DBS THAI DANU BANK UNAUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DEC 1999

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FINANCIAL HIGHLIGHTS

PERFORMANCE SUMMARY

Operating in a difficult environment, the Bank incurred an operating loss of Baht 1,468 million in 1999 versus Baht 1,935 million in 1998. The Bank's operating performance was adversely affected by declines in net interest income, other income and an increase in expenses related to NPL resolution. After provisions, restructuring cost and tax, the Bank incurred a loss of Baht 12,940 million as compared with Baht 9,126 million in 1998.

Net Interest Income

Net interest income fell from Baht 1,953 million in 1998 to Baht 965 million in 1999. This was due to:

• Non-accrual of interest on NPLs. The higher average level of NPLs in 1999 Baht 60,367 million vis-à-vis 1998 Baht 44,003 million exacerbated interest drag.
• Decline in the loan assets. Total loans declined from Baht 107,571 million at 31 December 1998 to Baht 98,866 million at 31 December 1999.
• Lower margins on restructured loans.
• Negative margins on deployment of the Bank's excess liquidity. Domestic inter-bank rates were generally lower in 1999 than in 1998. Though the Bank also lowered its deposit rates, these were generally higher than the prevailing inter-bank rates.

Other Income

Other income, mainly income from foreign exchange, fell from Baht 384.0 million to Baht 191.0 million as the Baht was less volatile during the year.

Gains on sale of investments for the year amounted to Baht 504.0 million, mainly derived from the sale of debt securities as interest rates declined during the year. The gains were partly offset by the write-down of investments of Baht 415.3 million. These investments are mainly equity and debt securities purchased before July 1997 and have been written down where the diminution in their value is deemed permanent.

Operating and Non-Operating Expenses

Operating expenses rose by Baht 185.1 million. However, the increase was mainly due to costs related to the resolution of NPLs. NPL resolution costs aside, the Bank was successful in managing its recurring operating expenses.

The Bank incurred non-operating expenses comprising unrealised losses on revaluation of the Bank's premises and foreclosed properties, and realised losses on the sale of foreclosed properties, which together totalled Baht 1,420 million. No similar expenses were incurred in the previous year.

Provisions

The Bank increased its loan loss provisions by Baht 8,700 million in 1999 to a total of Baht 17,589 million. The full amount that is required by end 2000 under the Bank of Thailand's guidelines is Baht 21,745 million. Therefore, the Bank's loan loss provisions, at 81% of total requirements, exceed the 60% level required by end 1999 under BOT guidelines. Progress in debt restructuring entailed write-offs in 1999 of Baht 746.3 million.

A restructuring cost of Baht 590.0 million was recognised for expenses relating to its repositioning programme, major part of which will be incurred in 2000. This repositioning programme is expected to yield, from 2000, annual cost savings equivalent to about 15% of the Bank's current cost base.

Deposits and Loans

The Bank consciously reduced its deposit base to reduce its excess liquidity. Compared to the previous year, customer deposits decreased by Baht 19,833 million to Baht 89,269 million. Reflecting the lack of lending opportunities, the Bank's prudent approach to lending and the resolution of NPLs, customer loans amounted to Baht 98,866 million, a reduction of Baht 8,706 million.

Asset Quality and Capital Adequacy

Asset Quality

The Bank has been actively recovering and restructuring its NPLs, and progress has been made. After peaking in first quarter of 1999 at Baht 66,697 million, NPLs, classified on a customer basis and without immediate upgrade to performing status upon restructuring, declined to by 25.3% to Baht 49,809 million by end 1999. As a percentage of total loans, NPLs fell from 62 % at the peak to 48.5% of the reduced loan base.

Based on current BOT guidelines to classify NPLs on an account basis and to upgrade NPLs to performing loans once restructured, NPLs stood at Baht 42,187 million at 31 December 1999 or 41% of total loans.

In addition to its debt restructuring programme, the Bank plans to engage the services of an external party to assist with the servicing of part of its NPL portfolio. This will enable management to focus more attention on rebuilding the loan book with good quality assets.

Capital Adequacy

The Bank's capital adequacy ratio stood at 11.15 % at 31 December 1999, exceeding the BOT's minimum of 8.5%.