Concentration Risk Liquidity Risk

52 Details of DBS Bank’s NPLs at December 31 are as follows: In S millions Regional Countries Singapore Other Countries Total 2003 Non- Performing Loans NPLs a 448 1,253 420 2,121 - Substandard 335 842 334 1,511 - Doubtful 48 42 27 117 - Loss 65 369 59 493 2002 Non- Performing Loans NPLs a 635 1,545 403 2,583 - Substandard 445 1,052 278 1,775 - Doubtful 96 23 68 187 - Loss 94 470 57 621 a NPLs include classified bank loans, contingent facilities and debt securities.

35.2.5 Concentration Risk

DBS Bank’s risk management processes also ensure that an acceptable level of risk diversification is maintained across the Bank on an ongoing basis. Limits are established and regularly monitored in respect of country exposures and major industry groups, as well as for single counterparty exposures. Control structures are in place to ensure that appropriate limits are in place, exposures are monitored against these limits, and action is taken if limits are breached.

35.2.6 Liquidity Risk

Liquidity risk is the risk that an enterprise will encounter difficulty in meeting its financial obligations. DBS Bank’s objective in liquidity management is to ensure that there is sufficient liquidity to meet obligations under normal as well as adverse circumstances and take advantage of lending and investment opportunities as they arise. As part of its liquidity risk management, DBS Bank focuses on a number of components, including limits on behavioural maturity mismatches, key ratios, diversification of funding sources, liquid assets, funding capacity and contingency planning. 53 The table below analyses assets and liabilities of DBS Bank based on the remaining period at balance sheet date to the contractual maturity date. However, contractual terms are not representative of the behaviour of assets and liabilities. In S millions Less than 7 days 1 week to 1 month 1 –3 months 3 to 12 months 1 to 3 years Over 3 years No specific maturity Total December 31, 2003 Cash, and balances and placements with central banks and banks 5,798 7,651 6,194 6,582 293 111 - 26,629 Securities a 5,688 494 727 3,142 5,313 15,301 790 31,455 Loans to, and bills receivable from, non-bank customers 4,116 3,547 2,952 4,587 7,337 17,894 - 40,433 Other assets b 23,539 23,539 Total assets 15,602 11,692 9,873 14,311 12,943 33,306 24,329 122,056 Subordinated term debts - - - - - 3,571 - 3,571 Deposits and balances of banks 1,788 1,942 1,461 1,152 850 6 - 7,199 Deposits and other accounts of non- bank customers 51,976 11,295 4,789 3,629 1,859 3,745 - 77,293 Other liabilities c 30 125 230 771 932 1,102 14,553 17,743 Total liabilities 53,794 13,362 6,480 5,552 3,641 8,424 14,553 105,806 Equity 16,250 16,250 Total liabilities and equity 53,794 13,362 6,480 5,552 3,641 8,424 30,803 122,056 Net liquidity gap 38,192 1,670 3,393 8,759 9,302 24,882 6,474 - a Securities include Singapore Government securities and treasury bills, trading securities and investment securities. b Other assets include associated and joint venture companies, goodwill, fixed assets and other assets. c Other liabilities include debt securities issued, other borrowings, bills payable, current and deferred taxation and other liabilities. In S millions Less than 7 days 1 week to 1 month 1 –3 months 3 to 12 months 1 to 3 years Over 3 years No specific maturity Total December 31, 2002 Cash, and balances and placements with central banks and banks 8,954 9,574 7,900 6,388 934 88 - 33,838 Securities a 2,925 536 1,404 2,424 2,708 8,543 776 19,316 Loans to, and bills receivable from, non-bank customers 2,695 7,772 2,049 2,627 5,647 16,324 - 37,114 Other assets b - - - - - - 23,020 23,020 Total assets 14,574 17,882 11,353 11,439 9,289 24,955 23,796 113,288 Subordinated term debts - - - - - 3,649 - 3,649 Deposits and balances of banks 1,679 1,510 907 363 31 - - 4,490 Deposits and other accounts of non- bank customers 49,590 10,914 4,624 3,691 626 1,740 - 71,185 Other liabilities c 385 3,563 99 938 484 2,174 10,658 18,301 Total liabilities 51,654 15,987 5,630 4,992 1,141 7,563 10,658 97,625 Equity - - - - - - 15,663 15,663 Total liabilities and equity 51,654 15,987 5,630 4,992 1,141 7,563 26,321 113,288 Net liquidity gap 37,080 1,895 5,723 6,447 8,148 17,392 2,525 - a Securities include Singapore Government securities and treasury bills, trading securities and investment securities. b Other assets include associated and joint venture companies, goodwill, fixed assets and other assets. c Other liabilities include debt securities issued, other borrowings, bills payable, current and deferred taxation and other liabilities. 36 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES Financial instruments comprise financial assets, financial liabilities and also off-balance sheet financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arms length transaction. The information presented herein represents estimates of fair values as at the balance sheet date. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market pries are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. 54 In addition, fair value information for non-financial assets and liabilities is excluded as they do not fall within the scope of FRS 32 which requires the fair value information to be disclosed. These include fixed assets and intangibles. Except for loans to and bills receivable from customers, the following table summarises the carrying amounts and fair values of the Bank’s financial assets and liabilities. The Bank has computed the fair values of loans to and bills receivable from customers, taking into account the relevant market interest rates and credit spread by product types and noted that the total fair value is not materially different from the total carrying amount at year-end. 2003 2002 In S millions Carrying value Fair value Carrying value Fair value Financial assets Cash, and balances and placements with central banks and banks 26,629 26,650 33,838 33,863 Securities 31,455 31,762 19,316 19,654 Financial liabilities Deposits and balances of banks 7,199 7,202 4,490 4,493 Deposits and other accounts of non- bank customers 77,293 77,297 71,185 71,184 Other borrowings, debt securities issued and bills payable 3,033 3,033 2,525 2,525 Subordinated term debts 4,902 5,593 5,007 5,883 Cash, and balances and placements with central banks and banks The estimated fair value of placements is based on the discounted cash flows using the prevailing money market interest rates for placements with similar credit risk and remaining maturity. Securities Securities include Singapore Government securities and treasury bills, trading securities and investment securities. Fair value is based on the market prices or brokerdealer price quotations. Where market price are not available, fair values are estimated based on validated internal valuation models. For equities, where market price information is not available, fair value has been estimated by reference to the net tangible asset backing of the investee. Subordinated term debts The estimated fair value of subordinated term debts is based on a discounted cash flow model using a current yield curve appropriate for the remaining term to maturity. The fixed rate USD subordinated term debts issued by DBS Bank have been converted to floating rate via interest rate swaps. The difference between fair value and carrying amount will be largely offset by the corresponding fair value of hedging the interest rate swaps Note 34.2. 55 Deposits, and balances of banks and non-bank customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits and other borrowings is based on discounted cash flows using prevailing interest rates with similar remaining maturity. Other borrowings, debt securities and bills payable The fair value approximates their carrying amounts. 37 ASSETS PLEDGED The aggregate carrying amounts of assets that have been mortgaged or pledged in the normal course of business to secure the liabilities of DBS Bank at December 31 was S1,440 million 2002: S1,272 million. These relate to securities sold under repurchase agreements. 38 SEGMENTAL ANALYSIS

38.1 BUSINESS SEGMENT ANALYSIS