distributable to shareholders[111] - As of June 30, 2020, Dah Sing Bank had designated HK$531 million as regulatory reserves (HK$1.127 billion at December 31, 2019)[111] 2.25 Contingent Liabilities and Commitments As of June 30, 2020, the Group's total contingent liabilities and commitments amounted to HK$79.866 billion, a slight decrease from the end of 2019, with stable capital commitments, reduced credit commitments, and increased operating lease commitments | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total credit commitments | 79,865,760 | 81,245,184 | (1.7) | | - Commitments that can be unconditionally cancelled without prior notice | 73,730,734 | 74,428,118 | (0.9) | | Operating lease commitments (future minimum lease payments receivable) | 29,698 | 36,445 | (18.5) | | Total payable for uncommenced leases | 491,867 | 427,690 | 15.0 | 2.25.1 Capital Commitments As of June 30, 2020, capital expenditure contracted but not provided for amounted to HK$153 million, a slight increase from the end of 2019 | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Expenditure contracted but not provided for | 153,231 | 147,096 | 4.2 | 2.25.2 Credit Commitments As of June 30, 2020, the Group's total credit commitments amounted to HK$79.866 billion, a 1.7% decrease from the end of 2019, with credit risk-weighted amounts decreasing by 17.6% year-on-year to HK$1.478 billion | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total contractual amount | 79,865,760 | 81,245,184 | (1.7) | | - Commitments that can be unconditionally cancelled without prior notice | 73,730,734 | 74,428,118 | (0.9) | | Credit risk-weighted amount | 1,477,849 | 1,794,624 | (17.6) | 2.25.3 Pledged Assets As of June 30, 2020, pledged assets held for trading and financial investments amounted to HK$6.194 billion, a 34.6% increase from the end of 2019, with a corresponding increase in liabilities secured | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Pledged assets held for trading and financial investments | 6,194,006 | 4,600,158 | 34.6 | | - Of which: under repurchase agreements | 2,002,686 | 686,003 | 192.0 | | Amount of liabilities secured | 5,983,401 | 4,597,103 | 30.2 | | - Of which: under repurchase agreements | 1,987,201 | 671,153 | 196.1 | 2.25.4 Operating Lease Commitments As of June 30, 2020, the Group, as lessor, had total future minimum lease payments receivable of HK$29.7 million, an 18.5% decrease from the end of 2019, while total payable for uncommenced leases as lessee increased to HK$492 million | Indicator | June 30, 2020 (HK$ thousand) | December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Total future minimum lease payments receivable | 29,698 | 36,445 | (18.5) | | Total payable for uncommenced leases | 491,867 | 427,690 | 15.0 | 2.26 Maturity Analysis As of June 30, 2020, the maturity analysis of the Group's total assets and liabilities shows a significant proportion of assets and liabilities due on demand and within one month, with a net liquidity gap of HK$33.726 billion | Indicator | On demand (HK$ thousand) | 1 month or less (HK$ thousand) | Over 1 month to 3 months (HK$ thousand) | Over 3 months to 1 year (HK$ thousand) | Over 1 year to 5 years (HK$ thousand) | Over 5 years (HK$ thousand) | Undated (HK$ thousand) | Total (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | 12,298,437 | 40,914,479 | 29,729,754 | 32,317,998 | 73,489,325 | 57,369,179 | 13,822,229 | 259,941,401 | | Total liabilities | 84,401,336 | 88,435,524 | 22,350,950 | 16,808,081 | 10,008,239 | 2,745,655 | 1,465,330 | 226,215,115 | | Net liquidity gap | (72,102,899) | (47,521,045) | 7,378,804 | 15,509,917 | 63,481,086 | 54,623,524 | 12,356,899 | 33,726,286 | 2.27 Fair Value Hierarchy As of June 30, 2020, the Group's total assets measured at fair value were HK$56.326 billion, and total liabilities were HK$7.639 billion, with most financial instruments measured using Level 2 observable inputs, and Level 3 assets primarily comprising unlisted equity securities and debt investments | Indicator | Level 1 (HK$ thousand) | Level 2 (HK$ thousand) | Level 3 (HK$ thousand) | Total (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | | Total assets measured at fair value | 4,139,937 | 52,070,994 | 115,547 | 56,326,478 | | Total liabilities measured at fair value | 7,430 | 7,631,394 | – | 7,638,824 | - Level 3 assets primarily consist of unlisted equity securities and debt investments, whose fair values are close to cost[140] - For the six months ended June 30, 2020, and the year ended December 31, 2019, there were no transfers into or out of Level 3 of the fair value hierarchy for financial assets and liabilities[140] 2.28 Reconciliation of Operating Profit Before Gains and Losses on Certain Investments and Fixed Assets to Net Cash Flows from Operating Activities For the six months ended June 30, 2020, net cash inflow from operating activities was HK$3.159 billion, a 21.4% increase from the same period in 2019, with changes in operating assets and liabilities significantly impacting cash flow | Indicator | 2020 (HK$ thousand) | 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Operating profit before gains and losses on certain investments and fixed assets | 915,901 | 1,310,747 | (30.1) | | Net cash flows from operating activities | 3,158,913 | 2,602,913 | 21.4 | - Changes in operating assets and liabilities had a significant impact on cash flow, for example, trading securities increased by HK$2.467 billion, and customer loans decreased by HK$1.288 billion[144] 2.29 Operating Segment Reporting The Group's operating segments include personal banking, commercial banking, treasury, overseas banking, insurance, and others; for the six months ended June 30, 2020, personal and commercial banking were major profit contributors, but overseas banking recorded a loss - The Group's main operating segments include personal banking, commercial banking, treasury, overseas banking, insurance, and others[147] | Segment | 2020 Profit/(Loss) before tax (HK$ thousand) | 2019 Profit before tax (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Personal Banking | 262,457 | 433,439 | (39.4) | | Commercial Banking | 350,891 | 495,955 | (29.2) | | Treasury | 316,676 | 229,210 | 38.1 | | Overseas Banking | 190,088 | 404,337 | (53.0) | | Insurance Business | 56,124 | 53,880 | 4.2 | | Others | (26,269) | 44,752 | (158.7) | | Total | 1,149,967 | 1,661,573 | (30.8) | - As of June 30, 2020, Personal Banking segment assets were HK$53.477 billion, Commercial Banking segment assets were HK$67.582 billion, and Treasury segment assets were HK$93.772 billion[155] 2.30 Additional Analysis on Claims and Exposures The Group's additional analysis of total customer loans, Mainland China exposures, and international claims shows that commercial and industrial loans and personal loans in Hong Kong are major components, with Mainland China exposures and international claims also holding significant shares - Total customer loans are categorized by industry and region, with an analysis of collateral coverage percentages[161] - Exposures to Mainland China include on-balance sheet and off-balance sheet exposures to central government, local governments, Mainland Chinese nationals, and other entities[172] - International claims are disclosed by the ultimate country of risk, primarily concentrated in offshore centers and developing Asia-Pacific regions[186] 2.30.1 Total Customer Loans by Industry As of June 30, 2020, total customer loans for use in Hong Kong amounted to HK$94.069 billion, with property investment and loans for purchasing other residential properties being major components, and generally high collateral coverage percentages | Industry Classification | June 30, 2020 Outstanding Balance (HK$ thousand) | Percentage Secured by Collateral (%) | December 31, 2019 Outstanding Balance (HK$ thousand) | Percentage Secured by Collateral (%) | | :--- | :--- | :--- | :--- | :--- | | Total loans for use in Hong Kong | 94,068,936 | 75.2 | 92,274,834 | 75.6 | | - Property investment | 16,518,677 | 94.6 | 15,972,169 | 97.0 | | - Loans for purchasing other residential properties | 30,712,053 | 100.0 | 29,864,112 | 100.0 | | Trade finance | 8,701,810 | 59.5 | 8,815,573 | 62.9 | | Loans for use outside Hong Kong | 35,464,205 | 61.3 | 35,856,366 | 66.0 | | Total customer loans | 138,234,951 | 70.7 | 136,946,773 | 72.3 | - As of June 30, 2020, for loans used outside Hong Kong, credit-impaired loans (Stage 3) amounted to HK$457 million, and loans overdue for more than 3 months amounted to HK$448 million[168] 2.30.2 Exposures to Mainland China As of June 30, 2020, the Group's total exposures to Mainland China amounted to HK$44.836 billion, with on-balance sheet exposures of HK$42.280 billion, representing 17.89% of the total assets of Dah Sing Bank and its Mainland banking subsidiaries after allowances | Indicator | June 30, 2020 Total Exposure (HK$ thousand) | December 31, 2019 Total Exposure (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Central government and related entities | 9,865,265 | 10,877,982 | (9.2) | | Local governments and related entities | 1,559,719 | 1,398,737 | 11.5 | | Mainland Chinese nationals or other entities | 15,218,598 | 15,184,555 | 0.2 | | Institutions incorporated outside Mainland China, with loans used in Mainland China | 12,749,810 | 12,318,139 | 3.5 | | Total exposure | 44,836,260 | 44,886,753 | (0.1) | - As of June 30, 2020, on-balance sheet exposures represented 17.89% of the total assets of Dah Sing Bank and its Mainland banking subsidiaries after allowances[173] 2.30.3 Total Customer Loans and Overdue Loans by Geographical Area As of June 30, 2020, total customer loans in Hong Kong amounted to HK$116.184 billion, accounting for 84% of the Group's total, with an increase in impaired and overdue loans in Mainland China and Macau | Region | June 30, 2020 Total Customer Loans (HK$ thousand) | Impaired Customer Loans (Stage 3) (HK$ thousand) | Overdue Customer Loans (HK$ thousand) | | :--- | :--- | :--- | :--- | | Hong Kong | 116,183,769 | 1,079,098 | 580,093 | | Mainland China | 6,596,783 | 62,662 | 62,662 | | Macau | 14,039,137 | 266,294 | 266,294 | | Others | 1,415,262 | 2,336 | 5,274 | | Total | 138,234,951 | 1,410,390 | 914,323 | - The geographical analysis of customer loans is classified by the location of the counterparty after considering risk transfer[180] 2.30.4 International Claims As of June 30, 2020, the Group's total international claims amounted to HK$225.606 billion, primarily concentrated in offshore centers (HK$177.025 billion, of which Hong Kong is HK$157.480 billion) and developing Asia-Pacific (HK$48.581 billion, of which Mainland China is HK$35.658 billion) | Region | June 30, 2020 Total Claims (HK$ million) | December 31, 2019 Total Claims (HK$ million) | Change (%) | | :--- | :--- | :--- | :--- | | Offshore centers | 177,025 | 171,096 | 3.5 | | - Of which: Hong Kong | 157,480 | 151,672 | 3.8 | | Developing Asia-Pacific | 48,581 | 46,856 | 3.7 | | - Of which: Mainland China | 35,658 | 35,631 | 0.1 | - International claims disclose the ultimate country of risk exposure to foreign counterparties after considering risk transfer[186] 2.31 Related-Party Transactions The Group engages in various ongoing related-party transactions with fellow subsidiaries and companies controlled by shareholders or directors, all conducted on normal commercial terms and within Listing Rules annual caps - The Group conducts ongoing related-party transactions with fellow subsidiaries and companies directly or indirectly controlled or significantly influenced by shareholders or directors[191] - All ongoing related-party transactions are conducted on fair and reasonable terms, in accordance with the Group's normal business, relevant agreements, general commercial terms and practices, and comply with the annual caps under the Listing Rules[191][192] - There were no significant changes in credit facilities and deposit balances provided to key management personnel and their close relatives in the first half of 2020[192] 2.32 Risk Management The Group effectively manages various risks, including credit, market, interest rate, liquidity, operational, reputational, and strategic risks, through a robust management structure, with its risk management framework covering both banking and insurance segments and independent oversight from internal audit - The Group's banking segment risk management covers credit risk, market risk, interest rate risk, liquidity risk, operational risk, reputational risk, and strategic risk[194] - The Board of Directors is responsible for all risk management, and the Risk Management and Compliance Committee (RMCC) oversees the management of different types of risks[199][200] - The Internal Audit Department, as an independent unit, is responsible for improving and maintaining sound internal controls across the Group[343] 2.32.1 Group Banking Segment The banking group's risk management encompasses credit, market, liquidity, operational, reputational, and strategic risks, adhering to Basel III capital standards, and ensuring risks are controlled through independent risk management departments, credit committees, and asset and liability management committees - The Group's banking segment risk management covers credit risk, market risk, interest rate risk, liquidity risk, operational risk, reputational risk, and strategic risk[194] - The Group has complied with all externally imposed capital requirements by the HKMA and adheres to Basel III capital standards[306] 2.32.1.1 Group Risk Management Structure The Board of Directors bears overall responsibility for all risk management, approving strategies and policies, while the Risk Management and Compliance Committee (RMCC) oversees and guides the management of various risks - The Board of Directors is responsible for all risk management, including approving strategies and policies, and monitoring through operational and administrative control systems[199] - The Risk Management and Compliance Committee (RMCC) is authorized to oversee and guide risks managed by the Group Risk Department (GRD) and various functional committees[200] 2.32.1.2 Group Risk Department The independent Group Risk Department (GRD) is responsible for formulating overall Group policies and responsibilities, monitoring and reporting risk status to the Board, establishing financial risk management standards, and continuously developing risk management capabilities - The independent Group Risk Department (GRD) is responsible for formulating overall Group policies and responsibilities, and monitoring and reporting risk status to the Board[201] - GRD establishes standards for financial risk and data integrity management, and ensures financial risks are adequately considered in product planning and pricing[201] - The Group continuously develops its risk management capabilities and increases focus on the impact of risk strategies on risk-return and return on capital[203] 2.32.1.3 Credit Committees The Group has a Group Credit Committee (GCC) for approving significant credit limits, and a Credit Management Committee (CMC) and Treasury and Investment Risk Committee (TIRC) responsible for policies, limits, and risk control in lending and treasury businesses, respectively - The Group Credit Committee (GCC) is responsible for approving significant credit limits[203] - The Credit Management Committee (CMC) and Treasury and Investment Risk Committee (TIRC) are responsible for approving and recommending policies, limits, and risk control responsibilities for lending and treasury businesses[203] 2.32.1.4 Application of Financial Instrument Strategies The Group earns interest spread income by accepting customer deposits, making loans, and investing, and uses derivative instruments to manage market and interest rate risks, including interest rate swaps for fair value hedging - The Group earns interest spread income by accepting fixed or floating rate customer deposits and investing in various assets[203] - The Group trades financial instruments (including derivatives) through exchanges and over-the-counter markets to profit from short-term market fluctuations[207] - The Group uses interest rate swaps and other interest rate derivatives to mitigate interest rate risk arising from fair value decreases in fixed-rate assets or fair value increases in fixed-rate term liabilities due to interest rate changes[208] 2.32.1.5 Credit Risk The Group's primary credit risk is the failure of borrowers or counterparties to meet repayment obligations, which is strictly managed through credit policies, internal ratings, collateral, and Expected Credit Loss (ECL) models, with ECL measurement adjusted for the COVID-19 pandemic - The Group's primary credit risk is the failure of borrowers or counterparties to meet their repayment obligations to the Group[209] - The Group uses external credit assessment institutions (ECAIs) such as Standard & Poor's, Moody's, and Fitch to assess credit risk, and also has internal rating methodologies[215] - The Group uses cash deposits, real estate properties, equipment, and vehicles as collateral to mitigate credit risk[223] - As of June 30, 2020, total customer loans amounted to HK$138.235 billion, of which credit-impaired loans (Stage 3) were HK$1.41 billion[246] 2.32.1.6 Market Risk Market risk primarily arises from changes in interest rates and prices, managed by the Group through Board-approved risk limits, VaR models, stress tests, and sensitivity analysis, with foreign exchange and interest rate risks managed separately in trading and banking books - Market risk is the risk of losses arising from changes in market interest rates and prices on assets, liabilities, and off-balance sheet positions[253] - The Group uses the VaR (Value-at-Risk) method to measure market risk and conducts stress tests to assess potential losses under extreme scenarios[262][268] | Indicator | Average Daily VaR for 6 months ended June 30, 2020 (HK$ thousand) | Average Daily VaR for 12 months ended December 31, 2019 (HK$ thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Foreign exchange risk | 2,246 | 2,666 | (15.8) | | Interest rate risk | 1,338 | 1,525 | (12.3) | | Total risk | 2,672 | 3,280 | (18.5) | - Market risk in the banking book primarily stems from debt and equity securities holdings, managed through limits, guidelines, sensitivity analysis, and stress tests, without using the VaR method[275] 2.32.1.7 Liquidity Risk Liquidity risk, the Group's inability to fund assets or meet payment obligations on time, is managed by maintaining high Liquidity Maintenance Ratio (LMR) and Core Funding Ratio (CFR), diversifying funding sources, and conducting cash flow forecasts and stress tests - Liquidity risk is the risk that the Group is unable to fund new assets or meet payment obligations for maturing financial liabilities without incurring unacceptable losses[285] - The Group maintains Liquidity Maintenance Ratio (LMR) and Core Funding Ratio (CFR) well above the statutory minimum requirements (25% and 75% respectively)[285] - The Group manages liquidity through diversified and stable funding sources (including customer deposits, certificates of deposit, and medium-term notes) and regular cash flow forecasts and stress tests[289][290][292] 2.32.1.8 Operational Risk The Group manages operational risk through its management structure, operational risk policies, incident reporting systems, and self-assessment tools, with backup sites and operational recovery plans in place to address system failures - Operational risk management is conducted through senior management, independent risk management teams, operational risk personnel, policies, risk toolkits, incident reporting systems, and self-assessment tools[297] - The Group maintains backup sites, operational recovery policies, and plans, and conducts tests to mitigate the impact of system failures or disasters on business operations[298] 2.32.1.9 Reputational Risk The Group manages reputational risk by maintaining high standards of corporate governance, internal controls, risk management, and compliance, as well as effectively handling customer complaints - The Group manages reputational risk by emphasizing the importance of internal controls, risk management, compliance, and combating money laundering and terrorist financing[299] - The Group mitigates reputational risk through appropriate staff training and supervision, staff awareness of compliance matters, proper handling of customer complaints, and sound business practices[299] 2.32.1.10 Strategic Risk The Board of Directors is directly responsible for managing strategic risk, setting strategic objectives and key policies, overseeing strategic development and execution, and ensuring appropriate resource allocation to achieve Group goals - The Board of Directors is directly responsible for managing strategic risk and formulating strategic objectives and key policies consistent with the Group's corporate mission[301] - The Board oversees strategic development and execution, ensures appropriate change management, and reviews business performance to respond to market changes[301] 2.32.1.11 Compliance with Basel III Capital Standards The Group complies with Basel III capital standards, including minimum ratios for Common Equity Tier 1, Tier 1, and total capital, with the HKMA having reduced Hong Kong's countercyclical capital buffer to 1.0% - Basel III capital rules set minimum ratios for Common Equity Tier 1, Tier 1, and total capital at 4.5%, 6%, and 8% respectively[301] - As of June 30, 2020, the HKMA had reduced Hong Kong's Countercyclical Capital Buffer (CCyB) from 2.0% to 1.0%[301] - The Group has complied with all externally imposed capital requirements by the HKMA[306] 2.32.1.12 Fair Value of Financial Assets and Liabilities The Group determines the fair value of financial instruments through a control framework, independent valuations, and widely accepted valuation methods such as present value and option pricing models, maximizing the use of observable inputs - The Board of Directors is responsible for ensuring appropriate valuation governance and control procedures, and authorizes the Treasury and Investment Risk Committee to oversee the valuation process for financial instruments[309] - The Group uses valuation methods such as present value and standard option pricing models, maximizing the use of relevant observable inputs (e.g., interest rates, exchange rates, volatility, credit spreads)[311] - The Group uses external quotes and its own credit spreads to determine the present value of financial liabilities[313] 2.32.1.13 Capital Management The Group aims to comply with regulatory capital requirements, safeguard its ability for continuous development, maximize shareholder returns, and maintain a strong capital base, regularly monitoring the capital adequacy of its subsidiary banks in Hong Kong, Macau, and Mainland China - The Group's capital management objectives include complying with regulatory capital requirements, safeguarding its ability for continuous development, maximizing shareholder returns, and maintaining a strong capital base[313] - Dah Sing Bank must comply with Basel III ratios for Common Equity Tier 1, Tier 1, and total capital to risk-weighted assets, with minimum requirements of 4.5%, 6.0%, and 8.0% respectively[316] - Banco Comercial de Macau and Dah Sing Bank (China) are required to maintain a capital adequacy ratio of not less than the statutory minimum of 8%[323] 2.32.1.14 Fiduciary Activities The Group provides custody, fiduciary, wealth management, and advisory services involving the allocation and trading decisions of financial instruments, with assets held in a fiduciary capacity not included in the Group's financial statements - The Group provides custody, fiduciary, wealth management, and advisory services to third parties[324] - Assets held in a fiduciary capacity are not included in the Group's financial statements, but these services may expose the Group to risks of mismanagement[324] 2.32.1.15 Launch of New Products or Services The Group has a new product approval process requiring business and support units to review, assess risks, and allocate resources before launching new products or services, with significant impacts reported to the Board - The new product approval process requires business and support units to review key provisions, risk assessments, and resource allocation plans before launching new products or services[331] - New products or services with a significant impact on the Group's risk profile must be reported to the Board or its authorized committee before launch[331] 2.32.2 Group Insurance Segment The insurance group's risk management covers insurance, product, investment, and business risks, aiming to maintain profitability and soundness, managed through reinsurance, product approval processes, and conservative investment strategies - The insurance business faces insurance risk, product risk, investment risk, and business risk[332] - The Group manages insurance risk through reinsurance, catastrophe compensation arrangements, and external actuarial assessments[333] - New products and significant modifications require a product approval process, with profitability assessed by internal and external actuaries[334] 2.32.2.1 Insurance Risk The Group manages insurance risk by setting maximum sums insured, reinsurance, and catastrophe compensation arrangements, with external independent actuaries assessing the adequacy of insurance reserves - The Group manages underwriting risk by setting maximum sums insured, reinsurance, and catastrophe compensation arrangements[333] - External independent actuaries are responsible for assessing the adequacy of insurance reserves[333] 2.32.2.2 Product Risk New products and significant modifications to existing products must undergo a product approval process, including profitability review and actuarial assessment - New products and significant modifications to existing products must undergo a product approval process[334] - The approval process includes a review of profitability and assessment by internal and external independent actuaries[334] 2.32.2.3 Investment Risk The insurance group's investment strategy aims to balance assets and policy liabilities in terms of returns, duration, and currency, maintaining investment value through a conservative portfolio - The investment strategy aims to balance the returns, duration, and currency matching of insurance business assets and policy liabilities[336] - The Group strives to maintain investment value with a conservative investment portfolio, considering relevant risks, taxes, and regulatory requirements[336] 2.32.2.4 Business Risk The Group's Hong Kong and Macau insurance subsidiaries assess business risks, including contingency plans and staff training, in accordance with Group policies and local regulations - Dah Sing Insurance (1976) Limited, the Hong Kong insurance subsidiary, assesses business risks, including contingency and business continuity plans, and provides training for staff and agents[337] - Banco Comercial de Macau (Insurance) Limited adheres to local regulations in assessing business risks[337] 2.32.2.5 Capital Management Insurance subsidiaries must comply with local insurance regulators' minimum capital requirements and solvency regulations, with appropriate tests embedded to ensure continuous compliance - Insurance subsidiaries must comply with the minimum capital amounts and types prescribed by local insurance regulatory authorities[338] - The Group has embedded appropriate tests within its asset and liability management framework to ensure continuous and full compliance with solvency regulations[338] 2.32.3 Role of Internal Audit Department The Group's Internal Audit Department is an independent, objective advisory unit focused on improving and maintaining sound internal controls across the Group's business and support units, reporting to the Group Audit Committee - The Internal Audit Department is an independent, objective, and advisory unit focused on improving and maintaining sound internal controls across the Group's business and support units[343] - The department functionally reports to the Group Audit Committee, chaired by an independent non-executive director[343] III. Corporate and Business Overview 3.1 Highlights In the first half of 2020, the Group's profit attributable to shareholders decreased by 33.1% to HK$745 million, primarily due to a significant decline in the banking group's performance, while insurance and investment activities remained relatively stable | Indicator | H1 2020 (HK$) | Change (%) | | :--- | :--- | :--- | | Profit attributable to shareholders | 745 million | (33.1) | | Interim dividend per share | HK$0.27 | N/A | - The banking group's profit attributable to shareholders decreased by 30.2%, mainly due to increased impairment charges for loans and the investment in Bank of Chongqing[347] 3.2 Business and Financial Review Banking business performance was weak, with net interest income down 9% and net interest margin contracting by 24 basis points to 1.66%; net fee and commission income was flat, while trading income significantly increased; credit impairment charges surged to HK$365 million, and the investment in Bank of Chongqing was impaired by another HK$200 million; insurance business net profit was similar to the prior year - Net interest income decreased by approximately 9%, and net interest margin contracted by 24 basis points to 1.66%[348] - Net fee and commission income remained flat, with good performance in wealth management and foreign exchange income[349] - Net credit impairment charges increased from HK$93 million to HK$365 million, with an additional HK$200 million impairment on the investment in Bank of Chongqing[349] - Net premium income from Hong Kong and Macau general insurance business grew by 10.1%, with overall net profit similar to the prior year[350] | Indicator | June 30, 2020 | | :--- | :--- | | Annualized return on assets | 0.8% | | Return on equity | 5.6% | | Dah Sing Bank's consolidated Common Equity Tier 1 capital adequacy ratio | 13.1% | | Dah Sing Bank's total consolidated capital adequacy ratio | 16.9% | 3.3 Prospects The Group anticipates continued difficult economic and business conditions in the second half of the year, with no expectation of significant improvement; low interest rates and deteriorating credit quality are unfavorable, but the Group will maintain prudent management and resilience, with general insurance business growth prospects slightly better than core banking - The Group does not expect significant economic improvement in the remaining months of the year, anticipating continued difficult economic and business conditions in the second half[351] - Low interest rates and deteriorating credit quality are unfavorable to business, but the Group's business, funding, and liquidity remain sound[351] - The Group is keen to continue expanding premium income from its general insurance business, which has slightly better growth prospects than core banking[351] IV. Corporate Governance and Other Information 4.1 Interim Dividend The Board declared an interim dividend of HK$0.27 per share for 2020, payable on September 21, 2020, to shareholders registered on September 15, 2020 - The Board declared an interim dividend of HK$0.27 per share for 2020[353] - The dividend will be paid on September 21, 2020, to shareholders registered on September 15, 2020[353] 4.2 Closure of Register of Shareholders To determine eligibility for the interim dividend, the register of shareholders will be closed from September 11 to September 15, 2020, with the share transfer deadline at 4:30 p.m. on September 10, 2020 - The register of shareholders will be closed from Friday, September 11, 2020, to Tuesday, September 15, 2020[354] - The deadline for share transfers is 4:30 p.m. on Thursday, September 10, 2020[354] 4.3 Interests of Directors and Chief Executive As of June 30, 2020, directors and the chief executive held interests in the company's and its associated corporations' shares, underlying shares, and share options, with Mr. David Shou-Yeh Wong holding a 42.96% interest in the Company | Director | Total Interest in the Company (shares) | Percentage of Total Issued Shares | Total Interest in Dah Sing Bank Gro