KWONG ON BANK ANNOUNCES 1999 INTERIM RESULTS

(Hong Kong, 28 September 1999) --- Kwong On Bank announced today the unaudited consolidated profit attributable to shareholders of the Bank and its subsidiaries ("the Group") for the six months ended 30th June 1999 were HK$56million. The result represents a reduction of 65.5% compared with the result for the first six months of 1998.

Commenting on the Bank's results, Chairman Dr. Ronald Leung Ding Bong said, "Advances to customers were hampered by the slow economy as well as the Bank's drive to maintain good asset quality. Total advances to customers as at the end of June 1999 decreased by 3.9% to HK$18,681 million as compared with HK$19,437 million as at the end of last year. The funding cost of the Bank was carefully monitored, emphasising profitability rather than volume. With weak lending growth, the volume of customer deposits was reduced by 2.8% from HK$22,467 million at the end of last year to HK$21,832 million as at the end of June 1999. This caused the loan to deposit ratio to rise from 80.7% at the end of last year to 83.4% at the end of June 1999. Net interest income showed a reduction of 8.7% to HK$375.5 million as compared with same period last year."

Under the adverse economic environment in the first half of 1999, the Bank took initiatives to control operating expenses, strengthen credit control and debt collection and enforcement functions, nevertheless, the Bank remains committed to provide high quality services to customers and to continue to invest in advanced technology and human resources.

Kwong On Bank has just undergone a restructuring exercise this month. The new structure, filled with experienced professionals newly recruited at senior levels, aims to expand its business scope and improve risk management and operational efficiency.

Mr Kenneth Leung, Senior Managing Director and CEO of the bank, said, "The reorganisation received strong support from staff members. I attribute this success to the transparent process and commitment to improve from all levels of staff."

With the support from the DBS Group, Kwong On Bank aims to become a significant player in the local financial community. The bank is expected to launch new, competitive products and services to the market from its three business divisions, namely individual banking, institutional & enterprise banking and treasury divisions.

Mr William Hon, Managing Director and Joint-CEO of the bank, said, "Kwong On is benefiting from the synergy as we leverage on DBS's capabilities. This ranges from DBS's global network, financial strength, product diversity and IT support. Together with the bank's heritage in the local market, I am confident that Kwong On will become a significant player in the banking industry."

Operating expenses decreased by 13.1% or HK$32.3 million causing the cost to income ratio for the first six months of this year to fall to 44.9% from 47.1% for the corresponding period last year. Despite a drop of other operating income by 8.4% or HK$9.4 million due to the slow economy, operating profit before provisions fell by only 4.7%.

Advance to customers on which interest is being placed in suspense or on which interest accrual has ceased as of total advance to customers increased from 4.3% at the end of 1998 to 9.7% at the end of June 1999. As a result, charge for bad and doubtful debts increased by 140.3% or HK$118.7 million as compared with same period last year. As at 30th June 1999, the Bank maintained a specific provision of HK$610.5 million and a general provision of HK$187.0 million for bad and doubtful debts, representing a ratio of 3.3% and 1.0% respectively of total advances to customers.

Total assets decreased by 7.2% from HK$29,427 million at the end of last year to HK$27,304 million at the end of June 1999. Shareholders funds increased by 1.3% from HK$4,215 million at the end of last year to HK$4,271 million at the end of June 1999, representing a net book value of HK$11.4 per share. The capital adequacy ratio at the end of June 1999 stood at 25.0% and the average six-month liquidity ratio at 45.9%, showing the very strong capitalization and healthy liquidity position of the Bank.

The construction of the Bank's new headquarters was completed and the building is currently being furbished. The Bank is scheduling to move into its new home by October this year. This will obviate the rental costs for the temporary head office presently being incurred.

Dr Leung said, "The Bank is now a subsidiary of DBS Bank, DBS Bank will assist in the development of the Bank's business through the introduction of new products, transfer of technology and management processes and the sharing of DBS Bank's marketing and product expertise. This will enable the Bank to better serve its customers and to improve its performance. At the appropriate time, Kwong On Bank and the Hong Kong branch of DBS Bank will merge as one bank in the future. With such support and synergy, the Bank is poised to capture more opportunities to grow once the economic conditions improve. To this end, the Bank's future performance is assured."

The Bank has completed the Year 2000 compliance validation and implementation of its systems. In addition, the Bank has been monitoring and re-assessing the Year 2000 preparedness of significant business counterparties, depositors and borrowers.

Operational procedures and business approval processes have been and will continue to be reviewed and revised as necessary and appropriate to minimise the effect of non-compliance by counterparties and to ensure that the Bank will not be affected. The Bank has also completed the business recovery procedures in June 1999.

The acquisition of the entire issued share capital of the Bank by DBS Group Holdings (Hong Kong) Ltd, a subsidiary of The Development Bank of Singapore Ltd (DBS Bank), was completed on 15th July 1999 and the listing of the Bank's shares on The Stock Exchange of Hong Kong has been withdrawn from 16th July 1999.

The Bank is now a wholly-owned subsidiary of DBS Group Holdings (Hong Kong) Ltd which is in turn 87.27% owned by DBS Bank. DBS Bank is the largest banking group in Singapore and South East Asia and is ranked among the top 100 banks in the world. DBS Bank is one of the largest companies whose shares are listed on the Stock Exchange of Singapore with market capitalization as at 30th July 1999 of approximately S$19.9 billion (approximately HK$91.5 billion). DBS Bank has been assigned credit ratings of Aa2 by Moody's and A+ by Standard & Poor's.

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INTERIM FINANCIAL INFORMATION DISCLOSURE STATEMENT

Profit And Loss Information

The Directors of Kwong On Bank, Limited (the "Bank") announce the unaudited consolidated interim results of the Bank and its subsidiaries (the "Group") for the six months ended 30th June 1999 as follows:-

NOTES:

1. Hong Kong profits tax has been provided at the rate of 16.0% (1998: 16.0%) on the estimated assessable profit for the period. No deferred taxation has been provided as there are no material timing differences which would result in a liability payable or an asset receivable in the foreseeable future.
2. The calculation of earnings per share is based on profit attributable to the shareholders for the six months ended 30th June 1999 of HK$56,020,000 (1998: HK$162,395,000) and 375,000,000 (1998: 375,000,000) ordinary shares in issue during the period. There is no convertible loan capital, options or warrants outstanding which would cause a dilution effect on the earnings per share.
3. The Bank has adopted the Alternative Treatment of accounting for investment securities under SSAP24, which involves no restatement of 1998 earnings nor any effect on 1999 earnings.

UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION

1. Consolidated balance sheet items and financial ratios

1. Advances and other accounts

1. Gross advances to customers - By industry sectors

1. Total advances to customers on which interest is being placed in suspense or on which interest accrual has ceased

There were no advances to banks and other financial institutions on which interest is being placed in suspense or on which interest accrual has ceased on both days.

1. Gross amount of overdue advances

There were no advances to banks and other financial institutions which have been overdue for over three months on both days.

1. The amount of advances to customers which are:

1. Rescheduled advances

1. Off-balance sheet exposures

(A) Contingent liabilities and commitments

1. Statement of compliance

In preparing the disclosure for the first half of 1999, the Bank has fully complied with the recommendations made by the Hong Kong Monetary Authority on 25th June 1999 for interim financial disclosure by authorized institutions incorporated in Hong Kong.

YEAR 2000 PROBLEM

Kwong On Bank has adopted the definition of Year 2000 Compliance as defined by the Hong Kong Monetary Authority:-

"Year 2000 compliant system should perform, function and manage data involving dates without being abnormally affected by dates spanning the period prior to, during and after the year 2000."

A Project Team consisting of staff from different business departments and the Information Technology Department has been put in place since early 1997. A Steering Committee led by the Bank Managing Directors reviews and monitors the progress of the Project on a regular basis.

The Year 2000 Project has a scope which covers computer-related systems and non-computer-related systems, and its project plan embodies a full spectrum of activities, including but not limited to impact analysis, counterparty assessment, system hardware and software upgrade, application modification, testing, implementation and contingency planning. All the activities have been designed to enhance the Bank understanding of the Year 2000 issues, mitigate the associated risks and uncertainties and ensure that our banking business and daily operation will not be adversely affected by the Year 2000 problem.

The Bank has completed the Year 2000 compliance validation and implementation of its systems. As part of the Bank transitional strategy, bankwide simulation testing on internal systems for year 2000 was carried out in the third quarter of 1998 and will be repeated in the third quarter of 1999. Meanwhile the Bank has been focusing on counterparty assessment, external testing activities and contingency planning.

The Bank has completed Year 2000 compliance assessment on counterparties, including suppliers and service providers, fund takers, fund providers, capital market/asset management counterparties for their commitments to Year 2000 compliance. In addition, the Bank has been monitoring and re-assessing the Year 2000 preparedness of significant business counterparties, depositors and borrowers.

Operational procedures and business approval processes have been and will continue to be reviewed and revised as necessary and appropriate to minimise the effect of non-compliance by counterparties and to ensure that the Bank will not be affected.

The Bank has been participating in Year 2000 external testings with relevant counterparties and major shared financial systems providers under production-like and Year 2000-like environments. The major shared financial systems include trading, clearing and settlement systems for the stock and futures markets, interbank clearing and settlement systems for payments and debt securities, as well as other financial systems accessible by a large number of financial institutions (For example, SWIFT, JETCO, EPSCO).

The business contingency plan which deals with high impact operational problems of the Bank has been in place since 1994 and is updated and tested as required. It covers all the key functional areas and describes essential business recovery procedures, responsibilities of recovery teams, testing and training requirements and administrative processes.

By the end of March 1999, the Bank has revised its business contingency plan to include risks and vulnerabilities associated with the Year 2000 problem. The bankwide business recovery procedures testing was completed by the end of June 1999.

The approved Year 2000 Project expenses budget is HK$8 million. By the end of June 1999, HK$6.5 million had been spent. Based on the current expenditure and progress of the project, it is expected that the budget will be adequate to cover the estimated cost of the Year 2000 project. Year 2000 project expenses is accounted for as operating expenses as it arises and where the expense is of capital nature, it is capitalized in accordance with the Bank accounting policies.

Management is satisfied with the overall progress made to date and the amount of resources devoted to the project. The Bank has not experienced significant delays or problems with the project.

Despite every effort to minimise the impact of Year 2000, the Bank must stress that it is not possible to guarantee or warrant that there will not be any Year 2000 problems as the Bank has interconnections with external systems which are dependent on third parties whose performance are not under the Bank control. Nevertheless the Bank Management will continue to place a high priority on the Year 2000 Project to ensure a smooth transition into the new millennium.

REVIEW AND PROSPECTS

The acquisition of the entire issued share capital of the Bank by DBS Group Holdings (Hong Kong) Ltd, a subsidiary of The Development Bank of Singapore Ltd ("DBS Bank")was completed on 15th July 1999 and the listing of the Bank shares on The Stock Exchange of Hong Kong has been withdrawn from 16th July 1999.

The Bank is now a wholly-owned subsidiary of DBS Group Holdings (Hong Kong) Ltd which is in turn 87.27% owned by DBS Bank. DBS Bank is the largest banking group in Singapore and South East Asia and is ranked among the top 100 banks in the world. DBS Bank is one of the largest companies whose shares are listed on the Stock Exchange of Singapore with market capitalization as at 30th July 1999 of approximately S$19.9 billion (approximately HK$91.5 billion). DBS Bank has been assigned credit ratings of Aa2 by Moody and A+ by Standard & Poor.

The economic conditions in Hong Kong remained weak in the first half of 1999 as evidenced by the negative GDP growth rate of 3.4% in the first quarter of 1999. The composite Consumer Price Index fell by 4.0% in May 1999 compared with same month last year causing a level of high real interest rates not seen for many years. The unemployment rate for the three months from February to April 1999 stayed at a historically high level of 6.3%. Total exports, re-exports and domestic exports for April 1999 showed declines of 8.1%, 6.7% and 17.4% respectively compared with same month in the preceding year. Retail sales for the first quarter of 1999 showed a decline of 13.8% as compared with the same period in the preceding year. Although there are signs that the Hong Kong economy has begun to stabilise, any recovery is likely to be gradual and slow.

Advances to customers were hampered by the slow economy as well as the Bank drive to maintain good asset quality. Total advances to customers as at the end of June 1999 decreased by 3.9% to HK$18,681 million as compared with HK$19,437 million as at the end of last year. The funding cost of the Bank was carefully monitored, emphasising profitability rather than volume. With weak lending growth, the volume of customer deposits was reduced by 2.8% from HK$22,467 million at the end of last year to HK$21,832 million as at the end of June 1999. This caused the loan to deposit ratio to rise from 80.7% at the end of last year to 83.4% at the end of June 1999. Net interest income showed a reduction of 8.7% to HK$375.5 million as compared with same period last year.

Under the adverse economic environment in the first half of 1999, the Bank took initiatives to control operating expenses, strengthen credit control and debt collection and enforcement functions, nevertheless, the Bank remains committed to provide high quality services to customers and to continue to invest in advanced technology and human resources.

Operating expenses decreased by 13.1% or HK$32.3 million causing the cost to income ratio for the first six months of this year to fall to 44.9% from 47.1% for the corresponding period last year. Despite a drop of other operating income by 8.4% or HK$9.4 million due to the slow economy, operating profit before provisions fell by only 4.7%.

Advance to customers on which interest is being placed in suspense or on which interest accrual has ceased as % of total advance to customers increased from 4.3% at the end of 1998 to 9.7% at the end of June 1999. As a result, charge for bad and doubtful debts increased by 140.3% or HK$118.7 million as compared with same period last year. As at 30th June 1999, the Bank maintained a specific provision of HK$610.5 million and a general provision of HK$187.0 million for bad and doubtful debts, representing a ratio of 3.3% and 1.0% respectively of total advances to customers.

The Bank reported a profit attributable to shareholders for the first six months of 1999 of HK$56.0 million which represented a reduction of HK$106.4 million or 65.5% compared with the first six months of last year mainly due to the bad debt provisions mentioned above. Earnings per share for the period was HK$0.15 as against HK$0.43 per share for the same period last year.

Total assets decreased by 7.2% from HK$29,427 million at the end of last year to HK$27,304 million at the end of June 1999. Shareholders' funds increased by 1.3% from HK$4,215 million at the end of last year to HK$4,271 million at the end of June 1999, representing a net book value of HK$11.4 per share. The capital adequacy ratio at the end of June 1999 stood at 25.0% and the average six-month liquidity ratio at 45.9%, showing the strong capitalization and healthy liquidity position of the Bank.

The construction of the Bank new headquarters was completed and the building is currently being furbished. The Bank is scheduling to move into its new home by October this year. This will obviate the rental costs for the temporary head office presently being incurred.

The Bank is now a subsidiary of DBS Bank, DBS Bank will assist in the development of the Bank business through the introduction of new products, transfer of technology and management processes and the sharing of DBS Bank marketing and product expertise. This will enable the Bank to better serve its customers and to improve its performance. With such support and synergy, the Bank is poised to capture more opportunities to grow once the economic conditions improve. To this end, the Bank future performance is assured.

By order of the Board
Dr. Leung Ding Bong, Ronald, OBE, JP
Chairman
Hong Kong, 31st August 1999