ANNUAL REPORT2012 - phillipbank.com.kh · hwangdbs commercial bank plc | annual report 2012 3...

C O N N E C T I N G A S I A T H R O U G H F I N A N C E

ANNUAL REPORT2012

HWANGDBS COMMERCIAL BANK PLC | ANNUAL REPORT 2012 3

CORPORATECORPORATE

HWANGDBS COMMERCIAL BANK PLC | ANNUAL REPORT 20122


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CONTENTSCORPORATE Corporate Information Business Description Chairman’s Statement Financial Highlights 3-Year Financial Summary Analysis of Financial Performance Organisation Structure Profile of Directors Business Operation Target Shareholding Information Significant Event

GOVERNANCEPolicy and Practice Guidelines for Corporate Governance

FINANCIALSDirectors’ ReportIndependent Auditor’s ReportFinancial Statements� Consolidated Balance Sheet� Consolidated Income Statement� Consolidated Statement of Changes in Equity� Consolidated Cash Flow Statement� Balance Sheet� Income Statement� Statement of Changes in Equity� Cash Flow Statement� Notes to the Financial Statements

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មាតិកាក្រុមហ៊រុនពត័ម៌ានអំពីក្រុមហុ៊នការពិពណ៌នាអំពីអាជីវ្ម្មសេច្្ីថ្លែងការណ៍របេ់កបធានក្រុមកបរឹ្សាភបិាលេសងខេបេំខាន់ៗ អំពីហិរញ្ញ វត្ុសេច្្ីេសងខេបហិរញ្ញ វត្ុរយៈសពល ៣ឆ្នា ំការវភិាគលទ្ធផលហិរញ្ញ វត្ុរចនាេម្ន័្ធអង្គការចាតត់ាងំកបវត្ិរូបេសងខេបរបេ់អភបិាលសោលសៅកបតិបត្ិការអាជីវ្ម្មពត័ម៌ានអំពីការកានក់ាបភ់ាគហុ៊នកពរឹត្ិការណ៍េំខាន់ៗ

អភិបាល្ិច្ចសោលនសោបាយ និងសោលការណ៍អនុវត្េកមាបអ់ភបិាល្ិច្ចក្រុមហុ៊ន

ហិរញ្ញវត្ថុរបាយការណ៍របេ់ក្រុមកបរឹ្សាភបិាលរបាយការណ៍របេ់េវន្រឯ្រាជ្យរបាយការណ៍ហិរញ្ញ វត្ុ� តារាងតុល្យការរមួ� របាយការណ៍លទ្ធផលរមួ� របាយការណ៍បថកមបកមរួលមូលធនរមួ� របាយការណ៍លំហូរសាចក់បា្រ់មួ� តារាងតុល្យការ� របាយការណ៍លទ្ធផល� របាយការណ៍បថកមបកមរួលមូលធន� របាយការណ៍លំហូរសាចក់បា្់� ្ំណតេ់មា្គ ល់របាយការណ៍ហិរញ្ញ វត្ុ

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CORPORATECORPORATE


CORPORATE INFORMATION

COMPANY SECRETARIES

Ms. Tan Lee PengMs. Mah Yee WanMs. Ooi Hui Ling

AUDITORS

PricewaterhouseCoopers (Cambodia) Limited35 Sihanouk BoulevardSangkat Tonle BassacKhan ChamkarmonPhnom PenhKingdom of Cambodia.

REGISTERED OFFICE AND MAIN BRANCH

Ground Floor of B-Office Center,Building # 61-64, Norodom BlvdCorner Street 306Sangkat Boeung Keng Kang 1Khan ChamkamornPhnom PenhKingdom of Cambodia.Tel: 855 23 218866Fax: 855 23 220108

BOARD OF DIRECTORS

Mr. Hwang Lip Teik (Non-Executive Chairman)Mr. Ang Teik Siew (Ang Teik Lim Eric)Ms. Yap Yoke LengY.A.M. Tengku Syed Badarudin JamalullailMr. Lee Meng SoonMr. Tham Kwok MengMr. Teoh Teik Kee

BRANCH NETWORK

Kampuchea Krom Branch# 640, Kampuchea Krom BlvdSangkat Phsar Depo II Khan Toul KorkPhnom Penh Kingdom of Cambodia.Tel: 855 23 883733Fax: 855 23 883811

Mao Tse Tung Branch# 187, Mao Tse Tung Blvd Sangkat Toul Svay Prey IKhan Chamkar MonPhnom PenhKingdom of Cambodia.Tel: 855 23 220080Fax: 855 23 220081

Steung Meanchey Branch# 6B & 7B, Preah Monireth Blvd, Sangkat Steung MeancheyKhan MeancheyPhnom PenhKingdom of Cambodia.Tel: 855 23 424220Fax: 855 23 424221


CORPORATECORPORATE


BUSINESS DESCRIPTIONBACKGROUND

HwangDBS Commercial Bank Plc (“the Bank”) was incorporated on 26 June 2009, under the Laws of the Kingdom of Cambodia. The Bank is a wholly-owned subsidiary of Hwang-DBS (Malaysia) Berhad (“Hwang-DBS”), a public company listed under the Finance Sector of the Stock Exchange of Malaysia. Hwang-DBS Group is a leading, integrated financial services group in Malaysia which offers a wide range of financial products and services, such as equity trading, wholesale banking, sales and management of unit trusts and institutional funds, derivatives trading, consumer financing, nominees services and equity research. Hwang-DBS Group is backed by 2 major shareholders namely the Hwang family which founded the Group and Singapore’s largest bank, DBS Bank Ltd.

The Bank was issued with a banking licence by the National Bank of Cambodia (“NBC”) on 17 July 2009 and commenced operations on 23 July 2009 in Phnom Penh. It has since expanded its network and now has offices at 4 locations in Phnom Penh, namely its Main Branch at Norodom Boulevard and 3 other branches located at Kampuchea Krom Boulevard, Mao Tse Tung Boulevard and Preah Monireth Boulevard. The Bank has a paid-up capital of US$40 million.

The Bank offers an integrated range of commercial banking products to its customers.

CORPORATE MISSION

“To be a premier, safe and secure commercial banking powerhouse that connects our customers to all their banking needs, to live up to our tagline to ‘Connect Asia Through Finance’.”

CORPORATE VISION

We are committed to:• OfferingCambodiaaccesstosafeandsecurebanking• Providingpersonalisedattentionandserviceexcellenceandensurewebecomethebankofchoice• Deliveringonourpromisesbyprovidingsafeandsecurebankingandto‘connect’ourclientstoalltheirbankingneeds• Preservingcustomers’bestinterestbyanticipatingneedsinordertoofferrelevantbusinesssolutionstosupporttheirgrowth• Remainingcommittedandfocusedonimprovingourpeople,products,services,resourcestobetterserveourclients

CORPORATE PHILOSOPHY

Customer perspective• Provideourcustomerswithasafeandsecurebanking• To‘connect’ourclientstoalltheirbankingneeds

Employee perspective• Ourpeopleareourgreatestasset.Assuch,weplacegreatimportanceindevelopingthem.Adynamichumancapitaldevelopment process will drive our competitive edge.

Community perspective• To support theGovernment policies and objectives and contribute to the betterment of the community and ultimately, the country.

Shareholder perspective • Tocreateasuperiorshareholdervalueandsustainablereturnsonassets.


CORPORATECORPORATE


CHAIRMAN’S STATEMENT OVERALL BUSINESS ENVIRONMENT

Against the backdrop of economic and financial conditions and severe floods, Cambodia’s economy continued to perform. The majority of the positive performance is contributed by the export, tourism and real estate sectors. The garments and textiles sector grew with exports of USD4.61 billion1 in 2012, whilst new flight routes were introduced which helped boost tourism. Total tourist arrivals in Cambodia increased by 23.9 per cent2 from 2.9 million in 2011 to over 3.2 million in 2012. Additionally, construction activity picked up as the real estate sector rebounded.

Cambodia’s Gross Domestic Product (“GDP”) is expected to reach 6.5 per cent3 in 2012. Looking forward, the International Monetary Fund (“IMF”) projected that Cambodia would be expected to be one of the fastest growing developing economies in the Asia-Pacific region over the next five years. The IMF forecasts the GDP growth in Cambodia to reach 6.7 per cent3 in 2013 and 7.7 per cent3

in 2017. Despite the high pace of economic expansion over the next five years, IMF expects Cambodia’s inflation to remain low. Meanwhile, the country’s Consumer Price Index (“CPI”) is forecasted at 3.6 per cent3 in 2012, 4.4 per cent3 in 2013 and 3.0 per cent3 in 2017.

In tandem with the positive sentiment and on-going growth, the banking sector in Cambodia continues to display strong and steady growth. The loans to the private sectors and deposits have increased in 2012. Currently, the commercial banks in Cambodia are serving about 1.6 million borrowers and 1.9 million depositors. In a statistical report released by the National Bank of Cambodia (“NBC”), commercial banks have loaned a total of USD5.49 billion as of November 2012, which is an increase of 30 per cent compared to the same period in the previous year. On the deposit side, as of November 2012, the total amount in deposits stood at USD6.02 billion.

SUMMARY OF THE BANK’S FINANCIAL PERFORMANCE

For the year 2012, HwangDBS Commercial Bank Plc (“HwangDBS CB” or “the Bank”) recorded a total operating revenue of USD3.06 million and a pre-tax loss of USD0.10 million.

The Bank’s loan portfolios continued to grow steadily with a 70.9 per cent growth from USD18.3 million as at 31 December 2011 to USD31.3 million as at 31 December 2012.

COMPLIANCE WITH REGULATIONS ISSUED BY THE CENTRAL BANK

HwangDBS CB will continue to maintain good corporate governance and professionalism in the management and operation of the Bank’s business. The Bank will continue to strictly comply with all prakas, circulars, provisions and guidelines of the Central Bank.

It remains our priority to ensure client’s peace of mind and the efficiency of our services. As such, the Bank has put in place policies and procedures and has invested in technology and infrastructure security.

1 Source: InvestVine.com, Cambodia’s textile sector shows strength dated 9 February 20132 Source: Cambodia Ministry of Tourism, Tourism Statistics Report as of November 20123 Source: International Monetary Fund, World Economic Outlook as of October 2012


CORPORATECORPORATE


STEPS TAKEN TO STRENGTHEN THE BANK’S POSITION AND PERFORMANCE

It is our commitment to provide our clients first class banking experience and secured banking services in Cambodia. As such, the Bank constantly assesses and improves its services to provide the best customer experience and ensure good corporate governance, sound risk management policies and prudent credit policies and practices.

HwangDBS CB believes in helping businesses to set up and expand, helping people to buy homes and grow their wealth. Therefore, the Bank continues to conduct market research to understand market needs to improve and provide financial services and assistance to the under-banked and under-served customers.

Over the years, the Bank has committed in building and improving technology, systems, risk management and human capital to enhance operational efficiency. As of 31 December 2012, the Bank has a paid-up capital of USD40 million. This capital is higher than the minimum capital requirement of KHR150 billion (or USD37.50 million) as prescribed by the NBC.

The Bank has also opened its fourth branch at the popular garment manufacturing district of Steung Meanchey, Khan Meanchey in Phnom Penh. This highlights HwangDBS CB’s commitment to meet the needs of the locals and serve the under-served sectors by offering competitive financial services to help develop the local business enterprises as well as the Bank’s confidence in the economic and political stability of Cambodia.

BOARD FOCUS AND COMMITMENT

Our focus remains on transforming HwangDBS CB into a premier, safe and secure commercial bank. As such, the Board of Directors of the Bank remains committed to strengthen the Bank’s market share and presence in Cambodia.

The Bank will continue to invest in information technology and infrastructure security for the clients’ added peace of mind. To deepen our relationships with our clients through excellent customer experience, the Bank will also continue to invest in talent development and retention through continuous training and knowledge transfers from its parent company, Hwang-DBS (Malaysia) Berhad as well as from DBS Bank Ltd.

As part of the Bank’s business expansion plan, HwangDBS CB will continue to expand its business to the untapped regions in Cambodia. In year 2012, we expanded our presence in Phnom Penh with the successful launch of the fourth branch in Steung Meanchey.

ACKNOWLEDGEMENT

On behalf of the Board, I would like to take this opportunity to thank all the officials of the NBC for their on-going guidance, support and advice.

To all our customers, thank you for your continuous confidence and support. We look forward to another mutually beneficial year. Last but not least, to all the staff of the Bank, thank you for your commitment and dedication to the Bank and its customers.

Hwang Lip TeikChairman


CORPORATECORPORATE


FINANCIAL HIGHLIGHTSBANK 2012 2011 2010

OPERATING RESULTS (US$’000)

Operating revenue 3,060 2,028 1,077

Loss before taxation (101) (181) (554)

Net (loss)/profit for the year (156) 40 (564)

KEY BALANCE SHEET DATA (US$’000)

Total assets 62,668 49,167 49,618

Loans and advances 31,271 18,302 6,438

Total liabilities 24,119 10,462 13,454

Deposits 23,775 10,348 13,237

Statutory capital 40,000 40,000 37,500

Shareholder’s funds 38,549 38,705 36,165

FINANCIAL RATIOS

(Loss)/Earnings per share (US$) (0.004) 0.001 (0.02)

Net assets per share (US$) 0.96 0.97 0.96

Return on shareholder’s funds (%) (0.40) 0.10 (1.56)

Return on assets (%) (0.25) 0.08 (1.14)

Liquidity ratio (%) 148.23 302.59 306.82

Loan-to-deposit ratio (%) 135.80 180.75 49.29

Non-performing loans to total loans (%) 4.74 2.25 1.74

CAPITAL MANAGEMENT

Net worth (US$’000) 38,722 38,697 35,902

Solvency ratio (%) 69.44 89.55 96.43


CORPORATECORPORATE


TOTAL ASSETS LOANS AND ADVANCES

201220112010

62.67

49.1749.62

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

US

$'M

illio

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201220112010

31.27

18.30

6.44

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

US

$'M

illio

n

201220112010

23.78

10.35

13.24

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5.0

10.0

15.0

20.0

25.0

US

$'M

illio

n

201220112010

38.5538.70

36.16

34.0

35.0

36.0

37.0

38.0

39.0U

S$

'Mill

ion

201220112010

3.06

2.03

1.08

0.0

1.0

2.0

3.0

4.0

US

$'M

illio

n

201220112010

(0.6)

(0.5)

(0.4)

(0.2)

(0.3)

(0.1)

0.0

US

$'M

illio

n

(0.10)

(0.18)

(0.55)

DEPOSITS SHAREHOLDER'S FUNDS

OPERATING REVENUE LOSS BEFORE TAX

3-YEAR FINANCIAL SUMMARY


CORPORATECORPORATE


ANALYSIS OF FINANCIAL PERFORMANCEOPERATING REVENUE

Operating revenue of the Bank for the year ended 31 December 2012 is 50.88% higher at US$3.06 million, compared to US$2.03 million posted in the previous year ended 31 December 2011. Contributing to the higher operating revenue is primarily the significant increase in interest income from loans and advances to customers, on the back of steady growth in loan portfolio of the Bank. The key sources of operating revenue of the Bank for the year ended 31 December 2012 is loans and advances to customers (85.65%) and deposit placements with financial institutions (12.59%).

LOSS BEFORE TAXATION AND (LOSS)/EARNINGS PER SHARE

The Bank posted a marginally lower pre-tax loss of US$0.10 million for the year ended 31 December 2012 against pre-tax loss of US$0.18 million recorded in the preceding year 2011. Cost-to-income ratio of the Bank for year 2012 is lower at 0.80:1 against 0.82:1 in the previous year. Components of operating expenses of the Bank for the current year under review are personnel expenses (40.82%), depreciation and amortisation expenses (15.25%), establishment related costs (19.75%), promotion and marketing related expenses (2.64%) and administrative and other operating expenses (21.54%). Notwithstanding the significant increase in operating revenue of the Bank for the year ended 31 December 2012, the financial performance of the Bank was negatively impacted by higher loan loss provisioning emanating from the increase in percentage of non-performing loans to total loans to 4.74% as at 31 December 2012 from 2.25% as at 31 December 2011. Provision for the loan losses of the Bank which comprised general and specific provisions were made in accordance with the regulatory requirements. In addition, increase in personnel expenses and establishment related costs have also increased the operating costs of the Bank for the year ended 31 December 2012.

The Bank posted a net loss for the year of US$0.16 million compared to a net profit of US$0.04 million in the year ended 31 December 2011 mainly due to the reduction in deferred tax assets recognised by the Bank in year 2012 to US$0.02 million from US$0.24 million in the preceding year. Loss per share of the Bank for year 2012 is US$0.004 versus earnings per share of US$0.001 for the previous year. TAXATION

Taxation consists of income tax and deferred tax. As the Bank incurred a pre-tax loss during the current year, the income tax of the Bank is based on a minimum tax of 1% of its turnover under the Cambodian tax laws. The effective tax rate of the Bank for the current year under review is higher than the statutory tax rate of 20% mainly due to certain expenses which are not deductible for tax purposes and the Bank is subject to minimum tax.

TOTAL ASSETS

Total assets of the Bank stood at US$62.7 million as at 31 December 2012, representing a 27.46% increase from US$49.17 million as at 31 December 2011. The assets base of the Bank is largely supported by loans and advances to customers (49.90%), deposit placements with financial institutions (24.60%) and balances with the Central Bank (11.62%). Increase in total assets of the Bank as at 31 December 2012 relative to the last year ended 31 December 2011 is mainly attributable to a 70.86% growth in loan portfolio coupled with increase in customers’ deposits, partially offset by the disposal of other investment in year 2012. LOANS AND ADVANCES

Loans and advances mainly comprise secured long term loans to customers. Gross loans and advances to customers of the Bank have grown by 72.61% to US$32.29 million as at 31 December 2012 from US$18.70 million as at 31 December 2011.

As at 31 December 2012, the loan portfolio of the Bank comprises loans and advances to various sectors in Cambodia, mainly housing (18.59%), wholesale and retail activities (18.15%), real estate and renting activities (16.44%), hotels and restaurants (7.59%), manufacturing (6.56%) and finance (4.82%) sectors.


CORPORATECORPORATE


TOTAL LIABILITIES

Total liabilities of the Bank as at 31 December 2012 have more than doubled to US$24.12 million as at 31 December 2012 from US$10.46 million as at 31 December 2011 on the back of higher deposits from financial institutions which increased from US$2.10 million as at 31 December 2011 to US$14.07 million as at 31 December 2012.

Deposit placements from financial institutions and customers remain the key components of the Bank’s total liabilities as at 31 December 2012, i.e. accounted for 98.57% (2011: 98.91%) of the total liabilities of the Bank.

DEPOSITS

Deposits from financial institutions and customers as at 31 December 2012 consist of term deposits (66.32%), current accounts (26.77%) and savings accounts (6.91%). As at 31 December 2011, the main component of deposits from financial institutions and customers was current accounts, which comprised 61.64% of the total deposits.

Increase in deposits from financial institutions and customers as at 31 December 2012 is primarily attributed to higher term deposits from financial institutions in Cambodia.

STATUTORY CAPITAL

The paid-up statutory capital of the Bank as at 31 December 2012 amounted to US$40.00 million. There was no issue of shares in the Bank during the year ended 31 December 2012.

SHAREHOLDER’S FUNDS AND NET ASSETS PER SHARE

As at 31 December 2012, shareholder’s funds of the Bank is marginally lower at US$38.55 million compared to US$38.70 million as a result of net loss for the year incurred by the Bank in year 2012. Net assets per share of the Bank as at 31 December 2012 stood at US$0.96 (2011: US$0.97).

RETURN ON SHAREHOLDER’S FUNDS AND RETURN ON ASSETS

The Bank recorded negative returns on shareholder’s funds and assets for the year ended 31 December 2012, i.e. the return on shareholder’s funds is -0.40% (2011: 0.10%) and the return on assets is -0.25% (2011: 0.08%) respectively.

The negative return on shareholder’s funds for year 2012 is mainly due to net loss for the year incurred by the Bank, partially cushioned by the higher total assets of the Bank as at 31 December 2012. The negative return on assets for year 2012 is in line with net loss for the year incurred by the Bank.

LIQUIDITY RATIO

The liquidity ratio of the Bank as at 31 December 2012 is lower at 148.23% compared to 302.59% as at 31 December 2011 mainly due to the increase in deposit placements from financial institutions. The Bank is in compliance with the Central Bank’s Prakas No. B7-04-207 which requires a liquidity ratio of at least 50%. The liquidity ratio of the Bank indicates that the Bank has the ability to honour withdrawals of deposits by its customers. LOAN-TO-DEPOSIT RATIO

The loan-to-deposit ratio of the Bank as at 31 December 2012 is relatively lower at 135.80% as compared to 180.75% as at 31 December 2011 mainly attributed to the increase in deposit placements from financial institutions and customers, partly offset by the enlarged loan portfolio as at 31 December 2012.


CORPORATECORPORATE


ANALYSIS OF FINANCIAL PERFORMANCE (continued)

NON-PERFORMING LOANS TO TOTAL LOANS (%)

The non-performing loans to total loans ratio as at 31 December 2012 is higher at 4.74% compared to 2.25% as at 31 December 2011. This has led to the increase in specific provision on loans and advances to US$0.7 million as at 31 December 2012 from US$0.2 million as at the previous year end. Non-performing loans are mostly secured and the Bank is in the process of recovering the loans.

NET WORTH

As at 31 December 2012, the net worth of the Bank of US$38.72 million (2011: US$38.70 million) is in excess of the minimum regulatory capital requirement of US$37.50 million. The marginal increase is mainly due to higher general provision for loan losses, partially offset by net loss incurred by the Bank year 2012.

SOLVENCY RATIO

Solvency ratio provides a measure of the Bank’s net worth as a percentage of its risk-weighted credit exposures. As at 31 December 2012, the solvency ratio of the Bank of 69.44% (2011: 89.55%) is in compliance with Central Bank’s Prakas No. B7-04-206 which requires a solvency ratio of at least 15%. The solvency ratio as at 31 December 2012 is relatively lower mainly due to the increase in loans and advances to customers coupled with higher level of undrawn loans and advances as at 31 December 2012, partially offset by the disposal of other investment in year 2012


CORPORATECORPORATE


ORGANISATION STRUCTURE

Board of Directors

Executive Director

Company Secretary

Audit CommitteeRemuneration and

NominationCommittee

Risk Management Committee

Management Committee IT Steering Committee Credit Committee Asset and LiabilitiesCommittee

General Manager Compliance and RiskInternal Audit

Operations Finance Human Resource InformationTechnology Credit Administration

Main Branch KampucheaKrom Branch

Mao Tse Tung Branch

SteungMeanchey

Branch

Board committees

Management committees


CORPORATECORPORATE


PROFILE OF DIRECTORSHWANG LIP TEIK Non-Executive Chairman

Hwang Lip Teik was appointed to the Board of the Bank since the inception of the Bank on 26 June 2009. He serves as Chairman of the Bank since July 2011.

Mr. Hwang is also a member of the Audit Committee, Risk Management Committee and Remuneration and Nomination Committee of the Bank.

In addition to his experience in investment banking, Mr. Hwang has extensive experience in the securities industry which was garnered since 1983 when he joined HwangDBS Investment Bank Berhad (“HDBSIB”) as Senior Manager (Trading) in charge of the trading activities of HDBSIB. He was promoted to an Executive Director in January 1996 and served as Managing Director/Chief Executive Officer of HDBSIB from 2007 to January 2011 when he was redesignated to Non-Executive Director. Mr. Hwang is currently the Non-Executive Chairman of Hwang-DBS (Malaysia) Berhad, a company listed under the Finance Sector of the Main Market of the Malaysian Stock Exchange and the holding company of the Bank.

ANG TEIK SIEW (ANG TEIK LIM ERIC)Non-Executive Director

Ang Teik Siew (Ang Teik Lim Eric) was appointed to the Board of the Bank since the inception of the Bank on 26 June 2009. Mr. Ang is a member of the Remuneration and Nomination Committee of the Bank.

Mr. Ang graduated with a Bachelor of Business Administration (Honours) from the University of Singapore in 1976. His career in the banking industry commenced in 1978 when he joined DBS Bank, Singapore as a Corporate Banking Officer. Since then, he has held various other positions in DBS Bank and is currently the Managing Director & Head of Capital Markets Group.

Besides being a director of Hwang-DBS (Malaysia) Berhad and HwangDBS Investment Bank Berhad, the holding company and related company of the Bank respectively, Mr. Ang also sits on the board of DBS Asia Capital Ltd and The Islamic Bank of Asia, both companies in the DBS Group of Companies.

YAP YOKE LENGNon-Executive Director

Yap Yoke Leng was appointed to the Board of the Bank on 30 December 2010. Ms. Yap is a member of the Risk Management Committee of the Bank.

Ms. Yap joined DBS Bank, Singapore in 1990. She is currently a Managing Director with DBS Consumer Banking Group and heads the Regional Business Operations group. Ms. Yap started her 20 years of banking experience with DBS and has assumed various leadership positions within DBS Bank. Prior to her current role, Ms. Yap managed the Singapore distribution operations with the largest network of branches and self-service banking channels in Singapore. Ms. Yap played a leading role in DBS’s integration with Thai Danu Bank, Kwong On Bank and POSB acquisition. In addition, Ms Yap has worked on various special projects and gained a deep appreciation for the consumer banking business. Ms. Yap holds a Bachelor degree in Social Studies (Honours) from Universiti Sains Malaysia with major in Business Management.

Ms. Yap also sits on the Board of Network for Electronic Transfers (S) Pte Ltd.


CORPORATECORPORATE


Y.A.M. TENGKU SYED BADARUDIN JAMALULLAILIndependent Director

Y.A.M. Tengku Syed Badarudin Jamalullail was appointed to the Board of the Bank as an Independent Director on 20 July 2011. Tengku is the Chairman of the Remuneration and Nomination Committee of the Bank as well as a member of the Audit Committee of the Bank.

Tengku graduated from Cambridge University in 1968 with a Master of Arts degree in Law and History. From 1968-1978, he was employed and held various executive positions in Fraser & Neave (Malaya) Sdn Bhd. Currently, Tengku is involved in his family businesses and is also the Independent Non-Executive Chairman of Fraser & Neave Holdings Berhad, a large conglomerate listed on the Malaysian Stock Exchange with extensive business such as manufacturing and distribution of dairy products, soft drinks and property development.

Tengku is also the Independent Chairman of HwangDBS Investment Bank Berhad and Independent Director of Hwang-DBS (Malaysia) Berhad, the related company and holding company of the Bank respectively.

LEE MENG SOONExecutive Director

Lee Meng Soon was appointed to the Board of the Bank as an Executive Director on 1 January 2012.

Mr. Lee has over 30 years of banking experience starting from 1974 when he joined a Malaysian listed development finance company as a Project Evaluation Officer. His banking experience includes development finance, investment and commercial banking covering several ASEAN countries and South Asia. He was formerly a Managing Director in DBS Bank Ltd and served as the Country Head for DBS Bank, India from its initial set up. He had also served as President Director of PT Bank DBS Indonesia.

Mr. Lee holds a Bachelor degree in Economics (Honours) from University Malaya and MBA from Brunel University, UK. He is also a member of Chartered Institute of Management Accountants (FCMA), Association of Chartered Certified Accountants (FCCA) and the Institute of Certified Public Accountants Singapore (ICPAS).

THAM KWOK MENGIndependent Director

Tham Kwok Meng was appointed to the Board of the Bank as an Independent Director on 1 April 2013. Mr. Tham is the Chairman of the Audit Committee and Risk Management Committee of the Bank.

Mr. Tham graduated with a Bachelor of Science in Civil Engineering (First Class Honours) from Imperial College, University of London, United Kingdom.

Mr. Tham joined HSBC as an International Manager in 1985 and for 28 years before his retirement in 2012 served in a variety of roles in 9 countries namely Singapore, Thailand, mainland China, Malaysia, Hong Kong, Macau, Qatar, the United Kingdom and the United States. He was appointed Chief Operating Officer of HSBC China in 2004, where he helped establish the infrastructure for the bank’s rapid expansion in that country. During his tenure as Chief Executive Officer of HSBC Thailand from 2007-2011, Mr. Tham also served as the Chairman of the Association of International Banks in Thailand. Mr. Tham was the Managing Director & Head of Commercial Banking of HSBC Singapore prior to his retirement in 2012.

Mr. Tham also serves as a director of Hwang-DBS (Malaysia) Berhad and HwangDBS Investment Bank Berhad, the holding and related company of the Bank respectively.


CORPORATECORPORATE


PROFILE OF DIRECTORS (continued)

TEOH TEIK KEENon-Executive Director

Teoh Teik Kee was appointed to the Board of the Bank as Non-Executive Director on 1 April 2013. Mr. Teoh is a member of the Audit Committee of the Bank.

Mr. Teoh graduated with a Bachelor of Managerial and Administrative Studies from Aston University, Birmingham, United Kingdom in 1983 and he is an Associate member of the Institute of Chartered Accountants in England & Wales.

Mr. Teoh started his career with KPMG Peat Marwick McLintock, London in 1986 before moving on to join Price Waterhouse, Singapore as an Audit Manager in 1989. Thereafter, Mr. Teoh joined the Investment Banking Department of DBS Bank Ltd. From DBS Bank Ltd, he moved on to DBS Securities Pte Ltd, where he served as Senior Manager/Head of China Desk, responsible for DBS Securities’ corporate finance activities in China, Hong Kong and Taiwan. Mr. Teoh later joined Hwang-DBS Securities Berhad (now known as HwangDBS Investment Bank Berhad) in 1996 where his last position was as General Manager of a major branch. In 2001, Mr. Teoh left Hwang-DBS Securities Berhad and co-founded iSpring Capital Sdn Bhd, a company specializing in venture capital investment and corporate advisory services. From 2004 - 2010, Mr. Teoh served as an Executive Director of a Singapore based SGX Main Board listed Company, ecoWise Holdings Limited, responsible for overseeing the group’s corporate planning, mergers and acquisitions, as well as charting and implementing business strategies locally and regionally.

Mr. Teoh also serves as a director of Hwang-DBS (Malaysia) Berhad and HwangDBS Investment Bank Berhad, the holding and related company of the Bank respectively.


CORPORATECORPORATE


BUSINESS OPERATION TARGETFINANCIAL PERSPECTIVE

During the year ended 31 December 2012, the Bank continued to expand its depositor base and increased its lending activities. As at 31 December 2012, total deposits of the Bank from financial institutions and customers (other than the subsidiary of the Bank) amounted to USD18.80 million (2011: US$5.37 million). Total loans disbursed during the year amounted to USD18.48 million, which represents an increase of 42.70% compared to loans disbursed of US$12.95 million in year 2011.

The Bank registered a total operating revenue of USD3.06 million and a net loss for the year of US$0.16 million. Operating loss before net loss on disposal of other investment and write back of impairment loss on other investment amounted to US$0.07 million.

The Bank will continue with its strategies to focus on satisfying the financial needs of small and medium scale enterprises and providing housing loans. The Bank will continue to provide wholesale banking to microfinance institutions (“MFIs”) in Cambodia and also focus on increasing its loan base as well as growing its depositor base.

CUSTOMER PERSPECTIVE

The Bank offers a wide range of services and products for small and medium scale enterprises, retail and corporate financial needs whilst safeguarding the wealth of locals for future generations.

The Bank believes in going the extra mile and to meet with the customers at their convenience, be it to ensure a transaction is completed or to help with their banking needs. This commitment will truly be a key differentiator for the Bank and will bring a whole new meaning to ‘banking at your doorstep’.

INTERNAL PROCESS PERSPECTIVE

The Bank’s aim is to project and position itself as a “premier, safe and secure bank” that places high importance on stringent risk management processes for our clients’ benefit. The Bank has put in place policies and procedures of international standards and has invested substantially in technology and infrastructure security for customers’ added peace of mind.

HUMAN RESOURCE DEVELOPMENT

Employees are assets to the Bank. The Bank strives to attract, employ and retain candidates with the right credentials, attitudes and level of experience that are needed for the Bank to succeed. The Bank believes that the human resource development framework, which can help employees in developing their personal and organisational skills, knowledge and abilities, is essential to developing and retaining a workforce in order to accomplish the Bank’s goals.

The right human resource development program at organisation level prepares an individual to undertake a higher level of responsibility at work and maximises enterprise effectiveness. It also creates a state of employee engagement to ensure that our employees will be fully involved and enthusiastic about his or her work to further the Bank’s interests. Selected front liners are trained to hone their soft skills while support staff attend courses that are specifically related to enhancing their technical skills.

Human resource development from a business perspective must be aligned with the organisation’s mission and vision. Bearing this in mind and the eventuality of the expansion of the Bank in terms of manpower, the Bank has allocated a budget of USD50,000 in year 2013 for training and team building purposes.


GOVERNANCEGOVERNANCE


BUSINESS OPERATION TARGET(continued)

SIGNIFICANT OPERATION PLANS FOR FINANCIAL YEAR 2013

The Bank will relocate its existing Mao Tse Tung Branch to a bigger premises to accommodate a higher number of staff and customers and to open another branch in Phnom Penh City in year 2013.

The Bank plans to launch trade services business to complement the existing lending operations. The proposed trade services business will basically involves the issuance of outward sight and usance letters of credit for importers, advising and negotiation of inward letters of credit for exporters, collection and trust receipts.

The Bank will continue to lend to microfinance institutions in order to indirectly support the small scale enterprises.

The Bank will also continue to increase its core business activities especially to small and medium scale enterprises and to home buyers and at the same time, strive to increase its depositor base.

SHAREHOLDING INFORMATIONRegistered and paid-up statutory capital: 40,000,000 shares at a par value of US$1 per share

The Bank is a wholly-owned subsidiary of Hwang-DBS (Malaysia) Berhad, a public limited liability company incorporated in Malaysia, which owns 100% of the Bank’s statutory capital.

SIGNIFICANT EVENTDate Event14 December 2012 The Bank opened its fourth branch, known as ‘Steung Meanchey Branch’ located at # 6B & 7B, Preah Monireth Blvd, Sangkat Steung Meanchey, Khan Meanchey, Phnom Penh, Kingdom of Cambodia.

Opening of Steung Meanchey branch on 14 December 2012

CORPORATE




POLICY AND PRACTICE GUIDELINES FORCORPORATE GOVERNANCEBOARD RESPONSIBILITIES AND OVERSIGHT

The Board of Directors (“Board”) is committed to the principles of corporate governance and oversees the overall corporate governance practices and performance of the Bank. The responsibilities of the Board include:

• overseestheconductoftheBank’sbusiness;• establishesbusinessdirections,plansandannualbudgetoftheBank;• reviewsactionplansthatareimplementedbythemanagementtoachievebusinessstrategiesandtargetssetbytheBoard;• identifiesprincipalrisksandensurestheimplementationofappropriatesystemstomanagethoserisks;• reviewstheadequacyandtheintegrityoftheBank’sinternalcontrolsystemsandmanagementinformationsystems,including systems for compliance with applicable laws, rules and guidelines issued by the National Bank of Cambodia from time to time.

COMPOSITION OF THE BOARD

The Bank is led and managed by an experienced Board comprising members with extensive experience in commercial and investment banking activities as well as audit background. Dato’ Seri Hwang Sing Lue, a Non-Executive Director passed away on 16 December 2012. As at 31 December 2012, the Board comprises 1 Executive Director and 5 Non-Executive Directors, 2 of whom are independent. Subsequent to the end of the financial year, Mr. Ong Eng Kooi, an Independent Non-Executive Director retired from office on 1 April 2013.

To fill the gaps which arose due to the passing of Dato’ Seri Hwang Sing Lue and retirement of Mr. Ong Eng Kooi, 2 new Directors namely Mr. Tham Kwok Meng (Independent Non-Executive Director) and Mr. Teoh Teik Kee (Non-Executive Director), both of whom have extensive banking experience were appointed to the Board with effect from 1 April 2013. The current Board comprises 1 Executive Director, 4 Non-Independent Non-Executive Directors and 2 Independent Non-Executive Directors.

The functions of Executive and Non-Executive Directors are separate and distinct. The Non-Executive Directors complement the skills and experience of the Executive Director and contribute to the formulation of strategies and policies of the Bank, whilst, the Independent Non-Executive Directors also provide checks and balances to ensure that the Bank operates within proper governance framework with the necessary internal control and systems in place. The Executive Director is responsible for making operational decisions and implementing strategic activities of the Bank with the assistance of the General Manager. The Non-Executive Directors on the Board who bring strong independent judgement and objective participation in the proceedings and decision-making process of the Board provides an effective check and balance on the powers of the Executive Director.

The composition of the Board reflects the Board’s commitment to maintain an appropriate balance to ensure a sufficiently wide and relevant mix of backgrounds, skills and experience to provide strong and effective leadership and control of the Bank.

The Board has set up three (3) Board’s Committees to assist the Board in the management of the Bank’s businesses and discharge of its duties. The functions and terms of reference of the Committees as well as authority delegated by the Board to these Committees have been clearly defined by the Board. Three (3) Board Committees are:

Committee Chaired By

Audit Committee Independent Non-Executive Director

Risk Management Committee Independent Non-Executive Director

Remuneration and Nomination Committee Independent Non-Executive Director

GOVERNANCE




POLICY AND PRACTICE GUIDELINES FORCORPORATE GOVERNANCE (continued)

(I) Audit Committee

The Audit Committee provides independent oversight of the Bank’s financial reporting and internal control system and ensures checks and balances within the Bank.

The Audit Committee comprises 4 members from the Board as follows:1. Mr. Tham Kwok Meng (Chairman)2. Y.A.M. Tengku Syed Badarudin Jamalullail3. Mr. Hwang Lip Teik4. Mr. Teoh Teik Kee

The duties of the Audit Committee include amongst others:(a) ensure financial and risk-related information provided to the public and the National Bank of Cambodia are clear, accurate and reliable;(b) assess thebasisofpreparationandaccountingmethodologiesused for individualandconsolidated financial statements;(c) review the adequacy of the scope, functions, competency and resources of the internal audit functions and ensure that the internalauditfunctionshasthenecessaryauthoritytocarryoutitswork;(d) reviewthescopeoftheinternalauditprogrammeandcomplianceprogramme;(e) reviewtheeffectivenessofinternalcontrolsystemsandprocesses;(f) ensure that there are proper checks and balances in place so that the provision of non-audit services does not interfere with theexerciseofindependentjudgementoftheexternalauditors;(g) review the scope of audit, the plans for carrying out the audit, the extent of planned reliance on the work of the external auditorsandtheinternalauditors;(h) review audit reports as well as inspection reports issued by regulatory authorities and issue directives for necessary remedial actionstobetaken;(i) reviewallrelatedpartytransactionsandkeeptheBoardinformedofsuchtransactions;and(j) review reports prepared by Compliance Officer relating to compliance with statutory and regulatory requirements and issue directives for necessary remedial actions to be taken.

(II) Risk Management Committee

The Risk Management Committee oversees management’s activities in managing credit, market, structural interest rate, liquidity, operational, legal and other risks to ensure that the risk management process is in place and functioning.

The Risk Management Committee comprises 3 members from the Board as follows:1. Mr. Tham Kwok Meng (Chairman)2. Mr. Hwang Lip Teik3. Ms. Yap Yoke Leng




The Risk Management Committee is authorised by the Board to:(a) reviewandrecommendriskmanagementstrategies,policiesandrisktolerancefortheBoard’sapproval;(b) reviewandapprovenewproducts,afterensuringthatthenewproductshaveundergoneproperevaluationprocess;(c) reviewtheassetandliabilitymanagementandcapitalallocationfunctionsincludingfundtransferpricingwhererelevant;(d) setriskappetitecapitalfordelegationtotheAssetandLiabilityCommittee;(e) review and assess the adequacy of risk management policies and framework in identifying, measuring, monitoring and controllingriskandtheextenttowhichtheseareoperatingeffectivelyandindependently;(f) ensurethattheinfrastructure,resourcesandsystemsareinplaceforriskmanagement;and(g) review the management’s periodic reports on risk exposure, risk portfolio composition and risk management activities.

(III) Remuneration And Nomination Committee

The Remuneration and Nomination Committee provides a formal and transparent procedure for the appointment of Directors, Board Committees members and key senior management officer(s) as well as assessment of the effectiveness of such individual Directors, the Board as a whole and the performance of the key senior management officer(s). The Committee also provides a formal and transparent procedure for developing remuneration policy for Directors and key senior management officer(s) and ensures that compensation is competitive and consistent with the Group’s culture, objectives and strategy.

The Remuneration and Nomination Committee comprises 3 members from the Board as follows:1. Y.A.M. Tengku Syed Badarudin Jamalullail (Chairman)2. Mr. Hwang Lip Teik3. Mr. Ang Teik Siew (Ang Teik Lim Eric)

The Remuneration and Nomination Committee is authorised by the Board to:(a) review the composition and size of the Board and determine the appropriate Board balance between Executive Director(s), Non-ExecutiveDirectorsandIndependentDirectors;(b) review and recommend to the Board the required mix of skills, experience, qualification and other core competencies required ofaDirector;(c) recommend and assess the nominees for directorship, Board committees as well as nominees for key senior management position(s);(d) recommend to the Board the removal of a Director or key senior management officer(s) if they are ineffective, errant and negligentindischargingtheirrespectiveresponsibilities;(e) establish a mechanism for the formal assessment of the effectiveness of the Board as a whole and the contribution of each Director to the effectiveness of the Board, the contribution of the Board’s various committees and the performance of the key seniormanagementofficer(s);(f) oversee the appointment, management succession planning and performance evaluation of the key senior management officer(s);and(g) recommend a framework for the remuneration of Directors and key senior management officer(s). Such framework should reflect the responsibility, experience and commitment of each Director and key senior management officer(s) concerned.

BOARD APPOINTMENT PROCESS

All nominees for appointment to the Board will in the first instance be assessed by the Remuneration and Nomination Committee which will make recommendations to the Board. The Board makes the final decision in respect of appointment to the Board. When assessing nominees for appointment to the Board, considerations will include the nominees’ qualifications, expertise and experience, fit and properness, core competencies required of the position and the appropriate Board balance.





BOARD MEETINGS

Board Meetings are held at least once every quarter. During the financial year ended 31 December 2012, the Board met for four (4) times. Directors are provided with notices of the Board Meetings and board papers for each agenda item in advance of each meeting to ensure that Directors have sufficient time to study them and be prepared for discussion. Any additional information requested by Directors is readily available. The Board also has a formal schedule of matters reserved for deliberation and decision. Minutes of Meetings are maintained.

The management of the Bank has adopted the Group’s policy on information to be brought to the Board’s attention. In accordance to the policy, all material information are to be tabled to the Board on a timely basis in order for the Board to be kept abreast with the performance and business activities of the Bank.

Directors have access to the advice and services of the Company Secretaries who are responsible for ensuring that Board procedures are followed and all necessary information are obtained from Directors both for the Bank’s own records and for purposes of meeting statutory obligations.

Details of Directors’ attendance at Board Meetings during the financial year ended 31 December 2012 are outlined in the table below:

INTERNAL CONTROL

ResponsibilityThe Board recognises the importance of maintaining adequate accounting records and an effective system of internal controls to safeguard the shareholder’s interest and the Bank’s assets. The Board affirms its overall responsibility for the Bank’s system of internal controls, which includes the establishment of appropriate control environment and risk management framework as well as review of its adequacy and integrity. In view of the inherent limitations in any system of internal controls, the system is designed to manage risks and ensure that the risks are identified and managed at acceptable levels, rather than eliminate these risks to achieve its business objectives. The system can only provide reasonable but not absolute assurance against the risk of material misstatement of management and financial information or financial losses and fraud.

Name of Director No. of Board meetings attended whilst in office

Hwang Lip Teik 4/4

Ang Teik Siew (Ang Teik Lim Eric) 4/4

Yap Yoke Leng 4/4

Y.A.M. Tengku Syed Badarudin Jamalullail 4/4

Lee Meng Soon 4/4

Ong Eng Kooi (retired w.e.f. 1 April 2013) 4/4

The Late Dato’ Seri Hwang Sing Lue(demised on 16 December 2012)

4/4

Tham Kwok Meng (appointed w.e.f. 1 April 2013) N/A

Teoh Teik Kee (appointed w.e.f. 1 April 2013) N/A




Key internal control processesThe key processes that have been established in reviewing the adequacy and integrity of the system of internal controls are described below:

• Organisational structure Organisation structure with delineated lines of responsibilities, reporting, delegation of authorities and accountability within the Bank will assist in ensuring that effective communication of risk control objectives as well as establishment of authority and accountability is in accordance with management criteria.

• Internal policies and procedures Detailed internal policies and procedures manuals of business and support units were established to serve as a guidance to ensure compliance with internal control and the applicable laws and regulations.

There are also documented Limits of Approving Authority for key aspects of the businesses, which have been approved by the Board. This provides a sound framework of authority and accountability as well as facilitates proper corporate decision-making at the appropriate level in the organisation’s hierarchy. The delegation of limits is subject to periodic reviews as to its implementation and continuing suitability in meeting the Bank’s business objectives and operational needs.

• Financial performance review On a regular basis, management provides comprehensive financial information, key variances and analysis of financial data to the Board for review and decision-making purposes.

• Compliance function Compliance performed regular assessment on various Bank’s operations to ensure adherence to regulatory requirements as well as internal policies and procedures. Any deviation or breaches are reported to the Audit Committee and the Board is kept informed of the causes and the remedial measures taken.

• Internal audit function Internal Audit provides a check and balance on the effectiveness of the Bank’s system of internal controls and compliance with relevant regulatory requirements by the Bank. The internal auditors undertake regular reviews of the Bank’s operations and systems of internal controls. The internal audit function is also supported by Hwang-DBS Group Internal Audit. Internal Audit reports to the Board of Directors via the Audit Committee. During year 2012, the works of the internal auditors focus on areas of priority according to their annual risk assessment and in accordance with the annual audit plan approved by the Audit Committee of the Bank. The results of reviews together with recommendations for improvement are reported to the Audit Committee of the Bank. The Bank’s Audit Committee convenes regular meetings to review the findings and recommendations for improvement by Internal Audit, actions taken to rectify the findings in a timely manner and to evaluate the effectiveness and adequacy of internal control system.

The Board confirms that there is an ongoing process that has been in place throughout the financial year ended 31 December 2012 for identifying, evaluating and managing significant risks which will provide reasonable assurance that the Bank’s assets are safeguarded against losses from unauthorised use and all transactions of the Bank are properly authorised and recorded.

RISK MANAGEMENT

The Bank continues to take steps to strengthen its risk management practices by appointing a Head of Compliance and Risk, who continues to work on a more comprehensive risk management and compliance framework covering: Operational risk • Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. This includes legal, compliance, accounting and fraud risk.

Strategic risk• Strategic risk arises from an institution’s inability to implement appropriate business plans, strategies, decision making, resource allocation and its inability to adapt to changes in its business environment.


FINANCIALSFINANCIALS

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GOVERNANCE


RISK MANAGEMENT (continued)

Financial risks The Bank’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, foreign exchange risk and interest rate risk. • Credit risk is the risk of suffering financial loss should any of the Bank’s customers, clients or market counterparties fail to fulfill their contractual obligations to the Bank. Credit risk is the single largest risk for the Bank’s business. • Liquidity risk is the risk that the Bank is unable to meet its obligations when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows. • Foreign exchange risk is the potential impact of adverse currency rate movements on earnings and economic value. • Interest rate risk is the adverse changes in future cash flows of a financial instrument arising from changes in market interest rates. Interest margins may increase or decrease due to unexpected movements in rates.

Compliance risk• Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to reputation that an institution may suffer as a result of failure to comply with laws, regulations, rules, self regulatory banking standards and codes of conduct applicable to its activities.

The Bank promotes risk awareness and visibility among its employees at all levels of the Bank. Training programs are continuously held by the Compliance and Risk Department to educate employees on how to identify risks, promote methods to improve controls, and remain compliant with both internal and external policies and regulations. The Bank has implemented a dynamic ongoing Control Self Assessment (CSA) process of which all departments will continue to identify, assess and mitigate operational risks. The Asset Liability Management Committee (ALCO) maintains an oversight on the Bank’s financial performance, risk return positions, liquidity and capital management processes. The Board of Directors also has a standing Risk Management Committee to provide guidance on related issues and to ensure that the Bank’s risk appetite is appropriate to deliver financial objectives of the Bank.

The Bank is continuing its risk management and compliance framework development in year 2013 and believes that a robust risk management and compliance framework will help to ensure its continued sustainability and ability to meet the needs of its target market.

Code of ethicsThe Bank’s code of ethics was put in place as a guideline to acceptable behaviours of employees, especially when they handle sensitive issues like investments, interaction with others and handling grievances, both from outside and within the organisation. The code of ethics also sets out specific behaviour standards for our employees to cover potential ethical issues such as confidentiality and/or misuse of information.

Having the code of ethics increases the confidence in the Bank as an organisation by showing potential customers and investors that the Bank is committed to maintaining the Bank’s integrity by following basic ethical guidelines and acting in a responsible manner in the course of performing its business activities.

All new employees are briefed and expected to sign an acceptance of the code of ethics as a guide to his or her conduct upon commencement of employment.

Independency and transparencyThe Bank is independently managed by an experienced management team with oversight by the Board. The Bank practises transparency in dealings with customers as well as in terms of financial accountability and reporting.



HWANGDBS COMMERCIAL BANK PLC | ANNUAL REPORT 201224 HWANGDBS COMMERCIAL BANK PLC | ANNUAL REPORT 2012 25



FINANCIALS

DIRECTORS’ REPORTThe Board of Directors (“the Directors”) hereby submit their report together with the consolidated financial statements of HwangDBS Commercial Bank Plc (“the Bank”) and its subsidiary, HwangDBS Securities (Cambodia) Plc (collectively refer to as “the Group”) and the separate financial statements of the Bank for the year ended 31 December 2012. HWANGDBS COMMERCIAL BANK PLCThe Bank was incorporated on 26 June 2009 and is a wholly-owned subsidiary of Hwang-DBS (Malaysia) Berhad, a public limited liability company incorporated in Malaysia.

PRINCIPAL ACTIVITIESThe Bank is principally engaged in a broad range of commercial banking activities in Cambodia. The principal activity of the subsidiary is as stated in note 8 to the financial statements.

RESULTS OF OPERATIONS AND DIVIDENDSThe results of operations of the Group and of the Bank for the year ended 31 December 2012 are set out in the consolidated income statement and income statement on pages 30 and 34 respectively.

No dividends were declared or paid during the year ended 31 December 2012.

STATUTORY CAPITALAs at 31 December 2012, the paid-up statutory capital of the Bank is 40,000,000 shares at US$1 par value. There were no issue of shares in the Bank during the year ended 31 December 2012.

RESERVES AND PROVISIONSThere were no material movements to or from reserves and provisions during the year other than those disclosed in the financial statements.

BAD AND DOUBTFUL LOANS AND ADVANCESBefore the financial statements of the Group and of the Bank were drawn up, the Directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad loans and advances or making of provisions for doubtful loans and advances, and satisfied themselves that all known bad loans and advances had been written off and that adequate provision has been made for bad and doubtful loans and advances.

At the date of this report and based on the best of knowledge, the Directors are not aware of any circumstances which would render the amount written off for bad loans and advances or the amount of the provision for bad and doubtful loans and advances in the financial statements of the Group and of the Bank inadequate to any material extent.

ASSETSBefore the financial statements of the Group and of the Bank were drawn up, the Directors took reasonable steps to ensure that all assets, other than debts which were unlikely to be realised in the ordinary course of business at their values as shown in the accounting records of the Group and of the Bank, have been written down to an amount which they might be expected to realise.

At the date of this report and based on the best of knowledge, the Directors are not aware of any circumstances which would render the values attributed to the assets in the financial statements of the Group and of the Bank misleading in any material respect.




DIRECTORS’ REPORT (continued)

VALUATION METHODSAt the date of this report and based on the best of knowledge, the Directors are not aware of any circumstances that have arisen which would render adherence to the existing method of valuation of assets and liabilities in the financial statements of the Group and of the Bank misleading or inappropriate in any material respect.

CONTINGENT AND OTHER LIABILITIESAt the date of this report, there is:

(a) no charge on the assets of the Group and of the Bank which has arisen since the end of the year which secures the liabilities of any other person, and

(b) no contingent liability in respect of the Group and of the Bank that has arisen since the end of the year other than in the ordinary course of the banking business.

No contingent or other liability of the Group and of the Bank has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the year which, in the opinion of the Directors, will or may have a material effect on the ability of the Bank and its subsidiary to meet its obligations as and when they become due.

CHANGE OF CIRCUMSTANCESAt the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Group and of the Bank, which would render any amount stated in the financial statements misleading in any material respect.

ITEMS OF AN UNUSUAL NATUREThe results of the operations of the Group and of the Bank for the year were not, in the opinion of the Directors, materially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to substantially affect the results of the operations of the Group and of the Bank for the current financial year in which this report is made.

THE BOARD OF DIRECTORSThe members of the Board of Directors holding office since the date of the last report are:

• Mr. Hwang Lip Teik - Chairman • Mr. Ang Teik Siew (Ang Teik Lim Eric) • Ms. Rachel Yap Yoke Leng • Y.A.M. Tengku Syed Badarudin Jamalullail • Mr. Ong Eng Kooi • Mr. Lee Meng Soon • Dato’ Seri Hwang Sing Lue (passed away on 16 December 2012)

DIRECTORS’ BENEFITSDuring and at the end of the year, no arrangements existed, to which the Bank was a party, with the object of enabling Directors of the Bank to acquire benefits by means of the acquisition of shares in or debentures of the Bank or any other body corporate.

No Director of the Bank has received or become entitled to receive any benefit by reason of a contract made by the Bank with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest other than as disclosed in the financial statements.




THE DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTSThe Directors are responsible for ensuring that the financial statements are properly drawn up so as to present fairly, in all material respects, the financial position of the Group and of the Bank as at 31 December 2012 and the financial performance and cash flows of the Group and of the Bank for the year then ended. In preparing these financial statements, the Directors are required to:

i) adopt appropriate accounting policies which are supported by reasonable and prudent judgements and estimates and then applythemconsistently;

ii) comply with the disclosure requirements and the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards or, if there have been any departures in the interests of fair presentation, these have been appropriately disclosed, explainedandquantifiedinthefinancialstatements;

iii) maintainadequateaccountingrecordsandaneffectivesystemofinternalcontrols;

iv) prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Group and the Bank will continueoperationsintheforeseeablefuture;and

v) effectively control and direct the Group and the Bank in all material decisions affecting the operations and performance and ascertain that such have been properly reflected in the financial statements.

The Directors confirm that the Group and the Bank have complied with the above requirements in preparing the financial statements.

APPROVAL OF THE FINANCIAL STATEMENTSThe accompanying financial statements, together with the notes thereto, which present fairly, in all material respects, the financial position of the Group and of the Bank as at 31 December 2012, and the financial performance and cash flows of the Group and of the Bank for the year then ended in accordance with the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards, were approved by the Board of Directors.

Signed in accordance with a resolution of the Board of Directors.

___________________________

Lee Meng Soon Director Date: 18 March 2013




INDEPENDENT AUDITOR’S REPORTTo the Shareholder of HwangDBS Commercial Bank PlcWe have audited the accompanying consolidated financial statements of HwangDBS Commercial Bank Plc (“the Bank”) and its subsidiary, HwangDBS Securities (Cambodia) Plc (collectively referred to as “the Group”) and the separate financial statements of the Bank, which comprise the balance sheets as at 31 December 2012 of the Group and of the Bank and their income statements, statements of changes in equity and cash flow statements for the year ended 31 December 2012 and a summary of significant accounting policies and other explanatory notes.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTSThe management is responsible for the preparation and fair presentation of these financial statements in accordance with the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Cambodian International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including assessments of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINIONIn our opinion, the financial statements present fairly, in all material respects, the financial position of the Group and of the Bank as at 31 December 2012, and their financial performance and cash flows for the year then ended in accordance with the guidelines issued by the National Bank of Cambodia and Cambodian Accounting Standards.

For PricewaterhouseCoopers (Cambodia) Ltd.

By Kuy LimPartner

Phnom Penh, Kingdom of CambodiaDate: 18 March 2013




2012 2011

Note US$KHR’ 000

Unaudited US$KHR’ 000

Unaudited

ASSETS

Cash on hand 1,545,201 6,173,078 832,253 3,361,470

Balances with the Central Bank 4 7,284,070 29,099,860 5,564,603 22,475,432

Balances and placements with banks and

other financial institutions 5 15,972,312 63,809,386 16,017,482 64,694,610

Loans and advances to customers 6 31,270,792 124,926,814 18,301,829 73,921,087

Other assets 7 349,449 1,396,049 439,687 1,775,896

Other investment 9 - - 1,776,052 7,173,474

Deferred tax assets 10 217,918 870,582 241,973 977,329

Intangible assets 11 132,610 529,777 189,132 763,904

Property and equipment 12 895,165 3,576,184 803,753 3,246,358

TOTAL ASSETS 57,667,517 230,381,730 44,166,764 178,389,560

LIABILITIES AND EQUITY

Liabilities

Deposits from banks and other financial institutions 13 14,066,985 56,197,605 2,102,875 8,493,512

Deposits from customers 4,729,895 18,895,930 3,265,061 13,187,581

Provision for income tax

14

3,056 12,209 2,190 8,845

Other liabilities 15 340,790 1,361,456 111,627 450,862

TOTAL LIABILITIES 19,140,726 76,467,200 5,481,753 22,140,800

Equity

Statutory capital 16 40,000,000 159,800,000 40,000,000 161,560,000

Accumulated losses (1,473,209) (5,885,470) (1,314,989) (5,311,240)

TOTAL EQUITY 38,526,791 153,914,530 38,685,011 156,248,760

TOTAL LIABILITIES AND EQUITY 57,667,517 230,381,730 44,166,764 178,389,560

The accompanying notes form an integral part of these financial statements.

CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2012




CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2012

Theaccompanyingnotesformanintegralpartofthesefinancialstatements.

Promotion and marketing related expenses (59,097) (236,093) (48,065) (194,135)

Administrative and operating expenses 23 (484,513) (1,935,629) (362,934) (1,465,890)

Profit before provision for loan losses and

impairment loss 286,044 1,142,746 354,860 1,433,279

Provision for loan losses 6 (613,555) (2,451,152) (316,269) (1,277,410)

Write back of impairment loss/(impairment

loss) on other investment 223,948 894,672 (223,948) (904,526)

Loss before taxation (103,563) (413,734) (185,357) (748,657)

Taxation 24 (54,657) (218,355) 221,478 894,550

(158,220) (632,089) 36,121 145,893

Attributable to:

(158,220) (632,089) 36,121 145,893Equity holder of the Bank

2012 2011

Note US$KHR’ 000


Unaudited

Interest income 17 2,824,649 11,284,473 1,870,202 7,553,746

Interest expense 18 (274,254) (1,095,645) (73,505) (296,887)

Net interest income 2,550,395 10,188,828 1,796,697 7,256,859

Fee and commission income 19 235,530 940,942 157,957 637,988

Net loss on disposal of other investment 9 (258,367) (1,032,176) - -

2,527,558 10,097,594 1,954,654 7,894,847

Personnel expenses 20 (914,145) (3,652,009) (535,638) (2,163,442)

Depreciation and amortisation expenses 21 (341,519) (1,364,368) (318,896) (1,288,021)

Establishment related costs 22 (442,240) (1,766,749) (334,261) (1,350,080)




Statutory capital

US$

Accumulated losses

US$

Total

US$

At 1 January 2012 40,000,000 (1,314,989) 38,685,011

Net loss for the year - (158,220) (158,220)

At 31 December 2012 40,000,000 (1,473,209) 38,526,791

In KHR’ 000 equivalent (unaudited) 159,800,000 (5,885,470) 153,914,530

At 1 January 2011 37,500,000 (1,351,110) 36,148,890

Issuance of shares (note 16) 2,500,000 - 2,500,000

Net profit for the year - 36,121 36,121

At 31 December 2011 40,000,000 (1,314,989) 38,685,011


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2012






CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2012

2012 2011

Note US$KHR’ 000


Unaudited

OPERATING ACTIVITIES

Cash from/(used in) operations 25 1,528,651 6,106,961 (13,273,942) (53,613,451)

Interest received 2,873,593 11,480,004 1,640,886 6,627,538

Interest paid (135,872) (542,809) (69,953) (282,540)

Income tax paid (29,736) (118,795) (19,383) (78,288)

Net cash from/(used in) operating activities 4,236,636 16,925,361 (11,722,392) (47,346,741)

INVESTING ACTIVITIES

Purchases of:

- property and equipment 12 (312,513) (1,248,489) (187,416) (756,973)

- intangible assets 11 (21,244) (84,870) (1,430) (5,776)

Proceeds from disposal of other investment 1,741,633 6,957,824 - -

Net cash from/(used in) investing activities 1,407,876 5,624,465 (188,846) (762,749)

FINANCING ACTIVITIES

Issuance of shares 16 - - 2,500,000 10,097,500

Net increase/(decrease) in cash and cash

equivalents 5,644,512 22,549,826 (9,411,238) (38,011,990)

Cash and cash equivalents at beginning of the year 5,531,389 22,341,280 14,942,627 60,562,467

Foreign exchange differences - (243,381) - (209,197)

Cash and cash equivalents at end of the year 26 11,175,901 44,647,725 5,531,389 22,341,280





BALANCE SHEET AS AT 31 DECEMBER 2012

2012 2011

Note US$ KHR’ 000Unaudited US$ KHR’ 000

Unaudited

ASSETS

Cash on hand 1,545,201 6,173,078 832,253 3,361,470

Balances with the Central Bank 4 7,284,070 29,099,860 5,564,603 22,475,432

Balances and placements with banks and other financial institutions 5 15,972,312 63,809,386 16,017,482 64,694,610

Loans and advances to customers 6 31,270,792 124,926,814 18,301,829 73,921,087

Other assets 7 349,449 1,396,049 439,687 1,775,896

Investment in a subsidiary 8 5,000,000 19,975,000 5,000,000 20,195,000

Other investment 9 - - 1,776,052 7,173,474

Deferred tax assets 10 217,918 870,582 241,973 977,329

Intangible assets 11 132,610 529,777 189,132 763,904

Property and equipment 12 895,165 3,576,184 803,753 3,246,358

TOTAL ASSETS 62,667,517 250,356,730 49,166,764 198,584,560

LIABILITIES AND EQUITY

Liabilities

Deposits from banks and other financial institutions 13 14,066,985 56,197,605 2,102,875 8,493,512

Deposits from customers 14 9,708,128 38,783,971 8,245,472 33,303,461

Provision for income tax 3,056 12,209 2,190 8,845

Other liabilities 15 340,790 1,361,456 111,627 450,862

TOTAL LIABILITIES 24,118,959 96,355,241 10,462,164 42,256,680

Equity

Statutory capital 16 40,000,000 159,800,000 40,000,000 161,560,000


TOTAL EQUITY 38,548,558 154,001,489 38,704,600 156,327,880

TOTAL LIABILITIES AND EQUITY 62,667,517 250,356,730 49,166,764 198,584,560





INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2012

Net loss on disposal of other investment 9 (258,367) (1,032,176) - -

2,527,558 10,097,594 1,954,654 7,894,847

Personnel expenses 20 (914,145) (3,652,009) (535,638) (2,163,442)

Depreciation and amortisation expenses 21 (341,519) (1,364,368) (318,896) (1,288,021)

Establishment related costs 22 (442,240) (1,766,749) (334,261) (1,350,080)

Promotion and marketing related expenses (59,097) (236,093) (48,065) (194,135)

Administrative and operating expenses 23 (482,335) (1,926,928) (358,964) (1,449,855)

Profit before provision for loan losses and

impairment loss 288,222 1,151,447 358,830 1,449,314

Provision for loan losses 6 (613,555) (2,451,152) (316,269) (1,277,410)

Write back of impairment loss/(impairment

loss) on other investment 223,948 894,672 (223,948) (904,526)


Taxation 24 (54,657) (218,355) 221,478 894,550

(156,042) (623,388) 40,091 161,928

Attributable to:

Equity holder of the Bank (156,042) (623,388) 40,091 161,928

2012 2011

Note US$KHR’ 000


Unaudited

Interest income 17 2,824,649 11,284,473 1,870,202 7,553,746

Interest expense 18 (274,254) (1,095,645) (73,505) (296,887)

Net interest income 2,550,395 10,188,828 1,796,697 7,256,859

Fee and commission income 19 235,530 940,942 157,957 637,988





STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2012

40,000,000 (1,295,400) 38,704,600


At 1 January 2012 40,000,000 (1,295,400) 38,704,600

Net loss for the year - (156,042) (156,042)

At 31 December 2012 40,000,000 (1,451,442) 38,548,558


At 1 January 2011 37,500,000 (1,335,491) 36,164,509

Issuance of shares (note 16) 2,500,000 - 2,500,000

Net profit for the year - 40,091 40,091

At 31 December 2011

Statutory capital

US$

Accumulated losses

US$

Total

US$




CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2012

2012 2011

Note US$KHR’ 000


Unaudited

OPERATING ACTIVITIES

Cash from/(used in) operations 25

12

11

1,528,651 6,106,961 (13,273,942) (53,613,451)

Interest received 2,873,593 11,480,004 1,640,886 6,627,538

Interest paid (135,872) (542,809) (69,953) (282,540)

Income tax paid (29,736) (118,795) (19,383) (78,288)

Net cash from/(used in) operating activities 4,236,636 16,925,361 (11,722,392) (47,346,741)

INVESTING ACTIVITIES

Purchases of:

- property and equipment (312,513) (1,248,489) (187,416) (756,973)

- intangible assets (21,244) (84,870) (1,430) (5,776)

Proceeds from disposal of other investment 1,741,633 6,957,824 - -

Net cash from/(used in) investing activities 1,407,876 5,624,465 (188,846) (762,749)

FINANCING ACTIVITIES

Issuance of shares 16 - - 2,500,000 10,097,500

Net increase/(decrease) in cash and cash

equivalents 5,644,512 22,549,826 (9, 411,238) (38, 011,990)

Cash and cash equivalents at beginning

of the year 5,531,389 22,341,280 14,942,627 60,562,467


Cash and cash equivalents at end of

the year 26 11,175,901 44,647,725 5,531,389 22,341,280





1. BACKGROUND INFORMATIONHwangDBS Commercial Bank Plc (“the Bank”) was incorporated in Cambodia on 26 June 2009 under Registration No. Co. 5915/09E, dated 19 June 2009 granted by the Ministry of Commerce and commenced operations on 23 July 2009. The Bank is a wholly-owned subsidiary of Hwang-DBS (Malaysia) Berhad, a public limited liability company incorporated in Malaysia.

The Bank is principally engaged in a broad range of commercial banking activities in Cambodia. The Bank holds a banking license that was issued by the National Bank of Cambodia (“the Central Bank”) on 17 July 2009. The principal activity of the subsidiary is as stated in note 8 to the financial statements.

The registered office of the Bank is located at No. 61-64, Norodom Blvd, Corner Street 306, Sangkat Boeung Keng Kang 1, Khan Chamkamorn, Phnom Penh, Kingdom of Cambodia.

As at 31 December 2012, the Bank had 66 employees (31 December 2011: 46 employees).

The financial statements were authorised for issue by the Board of Directors on 18 March 2013.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies adopted in the preparation of the financial statements are set out below.

2.1 Basis of preparationThe financial statements of the Group and of the Bank have been prepared using the historical cost convention except otherwise disclosed and in accordance with the guidelines issued by the Central Bank and Cambodian Accounting Standards (“CAS”). In applying CAS, the Group and the Bank also apply the Cambodian International Financial Reporting Standard (“CIFRS”) 7: Financial Instruments: Disclosures. The accounting principles applied may differ from generally accepted accounting principles adopted in other countries and jurisdictions. The accompanying financial statements are therefore not intended to present the financial position and results of operations and cash flows in accordance with jurisdictions other than Cambodia. Consequently, these financial statements are addressed to only those who are informed about Cambodian accounting principles, procedures and practices.

The preparation of financial statements in accordance with the guidelines issued by the Central Bank and CAS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3 to the financial statements.

2.2 New financial reporting frameworkOn 28 August 2009, the National Accounting Council of the Ministry of Economy and Finance (“the National Accounting Council”) announced the adoption of Cambodian International Financial Reporting Standards (“CIFRS”) which are based on all standards published by the International Accounting Standard Board (“IASB”), including the related interpretations and amendments. Public accountable entities are required to prepare their financial statements in accordance with CIFRS for accounting period beginning on or after 1 January 2012.

Following Circular No. 086 MoEF.NAC dated 30 July 2012 issued by the National Accounting Council, the requirement to comply with CIFRS by banks and financial institutions has been deferred to the accounting period commencing from 1 January 2016.




2.3 Basis of consolidationThe consolidated financial statements include the financial statements of the Bank and its subsidiary made up to the end of the financial year. A subsidiary is a company in which the Group has power to exercise control over the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Subsidiary is consolidated using the acquisition method of accounting. Under the acquisition method of accounting, the results of the subsidiary acquired or disposed of during the year are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiary’s net assets are determined and these values are reflected in the consolidated financial statements.

Inter-company transactions, balances and unrealised gain or loss arising from inter-company transactions are eliminated and the consolidated financial statements reflect external transactions only. Losses resulting from intra-group transactions, which indicate an impairment loss, will be recognised in the consolidated financial statements. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. The gain or loss on disposal of a subsidiary, which is the difference between net disposal proceeds and the Group’s share of its net assets as of the date of disposal is recognised in the consolidated income statement.

2.4 Investment in a subsidiaryInvestment in a subsidiary, which is eliminated on consolidation, is stated at cost less accumulated impairment loss. On disposal of such investment, the difference between the net disposal proceeds and its carrying amounts is recognised as the gain or loss on disposal in the income statement of the Bank.

2.5 Foreign currencies

(i) Functional and presentation currencyItems included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (‘the functional currency’). The financial statements are presented in US dollars (“US$”), which is the Bank’s functional and presentation currency.

For the sole regulatory purpose of complying with Prakas No. B7-07-164 dated 13 December 2007 of the Central Bank, a translation into Khmer Riel is provided for the balance sheets, income statements, statements of changes in equity, cash flow statements and notes to the financial statements as at and for the year ended 31 December 2012 using the average official exchange rate regulated by the Central Bank as at the reporting date, which was US$1 equal to Khmer Riel (“KHR”) 3,995 (31 December 2011: US$1 equal to KHR 4,039). Such translated amounts are unaudited and should not be construed as representations that the US$ amounts represent, or have been or could be, converted into Khmer Riel at that or any other rate.

(ii) Transactions and balancesTransactions in currencies other than US$ are translated into US$ at the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in currencies other than US$ at the year-end exchange rates, are recognised in the income statement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012 (continued)




2.6 Cash and cash equivalentsFor the purpose of the cash flow statement, cash and cash equivalents comprise balances with original maturity of three months or less from the date of acquisition, including cash on hand, the non-restricted balance with the Central Bank and balances with banks and other financial institutions.

2.7 Loans and advances to customersAll loans and advances to customers are stated on the balance sheet at outstanding principal and interest, less any amounts written off, interest-in-suspense and provision for loan losses.

Loans and advances are written off when there are no realistic prospects of recovery. Recoveries of loans and advances previously written off or provided for are recognised in the income statement.

2.8 Provision for loan lossesThe Bank follows the mandatory credit classification and provisioning as required by Prakas B7-09-074 dated 25 February 2009 issued by the Central Bank. The Prakas requires commercial banks to classify their loans, advances and similar assets into five classes and the minimum mandatory level of specific provisioning is provided, depending on the classification concerned and regardless of the assets pledged as collateral as follows:

2.9 Other credit related commitmentsIn the normal course of business, the Bank enters into other credit related commitments including loan commitments, letters of credit and guarantees. The accounting policy and provision methodology are similar to those for originated loans as stated above. Specific provisions are raised against other credit related commitments when losses are considered probable.

2.10 Other investmentOther investment is held for an indefinite period of time and may be sold in response to needs for liquidity, or changes in interest rates, exchange rates or equity prices.

Equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less accumulated impairment loss. On disposal of other investment, the gain or loss representing the difference between the net disposal proceeds and the carrying amount of investment is credited or charged to income statement.

2.11 Intangible assetsIntangible assets, which comprise acquired computer software licenses and related costs, are stated at cost less accumulated amortisation and impairment loss. Acquired computer software licenses are capitalised on the basis of the cost incurred to acquire the specific software and bring it to use. These costs are amortised over five years using the straight-line method.

Costs associated with maintaining computer software are recognised as expenses when incurred.


CLASSIFICATION RATE OF PROVISION (%)General provision:Normal 1

Specific provision:Special mention 3

Substandard 20

Doubtful 50

Loss 100






2.12 Property and equipmentProperty and equipment are stated at cost less accumulated depreciation and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent expenditure relating to an item of property and equipment are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the year in which they are incurred.

Capital work-in-progress is not depreciated. Depreciation of property and equipment is charged to the income statement on a straight-line basis over the estimated useful lives of the individual assets at the following annual rates:

%Leasehold improvements 20

Office equipment 20

Furniture, fixtures and fittings 10 - 20

Computer equipment 20 - 33.33

Motor vehicles 20

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.

2.13 Impairment of non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.

Any impairment loss is charged to the income statement in the year in which it arises. Reversal of an impairment loss is recognised in the income statement to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, had no impairment loss been recognised.

2.14 Interest income and expenseInterest earned on loans and advances to customers, balances with the Central Bank and balances and placements with banks and other financial institutions is recognised on an accrual basis, except where serious doubt exists as to the collectability, in which case, interest is suspended until it is realised on a cash basis.

Interest expense on deposits from banks, other financial institutions and customers is recognised on an accrual basis.





2.15 Fee and commission incomeFees and commissions are generally recognised on an accrual basis when the service is provided. Loan processing fees are recognised as income when loan is disbursed.

2.16 Operating leasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

2.17 ProvisionsProvisions are recognised when the Group or the Bank has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

2.18 Employee benefits

(i) Short-term employee benefitsShort term employee benefits are accrued in the year in which the associated services are rendered by the employees of the Group and of the Bank.

(ii) Post-employment employee benefitsThe contributions by the Group and the Bank to a defined contribution plan, are charged to the income statement in the year to which they relate. Once the contributions have been paid, the Group and the Bank have no further payment obligations.

2.19 Income taxesCurrent income tax expense is calculated based on the tax laws enacted or substantively enacted in Cambodia as at the balance sheet date.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences or unutilised tax losses can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred tax relates to the same tax authority.

2.20 Rounding of amountsAmounts in the financial statements have been rounded off to the nearest dollar and nearest thousand KHR for US$ and KHR amounts respectively.





3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSThe Group and the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advancesThe Bank follows the mandatory credit classification and provisioning as required by Prakas No. B7-09-074 dated 25 February 2009 on asset classification and provisioning in banking and financial institutions issued by the Central Bank. The Central Bank requires commercial banks to classify their loans, advances and similar assets into five classes and the minimum mandatory level of provisioning is provided, depending on the classification concerned and regardless of the assets pledged as collateral. For the purpose of loan classification, the Bank takes into account all relevant factors which may affect the counterparties’ repayment abilities.

(b) Income taxTaxes are calculated on the basis of the current interpretation of the tax regulations. However, these regulations are subject to periodic variation and the ultimate determination of tax expenses will be made following inspection by the General Department of Taxation.

Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will have an impact on the provision for income tax and deferred tax in the year in which such determination is made.

4. BALANCES WITH THE CENTRAL BANK

2012 2011

US$ KHR’ 000Unaudited US$ KHR’ 000

Unaudited

FINANCIAL ASSETS

Current account 672,806 2,687,860 814,603 3,290,182

Clearing account 900,664 3,598,153 - -

1,573,470 6,286,013 814,603 3,290,182

NON-FINANCIAL ASSETS

Reserve requirement 1,710,600 6,833,847 750,000 3,029,250

Statutory deposit 4,000,000 15,980,000 4,000,000 16,156,000

7,284,070 29,099,860 5,564,603 22,475,432

GROUP AND BANK

(a) Reserve requirementThe reserve requirement represents the minimum reserve which is calculated at 8% (2011: 8%) and 12.5% (2011: 12%) of customers’ deposits in Khmer Riel (“KHR”) and other currencies respectively. The 4.5% (2011: 4%) reserve requirement on customers’ deposits in currencies other than KHR is interest bearing while the remaining 8% and the reserve requirement on

customers’ deposits in KHR bears no interest.

4. BALANCES WITH THE CENTRAL BANK




2012 2011

Statutory deposit 0.18% 0.10%

Reserve requirements (1/3 is interest bearing) 0.10% 0.14%

2012 2011

US$KHR’ 000


Unaudited

Current accounts 511,783 2,044,573 812,959 3,283,541

Savings accounts 45,447 181,561 69,455 280,529

Term deposits 15,415,082 61,583,252 15,135,068 61,130,540

15,972,312 63,809,386 16,017,482 64,694,610

As at the balance sheet date, savings accounts and term deposits earn interest at the following annual rates:

5. BALANCES AND PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

GROUP AND BANK

2012 2011

US$KHR’ 000


Unaudited(a) By type

Term loans 30,840,351 123,207,202 17,585,465 71,027,693

Overdrafts 1,447,067 5,781,033 1, 119,435 4,521,398

Gross loans and advances to customers 32,287,418 128,988,235 18,704,900 75,549,091

Provision for loan losses:

Specific (710,762) (2,839,494) (221,943) (896,428)

General (305,864) (1,221,927) (181,128) (731,576)

Net loans and advances to customers 31,270,792 124,926,814 18,301,829 73,921,087

6. LOANS AND ADVANCES TO CUSTOMERS

GROUP AND BANK

2012 2011

Savings accounts 2.00% to 3.50% 2.00% to 3.50%

Term deposits 1.25% to 6.50% 1.25% to 7.50%

(b) Statutory depositPursuant to Prakas No. B7-01-136 on Bank’s Capital Guarantee dated 15 October 2001 issued by the Central Bank, banking and financial institutions are required to maintain 10% of its registered capital as a statutory deposit with the Central Bank. The deposit, which is not available for use in the Bank’s day-to-day operations, is refundable should the Bank voluntarily cease its operations in Cambodia.

(c) Interest rates The current account and clearing account are non-interest bearing. The statutory and reserve requirement deposits earn interest at the following annual rates as at the balance sheet date:

4. BALANCES WITH THE CENTRAL BANK (continued)





2012 2011

US$KHR’ 000


Unaudited(b) Provision for loan losses

At beginning of the year 403,071 1,628,004 86,802 351,809

Provision for the year 613,555 2,451,152 316,269 1,277,410


At end of the year 1,016,626 4,061,421 403,071 1,628,004

(c) By performance

Normal loans

Secured 28,712,352 114,705,846 15,347,744 61,989,538

Unsecured 1,873,942 7,486,398 2,765,054 11,168,053

Special mention loans

Secured 15,632 62,450 126,622 511,426

Unsecured 154,320 616,509 45,162 182,409

Substandard loans

Secured 735,960 2,940,160 167,009 674,550

Unsecured 74,042 295,798 - -

Doubtful loans

Secured 293,415 1,172,193 96,638 390,321

Unsecured 63,059 251,921 43,204 174,501

Loss loans

Secured 277,128 1,107,126 113,467 458,293

Unsecured 87,568

32,287,418 128,988,235 18,704,900 75,549,091

349,834 - -

6. LOANS AND ADVANCES TO CUSTOMERS (continued)

GROUP AND BANK




2012 2011

US$KHR’ 000


Unaudited(d) By industry

Agriculture 162,347 648,576 132,033 533,281

Construction 978,220 3,907,989 331,597 1,339,320

Finance 1,556,823 6,219,508 1,159,053 4,681,415

Hotels and restaurants 2,449,595 9,786,132 1, 485,113 5,998,371

Housing 6,000,908 23,973,628 3,489,830 14,095,423

Manufacturing 2, 117,190 8,458,174 867,945 3,505,630

Real estate and renting activities 5,306,848 21,200,858 4,391,169 17,735,932

Transport, storage and communication 627,399 2,506,459 505,507 2,041,743

Utilities 168,994 675,131 499,460 2,017,319

Wholesale and retail trades 5,859,145 23,407,284 2,895,072 11,693,196

Others 7,059,949 28,204,496 2,948,121 11,907,461

32,287,418 128,988,235 18,704,900 75,549,091

(e) By exposure

Large exposure - - - -

Non-large exposure 32,287,418 128,988,235 18,704,900 75,549,091

32,287,418 128,988,235 18,704,900 75,549,091

Large exposure is defined by the Central Bank as overall credit exposure to any single beneficiary that exceeds 10% of the

Bank’s net worth. The exposure is the higher of the outstanding loans or commitments and the authorised loans or commitments.


GROUP AND BANK

(f) By maturity

Not later than 1 year 1,594,880 6,371,546 1,195,947 4,830,430

Later than 1 year but not later than 3 years 1,136,376 4,539,822 564,551 2,280,222

Later than 3 years but not later than 5 years 6,420,743 25,650,868 6,877,853 27,779,648

Later than 5 years 23,135,419 92,425,999 10,066,549 40,658,791

32,287,418 128,988,235 18,704,900 75,549,091





7. OTHER ASSETS

2012 2011

US$KHR’ 000


Unaudited

Interest receivable 132,724 530,233 228,092 921,264

Deposits 126,775 506,466 124,677 503,570

259,499 1,036,699 352,769 1,424,834

GROUP AND BANK

FINANCIAL ASSETS

(g) Interest ratesAs at the balance sheet date, loans and advances to customers bear interest at the following rates per annum:

2012 2011

Term loans 7.0% - 24.0% 7.0% - 24.0%

Overdrafts 8.5% - 12.0% 9.0% - 14.0%

NON-FINANCIAL ASSETS

Prepayments 64,950 259,475 56,473 228,095

Others 25,000 99,875 30,445 122,967

349,449 1,396,049 439,687 1,775,896


GROUP AND BANK




8. INVESTMENT IN A SUBSIDIARY

9. OTHER INVESTMENT (2011 ONLY)

2012 2011

US$

KHR’ 000Unaudited US$

KHR’ 000Unaudited

AT COST:

Unquoted shares 5,000,000 19,975,000 5,000,000 20,195,000

Details of the subsidiary, which is incorporated in Cambodia, are as follows:

Equity Interest

Name of subsidiary

Principal

Activity

DIRECT SUBSIDIARY:

HwangDBS Securities (Cambodia) Plc

2012

%

100

2011

%

100 Dormant

2011

US$KHR’ 000

Unaudited

UNQUOTED:

At cost 2,000,000 8,078,000

Accumulated impairment loss (223,948) (904,526)

1,776,052 7,173,474

Other investment represented the Bank’s investment in a fund, which invested in fixed income, credit, equity and commodity

markets and the related derivatives, focusing on global markets with a pan-Asian perspective. The fund is unrated.

During the year, the Bank has disposed of the other investment at a net loss on disposal of US$258,367 (KHR equivalent:

1,032,176,000).

BANK

GROUP AND BANK





Property and

equipment

Other

investment

Accrued

expenses

Unutilised

tax losses Total

US$ US$ US$ US$ US$2012

At 1 January 2012 (55,847) 44,790 8,000 245,030 241,973

Recognised in income statement 19,293 (44,790) 6,940 (5,498) (24,055)

At 31 December 2012 (36,554) - 14,940 239,532 217,918

In KHR’ 000 equivalent (unaudited) (146,033) - 59,685 956,930 870,582

2011

At 1 January 2011

Recognised in income statement (55,847) 44,790 8,000 245,030 241,973

- - - - -

At 31 December 2011 (55,847) 44,790 8,000 245,030 241,973

In KHR’ 000 equivalent (unaudited) (225,566) 180,907 32,312 989,676 977,329

10. DEFERRED TAX ASSETS

The recognition of deferred tax assets by the Bank in excess of profits arising from reversal of taxable temporary differences as at

the balance sheet date is supported by expected future taxable profits.

11. INTANGIBLE ASSETS

GROUP AND BANK

Details of intangible assets, which comprise computer software licenses and related costs, are as follows:

2012 2011

US$ US$

COST

At 1 January 373,568 372,138

Additions 21,244 1,430

At 31 December 394,812 373,568

ACCUMULATED AMORTISATION

At 1 January 184,436 109,886

Amortisation charge 77,766 74,550

At 31 December 262,202 184,436

NET BOOK VALUE 132,610 189,132

In KHR’ 000 equivalent (unaudited) 529,777 763,904

GROUP AND BANK




12. PROPERTY AND EQUIPMENT

GROUP AND BANK

Details of property and equipment are as follows:

Leasehold

improve-

ments

Office

equipment

Computer

equipment

Furniture,

fixtures

and

fittings

Motor

vehicles Total

US$US$ US$ US$ US$ US$

During the year, the Group and the Bank acquired property and equipment with an aggregate cost of US$355,165 (2011: US$75,005),

of which US$52,178 (2011: US$9,526) was accrued for. Cash payments made by the Group and the Bank for purchases of assets

amounted to US$312,513 (2011: US$187,416).

2012

COST

ACCUMULATED DEPRECIATION

ACCUMULATED DEPRECIATION

At 1 January 2012 235,242 413,771 330,032 254,180 72,156 1,305,381

Additions 62,382 152,095 111,533 29,155 - 355,165

At 31 December 2012 297,624 565,866 441,565 283,335 72,156 1,660,546

At 1 January 2012 88,834 153,766 108,159 124,868 26,001 501,628

Depreciation charge 49,185 85,443 59,934 54,762 14,429 263,753

At 31 December 2012 138,019 239,209 168,093 179,630 40,430 765,381

NET BOOK VALUE 159,605 326,657 273,472 103,705 31,726 895,165

In KHR’ 000 equivalent (unaudited) 637,622 1,304,995 1,092,521 414,301 126,745 3,576,184

2011

COST

At 1 January 2011 230,267 401,034 297,740 238,879 62,456 1,230,376

Additions 4,975 12,737 32,292 15,301 9,700 75,005

At 31 December 2011 235,242 413,771 330,032 254,180 72,156 1,305,381

At 1 January 2011 42,972 75,121 55,706 70,133 13,350 257,282

Depreciation charge 45,862 78,645 52,453 54,735 12,651 244,346

At 31 December 2011 88,834 153,766 108,159 124,868 26,001 501,628

NET BOOK VALUE 146,408 260,005 221,873 129,312 46,155 803,753

In KHR’ 000 equivalent (unaudited) 591,342 1,050,160 896,145 522,291 186,420 3,246,358





2012 2011

US$KHR’ 000


Unaudited

Current accounts 54,485 217,668 102,875 415,512

Term deposits 14,012,500 55,979,937 2,000,000 8,078,000

14,066,985 56,197,605 2,102,875 8,493,512

As at the balance sheet date, deposits from banks and other financial institutions bear interest at the following rates per annum:

2012 2011

US$KHR’ 000


UnauditedGROUP

Current accounts 1,331,645 5,319,922 1,295,447 5,232,310

Savings accounts 1,642,917 6,563,453 1,197,238 4,835,644

Term deposits 1,755,333 7,012,555 772,376 3, 119,627

4,729,895 18,895,930 3,265,061 13,187,581

BANK

Current accounts 6,309,878 25,207,963 6,275,858 25,348,190

Savings accounts 1,642,917 6,563,453 1,197,238 4,835,644

Term deposits 1,755,333 7,012,555 772,376 3, 119,627

9,708,128 38,783,971 8,245,472 33,303,461

As at the balance sheet date, deposits from customers bear interest at the following rates per annum:

2012 2011

Current accounts 0% - 2.00% 0% - 2.00%

Savings accounts 0% - 1.50% 0% - 1.50%

Term deposits 2.25% - 5.25% 2.25% - 5.25%

13. DEPOSITS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

14. DEPOSITS FROM CUSTOMERS

GROUP AND BANK

2012 2011

Current accounts 0% - 2.00% 0% - 2.00%

Term deposits 2.00% - 3.25% 3.25%




2012 2011


UnauditedAccrued expenses 173,171 691,818 75,656 305,575

Banker’s cheques 2,110 8,430 8,844 35,721

Interest payable 165,509 661,208 27,127 109,566

340,790 1,361,456 111,627 450,862

2012 2011


UnauditedISSUED AND FULLY PAID:

At beginning of the year 40,000,000 161,560,000 37,500,000 151,987,500

Issuance of shares - - 2,500,000 10,097,500

Foreign exchange differences - (1,760,000) - (525,000)

At end of the year 40,000,000 159,800,000 40,000,000 161,560,000

15. OTHER LIABILITIES

16. STATUTORY CAPITAL

GROUP AND BANK

GROUP AND BANK

The registered share capital of the Bank as at 31 December 2012 is 40,000,000 shares (31 December 2011: 40,000,000 shares) at a par value of US$ 1 per share. All shares are fully paid.

The paid-up statutory capital of the Bank was increased from US$37,500,000 to US$40,000,000 in the previous year ended 31 December 2011 by way of an issuance of 2,500,000 shares of US$1 each. The increase in paid-up statutory capital of the Bank was for the purpose of meeting the minimum capital requirement as prescribed by the Central Bank. The newly issued shares rank pari passu in all respects with the existing shares of the Bank.





2012 2011

US$KHR’ 000


UnauditedInterest income from:

Loans and advances to customers 2,430,746 9,710,830 1,401,049 5,658,837

Balances with the Central Bank 8,494 33,934 6,540 26,415


other financial institutions 385,409 1,539,709 462,613 1,868,494

2,824,649 11,284,473 1,870,202 7,553,746

2012 2011

US$KHR’ 000


Unaudited

Interest expense on:

Term deposits (257,608) (1,029,144) (43,697) (176,492)

Savings deposits (12,047) (48,128) (6,500) (26,254)

Current deposits (4,599) (18,373) (23,308) (94,141)

(274,254) (1,095,645) (73,505) (296,887)

2012 2011

US$KHR’ 000


Unaudited

Loan processing fees 181,576 725,396 122,319 494,046

Loan commitment fees 8,871 35,440 6,410 25,890

Others 45,083 180,106 29,228 118,052

235,530 940,942 157,957 637,988

17. INTEREST INCOME

18. INTEREST EXPENSE

19. FEE AND COMMISSION INCOME

GROUP AND BANK

GROUP AND BANK

GROUP AND BANK




20. PERSONNEL EXPENSES

2012 2011

US$KHR’ 000


Unaudited

Salaries and wages (743,919) (2,971,956) (408,295) (1,649,104)

Contributions to a defined contribution plan (14,191) (56,693) (12,743) (51,469)

Other short-term benefits (156,035) (623,360) (114,600) (462,869)

(914,145) (3,652,009) (535,638) (2,163,442)

2012 2011

US$KHR’ 000


Unaudited

Depreciation of property and equipment (note 12) (263,753) (1,053,693) (244,346) (986,914)

Amortisation of intangible assets (note 11) (77,766) (310,675) (74,550) (301,107)

(341,519) (1,364,368) (318,896) (1,288,021)

21. DEPRECIATION AND AMORTISATION EXPENSES

2012 2011

US$KHR’ 000


Unaudited

Rental expenses (186,334) (744,404) (129,375) (522,546)

Repairs and maintenance (149,034) (595,391) (115,030) (464,606)

Utilities (75,023) (299,717) (55,628) (224,681)

Others (31,849) (127,237) (34,228) (138,247)

(442,240) (1,766,749) (334,261) (1,350,080)

22. ESTABLISHMENT RELATED COSTS

GROUP AND BANK

GROUP AND BANK

GROUP AND BANK





2012 2011

US$KHR’ 000


UnauditedGROUP

Travelling and accommodation (62,673) (250,379) (72,541) (292,993)

Auditors’ remuneration (17,000) (67,915) (15,000) (60,585)

Legal and professional fees (68,928) (275,367) (50,019) (202,027)

Communication expenses (35,653) (142,434) (29,244) (118,117)

Stationery and printing (19,728) (78,813) (7,750) (31,302)

Insurance (39,175) (156,504) (32,832) (132,608)

Duties and taxes (108,483) (433,390) (61,058) (246,613)

License fees (49,842) (199,119) (46,796) (189,009)

Directors’ fees and meeting allowances (11,287) (45,091) (1,700) (6,866)

Others (71,744) (286,617) (45,994) (185,770)

(484,513) (1,935,629) (362,934) (1,465,890)

BANK

Travelling and accommodation (62,664) (250,343) (72,540) (292,989)

Auditors’ remuneration (17,000) (67,915) (15,000) (60,585)

Legal and professional fees (67,449) (269,459) (47,163) (190,491)

Communication expenses (35,652) (142,430) (29,244) (118, 117)

Stationery and printing (19,704) (78,717) (7,734) (31,238)

Insurance (39,175) (156,504) (32,832) (132,608)

Duties and taxes (108,315) (432,718) (60,263) (243,402)

License fees (49,842) (199, 119) (46,796) (189,009)

Directors’ fees and meeting allowances (11,287) (45,091) (1,700) (6,866)

Others (71,247) (284,632) (45,692) (184,550)

(482,335) (1,926,928) (358,964) (1,449,855)

23. ADMINISTRATIVE AND OPERATING EXPENSES




2012 2011

US$KHR’ 000


Unaudited

Income tax:

- current year (30,602) (122,255) (20,298) (81,983)

- prior year - - (197) (796)

(30,602) (122,255) (20,495) (82,779)

Deferred tax (24,055) (96,100) 241,973 977,329

(54,657) (218,355) 221,478 894,550

24. TAXATION

2012 2011

US$KHR’ 000


Unaudited


Tax calculated at 20% 20,713 82,748 37,071 149,730

Tax effects in respect of:

Expenses not deductible for tax purposes (44,332) (177,106) (32,629) (131,788)

Utilisation of previously unrecognised

tax losses - - 67,085 270,956

Recognition of previously unrecognised tax

losses and temporary differences- - 171,164 691,331

Tax losses not recognised (436) (1,742) (718) (2,900)

(24,055) (96,100) 241,973 977,329

Minimum tax at 1% of turnover (30,602) (122,255) (20,495) (82,779)

(54,657) (218,355) 221,478 894,550

GROUP AND BANK

GROUP

In accordance with the Cambodian tax laws, the Bank has an obligation to pay corporate income tax of either tax on profit at a rate of 20% on taxable profit or minimum tax at 1% of turnover, whichever is higher.

The reconciliation of income tax computed at the statutory tax rate of 20% to taxation as disclosed in the income statement is as follows:




2012 2011

US$KHR’ 000


UnauditedBANK


Tax calculated at 20% 20,277 81,006 36,277 146,523

Tax effects in respect of:

Expenses not deductible for tax purposes (44,332) (177,106) (32,553) (131,481)

Utilisation of previously unrecognised tax

losses - - 67,085 270,956

Recognition of previously unrecognised tax

losses and temporary differences - - 171,164 691,331

(24,055) (96,100) 241,973 977,329

Minimum tax at 1% of turnover (30,602) (122,255) (20,495) (82,779)

(54,657) (218,355) 221,478 894,550

24. TAXATION (continued)

As at 31 December 2012, the Bank has an estimated unutilised tax losses of US$652,000 (KHR equivalent: 2,604,740,000) and US$545,000 (KHR equivalent: 2,177,275,000) that will expire in year 2014 and 2015 respectively.

The tax returns of the Group and of the Bank are subject to periodic examination by the General Department of Taxation. As the application of tax laws and regulations to various types of transactions is susceptible to varying interpretations, amounts reported in the financial statements of the Group and of the Bank could be changed at a later date, upon final determination by the General Department of Taxation.





2012 2011

US$KHR’ 000


UnauditedGROUP


Adjustments for:

Provision for loan losses (note 6)

Net loss on disposal of other investment (note 9) 258,367 1,032,176 - -

(Write back of impairment loss)/impairment loss on other investment (223,948) (894,672) 223,948 904,526

Net interest income (2,550,395) (10,188,828) (1,796,697) (7,256,859)

Operating loss before changes in working capital (1,664,465) (6,649,538) (1,122,941) (4,535,559)

Change in working capital:

Balances with the Central Bank (960,600) (3,837,597) 750,000 3,029,250


other financial institutions 4,217,867 16,850,379 (2,902,949) (11,725,011)

Loans and advances to customers (13,536,094) (54,076,695) (12,077,892) (48,782,606)

Other assets (5,130) (20,494) (40,341) (162,937)

Deposits from banks and other financial

institutions 11,964,110 47,796,619 2,030,530 8,201,311

Deposits from customers 1,464,834 5,852,012 85,199 344,119

Other liabilities 48,129 192,275 4,452 17,982

Cash from/(used in) operations 1,528,651 6,106,961 (13,273,942) (53,613,451)

25. CASH FROM/(USED IN) OPERATIONS

613,555 2,451,152 316,269 1,277,410

Depreciation and amortisation (note 21) 341,519 1,364,368 318,896 1,288,021





2012 2011

US$KHR’ 000


UnauditedBANK


Adjustments for:

613,555 2,451,152 316,269 1,277,410Provision for loan losses (note 6)

Net loss on disposal of other investment (note 9) 258,367 1,032,176 - -

(Write back of impairment loss)/impairment loss on other investment (223,948) (894,672) 223,948 904,526

Net interest income (2,550,395) (10,188,828) (1,796,697) (7,256,859)

Operating loss before changes in working capital (1,662,287) (6,640,837) (1,118,971) (4,519,524)

Change in working capital:

Balances with the Central Bank (960,600) (3,837,597) 750,000 3,029,250


other financial institutions 4,217,867 16,850,379 (2,902,949) (11,725,011)

Loans and advances to customers (13,536,094) (54,076,695) (12,077,892) (48,782,606)

Other assets (5,130) (20,494) 4,959,659 20,032,063

Deposits from banks and other financial

institutions 11,964,110 47,796,619 2,030,530 8,201,311

Deposits from customers 1,462,656 5,843,311 (4,919,521) (19,869,945)

Other liabilities 48,129 192,275 5,202 21,011

Cash from/(used in) operations 1,528,651 6,106,961 (13,273,942) (53,613,451)

25. CASH FROM/(USED IN) OPERATIONS (continued)

341,519 1,364,368 318,896 1,288,021Depreciation and amortisation (note 21)




(b) Non-cancellable operating lease commitments

2012 2011

US$KHR’ 000


Unaudited

Future minimum lease payable:

171,509 685,178 155,742 629,042- not later than 1 year

119,427 477,111 156,136 630,633- later than 1 year but not later than 5 years

290,936 1,162,289 311,878 1,259,675

The lease commitments are in respect of leases of premises.

GROUP AND BANK

27. COMMITMENTS AND CONTINGENCIES

2012 2011

US$KHR’ 000


UnauditedCommitments to extend credits with maturity of:

- up to 1 year 1,379,608 5,511,534 851,840 3,440,582

- over 1 year 3,934,556 15,718,551 1,644,084 6,640,455

5,314,164 21,230,085 2,495,924 10,081,037

(a) Commitments to extend credit

GROUP AND BANK

2012 2011

US$KHR’ 000


Unaudited

Cash on hand 1,545,201 6,173,078 832,253 3,361,470

Balances with the Central Bank (note 4):

Current account 672,806 2,687,860 814,603 3,290,182

Clearing account 900,664 3,598,153 - -


other financial institutions:

511,783 2,044,573 812,959 3,283,541

45,447 181,561 69,455 280,529

Current accounts (note 5)

Saving accounts (note 5)

Term deposits (with maturity of three months or less) 7,500,000 29,962,500 3,002,119 12,125,558

11,175,901 44,647,725 5,531,389 22,341,280

26. CASH AND CASH EQUIVALENTS

GROUP AND BANK

For the purpose of the cash flow statements, the cash and cash equivalents comprise:





2012 2011

US$KHR’ 000


UnauditedGROUP

Due to:

Deposits from customers

- parent company 375,534 1,500,258 212,512 858,336

- key management personnel 80,460 321,438 29,182 117,866

455,994 1,821,696 241,694 976,202

BANK

Due to:


- parent company 375,534 1,500,258 212,512 858,336

- subsidiary 4,978,233 19,888,041 4,980, 411 20,115,880

- key management personnel 80,460 321,438 29,182 117,866

5,434,227 21,709,737 5,222,105 21,092,082

As at the balance sheet date, deposits from key management personnel carry interest at rates ranging from 0% to 5.25%

(2011: 0% to 5.25%) per annum.

(b) Related party balances

28. RELATED PARTY TRANSACTIONS AND BALANCES

RELATIONSHIP RELATED PARTY

Immediate and ultimate parent company Hwang-DBS (Malaysia) Berhad (“HDBSM”)

Subsidiary Wholly-owned subsidiary of the Bank, HwangDBS Securities (Cambodia) Plc

Key management personnel All directors of the Bank who make critical decisions in relation to the strategic

direction of the Bank and senior management staff (including their close family

members)

(a) Related parties and relationship

The related parties of, and their relationship with the Group and the Bank are as follows:




28. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

2012 2011


Unaudited

Salaries and wages 180,060 719,340 - -

Directors’ fees 5,387 21,521 - -

Meeting allowances 5,900 23,570 1,700 6,866

Other short term benefits 26,245 104,849 - -

217,592 869,280 1,700 6,866

(e) Directors’ remuneration

GROUP AND BANK

2012 2011


Unaudited

Expenses:

Interest expense paid/payable on deposits from key management personnel 919 3,671 696 2,811

(c) Related party transactions

GROUP AND BANK

(d) Key management personnel remuneration

GROUP AND BANK

2012 2011


Unaudited

Salaries and short-term benefits 357,153 1,426,826 129,302 522,251

Contributions to a defined contribution plan 12,087 48,288 10,028 40,503

369,240 1,475,114 139,330 562,754




29. FINANCIAL RISK MANAGEMENTThe Bank’s activities expose it to a variety of financial risks, including credit risk, market risk (including foreign exchange risk and interest rate risk) and liquidity risk as well as operational risk. Taking risk is core to the financial business, and operational risk is an inevitable consequence of being in business. The Bank does not use derivative financial instruments to manage its risk exposures.

The financial assets and liabilities held by the Group and the Bank are as follows:


FINANCIAL LIABILITIES

Deposits from banks and other financial institutions (14,066,985) (56,197,605) (2,102,875) (8,493,512)

Deposits from customers (4,729,895) (18,895,930) (3,265,061) (13,187,581)

Other liabilities (340,790) (1,361,456) (111,627) (450,862)

(19,137,670) (76,454,991) (5,479,563) (22,131,955)

31,483,604 125,776,999 32,615,425 131,733,702

2012 2011


UnauditedGROUP

FINANCIAL ASSETS

Cash on hand 1,545,201 6,173,078 832,253 3,361,470

Balances with the Central Bank (note 4) 1,573,470 6,286,013 814,603 3,290,182

Balances and placements with banks and other financial institutions 15,972,312 63,809,386 16,017,482 64,694,610


Other assets (note 7) 259,499 1,036,699 352,769 1,424,834

Other investment - - 1,776,052 7,173,474

50,621,274 202,231,990 38,094,988 153,865,657




2012 2011


UnauditedBANK

FINANCIAL ASSETS

Cash on hand 1,545,201 6,173,078 832,253 3,361,470

Balances with the Central Bank (note 4) 1,573,470 6,286,013 814,603 3,290,182

Balances and placements with banks and other financial institutions 15,972,312 63,809,386 16,017,482 64,694,610




50,621,274 202,231,990 38,094,988 153,865,657


Deposits from banks and other financial institutions (14,066,985) (56,197,605) (2,102,875) (8,493,512)

Deposits from customers (9,708,128) (38,783,971) (8,245,472) (33,303,461)

Other liabilities (340,790) (1,361,456) (111,627) (450,862)

(24, 115,903) (96,343,032) (10,459,974) (42,247,835)

26,505,371 105,888,958 27,635,014 111,617,822

29. FINANCIAL RISK MANAGEMENT (continued)





29.1 Credit riskCredit risk is the risk of suffering financial loss should any of the Bank’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Bank. Credit risk arises mainly from loans and advances and loan commitments arising from such lending activities.

CreditriskisthesinglelargestriskfortheBank’sbusiness;managementthereforecarefullymanagesitsexposuretocreditrisk.

(a) Credit risk measurementThe Bank has established the Core Credit Risk Policy, which is designed to govern the Bank’s risk undertaking activities. Extension of credit is governed by credit programs which set out the plan for a particular product or portfolio, including the target market, terms and conditions, documentation and procedures under which a credit product will be offered and measured.

The Bank also ensures that there is a clear segregation of duties between loan originators, evaluators and approving authorities.

(b) Risk limit control and mitigation policiesThe Bank manages, limits and controls concentration of credit risk whenever they are identified, in particular, to individual counterparties and groups, and to industries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower or group of borrowers, and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product and industry sector are approved by the Board of Directors.

Large exposure is defined by the Central Bank as overall credit exposure to any single beneficiary which exceeds 10% of the Bank’s net worth. The Bank is required, under the conditions of Prakas No. B7-06-226 of the Central Bank, to maintain at all times a maximum ratio of 20% between the Bank’s overall credit exposure to any single beneficiary and the Bank’s net worth. The aggregate of large credit exposure must not exceed 300% of the Bank’s net worth.

The Bank employs a range of policies and practices to mitigate credit risk, including requiring borrowers to pledge collateral

against loans and advances granted by the Bank.

(c) Impairment and provisioning policiesThe Bank is required to follow the mandatory credit classification and provisioning in accordance with the relevant Prakas, as stated in note 2.8 to the financial statements.

Loan classification and loan loss provisioning are determined taking into account past due period of loans and advances to customers and other relevant qualitative factors.





2012 2011


UnauditedOn-balance sheet assets

Balances and placements with banks and other financial institutions

15,972,312 63,809,386 16,017,482 64,694,610

Loans and advances to customers:

- corporates 2,573,462 10,280,981 1,695,052 6,846,315

- individuals 28,697,330 114,645,833 16,606,777 67,074,772



47,502,603 189,772,899 36,448,132 147,214,005

Off-balance sheet items

Commitments 3,934,556 15,718,551 1,644,084 6,640,455

51,437,159 205,491,450 38,092,216 153,854,460

(d) Maximum exposure to credit risk before collateral held or other credit enhancementsThe table below presents the maximum credit risk exposure of the Group and of the Bank, without taking into account any collateral held or other credit enhancements. For on-balance sheet assets, the exposures are based on net carrying amounts. For credit related commitments, the maximum exposure to credit risk represents the full amount of irrevocable committed facilities.

29.1 Credit risk (continued)


GROUP AND BANK

To the extent possible, pledges of collateral are negotiated with the counterparties for the purpose of reducing credit risk. The Group and the Bank take into consideration the marketability of the collateral as well as the adequacy of debt coverage in assessing the acceptability of collateral. The main types of collateral and other credit enhancements obtained by the Group and the Bank in respect of loans and advances to customers are properties and guarantees. Properties are valued periodically based on valuation by independent professional valuers.

Management is confident of its ability to control and sustain minimal exposure to credit risk by the Group and the Bank resulting from loans and advances based on the following:

● Approximately93%(2010:85%)oftheloansandadvancesoftheGroupandoftheBankarecollaterised;and● The Bank has a proper credit evaluation process in place for granting of loans and advances to customers.




(e) Credit quality of financial assets

Loans and advances to customersAs at the balance sheet date, exposures of the Group and of the Bank to credit risk arising from loans and advances to customers (without taking into account of any collateral held or other credit enhancements and provision for loan losses) are as follows:

Loans and advances that are past due for less than 90 days are generally not considered impaired unless other information available indicates otherwise.

All other financial assets held by the Group and the Bank as at the balance sheet date are neither past due nor individually impaired.

Balances and placements with banks and other financial institutionsAnalysis of the balances and placements with banks and other financial institutions of the Group and of the Bank as at the balance sheet date by counterparty is as follows:

2012 2011


UnauditedLOANS AND ADVANCES:

Neither past due nor impaired 29,186,770 116,601,146 17,516,787 70,750,302

Past due but not impaired 1,569,476 6,270,057 767,795 3,101,124

Individually impaired 1,531,172 6, 117,032 420,318 1,697,665

32,287,418 128,988,235 18,704,900 75,549,091

2012 2011


Unaudited

IN CAMBODIA:

Commercial banks 14,583,494 58,261,058 14,076,149 56,853,566

Other financial institutions 960,529 3,837,313 1,202,404 4,856,510

15,544,023 62,098,371 15,278,553 61,710,076

OUTSIDE CAMBODIA:

Commercial banks 428,289 1,711,015 738,929 2,984,534

15,972,312 63,809,386 16,017,482 64,694,610







2012 2011


UnauditedLoans, advances and financing which were:

- neither past due nor impaired in the preceding 6 months 26,636,530 106,412,937 16,234,503 65,571,158

- past due or impaired in the preceding 6 months 2,550,240 10,188,209 1,282,284 5,179,144

29,186,770 116,601,146 17,516,787 70,750,302

2012 2011


Unaudited

Past due period:

- < 30 days 1,399,524 5,591,099 596,011 2,407,289

- 30 to < 60 days 108,218 432,331 78,910 318,717

- 60 to < 90 days 61,734 246,627 92,874 375, 118

1,569,476 6,270,057 767,795 3,101,124

Less: Specific provision (5,098) (20,366) (5,153) (20,813)

1,564,378 6,249,691 762,642 3,080,311

(f) Credit quality of loans and advances to customers

i. Loans and advances that are neither past due nor impairedThe credit quality of the loans and advances of the Group and of the Bank that are neither past due nor impaired (without taking into account of any collateral held or other credit enhancements and provision for loan losses) is analysed as follows:

(e) Credit quality of financial assets (continued)

ii. Loans and advances that are past due but not impairedThe aging analysis of loans and advances that are past due but not impaired as at the balance sheet date (without taking into account of any collateral held or other credit enhancements) is as follows:

Loans that are past due for 30 days or more but less than 90 days are classified as Special mention and subject to specific provision of 3%.



Other financial assetsOther financial assets of the Group and of the Bank mainly comprise interest receivable on placements with banks and other financial institutions and deposits placed by the Bank in respect of rental of premises.




2012 2011


Unaudited

Past due period:

- 90 to <180 days 810,002 3,235,958 167,009 674,550

- 180 to < 360 days 356,474 1, 424,114 139,842 564,822

- 360 days or more 364,696 1,456,960 113,467 458,293

1,531,172 6,117,032 420,318 1,697,665

Less: Specific provision (705,664) (2,819,128) (216,790) (875,615)

825,508 3,297,904 203,528 822,050

(f) Credit quality of loans and advances to customers (continued)

iii. Loans and advances that are individually impairedThe aging analysis of loans and advances that are past due for 90 days or more, which are considered impaired (without taking into account of any collateral held or other credit enhancements) is as follows:

(g) Repossessed collateralThe Central Bank requires banking institutions to classify repossessed property, if any as foreclosed property in the balance sheet and to dispose of the property within one year.

During the year, the Bank did not obtain any asset by taking possession of collateral held as security.







(h) Credit risk concentration of financial assets

i. By geographical distributionAs at the balance sheet date, the credit exposures of the Group and of the Bank are derived mainly from Cambodia based on the country of domicile of the counterparties as follows:



GROUP AND BANK

2012

Balances and placements with banks and other financial institutions 15,544,023 428,289 15,972,312

Loans and advances to customers 31,270,792 - 31,270,792

Other assets (note 7) 259,499 - 259,499

47,074,314 428,289 47,502,603

In KHR’ 000 equivalent (unaudited) 188,061,884 1,711,015 189,772,899

2011

Balances and placements with banks and other financial institutions

15,278,553

738,929

16,017,482

Loans and advances to customers 18,301,829 - 18,301,829

Other assets (note 7) 352,769 - 352,769

Other investment - 1,776,052 1,776,052

33,933,151 2,514,981 36,448,132

In KHR’ 000 equivalent (unaudited) 137,055,997 10,158,008 147,214,005

Cambodia TotalOther

countries

US$ US$ US$




ii. By industry sectorThe following table summarises the credit exposures of the Group and of the Bank at their net carrying amounts by industry sector of the counterparties.

(h) Credit risk concentration of financial assets (continued)




Agriculture - 160,724 - - 160,724 642,092

Construction - 964,068 - - 964,068 3,851,452

Finance 15,972,312 1,540,791 132,724 - 17,645,827 70,495,079

Hotels and restaurants - 2,377,093 - - 2,377,093 9,496,487

Housing - 5,940,899 - - 5,940,899 23,733,892

Manufacturing - 1,972,973 - - 1,972,973 7,882,027

Real estate and renting activities - 5,139,266 118,611 - 5,257,877 21,005,219

Transport, storage and communication - 598,744 - - 598,744 2,391,982

Utilities - 167,305 - - 167,305 668,383

- 5,628,557 - - 5,628,557 22,486,085

Others - 6,780,372 8,164 - 6,788,536 27,120,201

15,972,312 31,270,792 259,499 - 47,502,603 189,772,899

Balances

and

placements

with banks

and other

institutions

Loans and

advances to

customers

Other

assets

Other

investment Total Total

US$ US$ US$ US$ US$KHR’ 000

Unaudited

2012

GROUP AND BANK

Wholesale and retail trades




ii. By industry sector (continued)

(h) Credit risk concentration of financial assets (continued)



Agriculture - 130,713 - - 130,713 527,950

Construction - 327,950 - - 327,950 1,324,590

Finance 16,017,482 1,146,787 228,092 - 17,392,361 70,247,746

Fund management - - - 1,776,052 1,776,052 7,173,474

Hotels and restaurants - 1,467,025 - - 1,467,025 5,925,314

Housing - 3,445,501 - - 3,445,501 13,916,379

Manufacturing - 859,266 - - 859,266 3,470,575

Real estate and renting activities - 4,301,352 107,600 - 4,408,952 17,807,757

Transport, storage and

communication - 498,595 - - 498,595 2,013,825

Utilities - 494,465 - - 494,465 1,997,144

Wholesale and retail trades - 2,863,816 - - 2,863,816 11,566,953

Others - 2,766,359 17,077 - 2,783,436 11,242,298

16,017,482 18,301,829 352,769 1,776,052 36,448,132 147,214,005

Loans and

advances to

customers

Other

investment Total

Balances

and

placements

with banks

and other

institutions

US$ US$

Other

assets

US$ US$ US$

Total

KHR’ 000Unaudited

2011

GROUP AND BANK




(i) Credit risk concentration of credit related commitments with maturity of over 1 year




GROUP AND BANK2012 2011


Unaudited

Agriculture - - 55,000 222,145

Construction 65,500 261,672 - -

Finance 1,500,000 5,992,500 115,834 467,853

Hotels and restaurants 188,500 753,058 56,000 226,184

Housing 1,240,740 4,956,756 875,250 3,535,135

Manufacturing 70,000 279,650 - -

Real estate and renting activities 51,676 206,446 252,000 1,017,828

Utilities - - 124,000 500,836

Wholesale and retail trades 775,540 3,098,282 136,000 549,304

Others 42,600 170,187 30,000 121,170

3,934,556 15,718,551 1,644,084 6,640,455




(j) Movements in provision for loan losses by classes of loans and advances to customers


GROUP AND BANK


2012 2011

US$KHR’ 000


Unaudited

SPECIFIC PROVISION

Corporates

At beginning of the year - - - -

Provision for the year 108,956 435,279 - -

Foreign exchange differences - - - -

At end of the year 108,956 435,279 - -

Individuals

At beginning of the year 221,943 896,428 22,694 91,979

Provision for the year 379,863 1,517,553 199,249 804,767

Foreign exchange differences - (9,766) - (318)

At end of the year 601,806 2,404,215 221,943 896,428

GENERAL PROVISION

Corporates


Provision for the year 7,092 28,332 14,246 57,539

Foreign exchange differences - (753) - (39)

At end of the year 24,214 96,735 17,122 69,156

Individuals


Provision for the year 117,644 469,988 102,774 415,104

Foreign exchange differences - (7,216) - (858)

At end of the year 281,650 1,125,192 164,006 662,420





29.2 Market riskMarket risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk arises from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices.

(a) Price riskThe Bank managed its risk of unfavourable changes of prices of its investment by reviewing the monthly fund performance report.

Sensitivity analysisThe table below shows the analysis of the impacts on loss before taxation arising from reasonable possible 10% change in the net asset value of other investment held by the Group and the Bank as at the previous year ended 31 December 2011.


US$ US$

Decrease/(Increase) in loss before taxation 177,605 (177,605)

In KHR’ 000 equivalent (unaudited) 717,347 (717,347)

(b) Foreign exchange riskThe Group and the Bank mainly transact in US$, which is the functional currency of the Group and of the Bank. The Group and the Bank do not have significant exposure to foreign exchange risk.

2011

(Changes in net asset value)+ 10% - 10%





29.2 Market risk (continued)

(c) Interest rate riskInterest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest margins may increase or decrease due to unexpected movements in rates. Management regularly monitors any mismatch of interest rate repricing undertaken.

The table below summarises the exposures of the Group and of the Bank to interest rate risk. The assets and liabilities at carrying amount are categorised by the earlier of contractual repricing or maturity dates.

5,045,447 8,500,000 1,915,082 - - 511,783 15,972,312

1,397,945 - 25,314 7,102,784 22,744,749 - 31,270,792

- - - - - 259,499 259,499

6,443,392 8,500,000 1,940,396 7,102,784 22,744,749 3,889,953 50,621,274

(in US$)

Up to

1 month

1 to 3

months

3 to 12

months

1 to 5

years

Over

5 years

Non-

interest

bearing Total

GROUP

2012

- - - - - 1,545,201 1,545,201

- - - - - 1,573,470 1,573,470

(3,000,000) (10,012,500) - - (48,296) (14,066,985)

(729,053) (835,443) - - (1,284,958) (4,729,895)

- - - - (340,790) (340,790)

(3,729,053) (10,847,943) - - (1,674,044) (19,137,670)

4,770,947 (8,907,547) 7,102,784 22,744,749 2,215,909 31,483,604

(1,006,189)

(1,880,441)

-

(2,886,630)

3,556,762

14,209,264 19,059,933 (35,585,650) 28,375,622 90,865,272 8,852,557 125,776,998

FINANCIAL ASSETS

Cash on hand

Balances with the Central Bank (note 4)

Balances and placements

with banks and other financial institutions

Loans and advances

to customers

Other assets (note 7)

Deposits from banks and other financial institutions


Other liabilities

Total interest rate

repricing gap

- US$

- In KHR’ 000 equivalent (unaudited)







(c) Interest rate risk (continued)


- - - 832,253 832,253

- - - 814,603 814,603

1,171,574 - - 812,959 16,017,482

1,108,241 7,162,064 9,955,777 - 18,301,829

- - - 352,769 352,769

- - - 1,776,052 1,776,052

2,279,815

-

-

11,132,949

-

-

-

11,132,949

-

-

2,900,000

75,747

-

-

2,975,747 7,162,064 9,955,777 4,588,636 38,094,988

(2,102,875)

(3,265,061)

(111,627)

(5,479,563)

(38,843)

(1,626,758)

-

(1,665,601)

2,480,811

-

(56,846)

-

(56,846)

44,736,380

(2,000,000)

(630,023)

-

(2,630,023)

1,396,379

-

-

-

-

28,927,576

-

-

-

-

40,211,383

(64,032)

(951,434)

(111,627)

(1,127,093)

32,615,425614,214 11,076,103 345,724 7,162,064 9,955,777 3,461,543

13,981,172 131,733,701

(in US$)

Up to

1 month

1 to 3

months

3 to 12

months

1 to 5

years

Over

5 years

Non-

interest

bearing Total

GROUP

2011

FINANCIAL ASSETS

Cash on hand




Loans and advances

to customers


Other investment

Deposits from banks and

other financial institutions


Other liabilities

Total interest rate

repricing gap

- US$









3,556,762 4,770,947 (8,907,547) 7,102,784 22,744,749 (2,762,324) 26,505,371

14,209,264 19,059,933 (35,585,650) 28,375,622 90,865,272 (11,035,484) 105,888,957

5,045,447 8,500,000 1,915,082 - - 511,783 15,972,312

1,397,945 - 25,314 7,102,784 22,744,749 - 31,270,792

- - - - - 259,499 259,499

6,443,392 8,500,000 1,940,396 7,102,784 22,744,749 3,889,953 50,621,274

- - - - - 1,545,201 1,545,201

- - - - - 1,573,470 1,573,470

(1,006,189) (3,000,000) (10,012,500) - - (48,296) (14,066,985)

(1,880,441) (729,053) (835,443) - - (6,263,191) (9,708,128)

- - - - - (340,790) (340,790)

(2,886,630) (3,729,053) (10,847,943) - - (6,652,277) (24,115,903)

(in US$)

1 to 3

months

3 to 12

months

1 to 5

years

Over

5 years

Non-

interest

bearing Total

BANK

2012

FINANCIAL ASSETS


Cash on hand




Loans and advances

to customers


Deposits from banks and other financial institutions


Other liabilities

Total interest rate

repricing gap

- US$


Up to

1 month








(38,843) - (2,000,000) - - (64,032) (2,102,875)

(1, 626,758) (56,846) (630,023) - - (5,931,845) (8,245,472)

- - - - - (111,627) (111,627)

(1, 665,601) (56,846) (2,630,023) - - (6,107,504) (10,459,974)

614,214 11,076,103 345,724 7,162,064 9,955,777 (1,518,868) 27,635,014

2,

480,811 44,736,380 1,396, 379 28, 927,576 40,211,383 (6,134,708) 111,617,821

- - - - - 832,253 832,253

- - - - - 814,603 814,603

1,171,574 11,132,949 2,900,000 - - 812,959 16,017,482

1,108,241 - 75,747 7,162,064 9,955,777 - 18,301,829

- - - - - 352,769 352,769

- - - - - 1,776,052 1,776,052

2,279,815 11,132,949 2,975,747 7,162,064 9,955,777 4,588,636 38,094,988

(in US$)

Up to

1 month

1 to 3

months

3 to 12

months

1 to 5

years

Over

5 years

Non-

interest

bearing Total

BANK

2011

FINANCIAL ASSETS

Cash on hand




Loans and advances to customers


Other investment

Deposits from banks and

other financial institutions


Other liabilities

Total interest rate

repricing gap

- US$






29.3 Liquidity riskLiquidity risk is the risk that the Group and the Bank are unable to meet their obligations when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows.

(a) Liquidity risk management processThe management monitors balance sheet liquidity and manages the concentration and maturity profile of deposits as well as the movements of main depositors and projection of their withdrawals.

(b) Funding approachThe main sources of funding of the Group and of the Bank are from shareholder’s paid-up capital and deposits from banks, other financial institutions and customers. The sources of funding are reviewed daily through management’s review of maturity profileof fixed deposits.

(c) Non-derivative cash flowsThe table below presents the undiscounted cash flows arising from financial assets and liabilities and commitments of the Group and of the Bank based on the remaining contractual maturities as at the balance sheet date.


(in US$) Up to

1 month

1 to 3

months3 to 12

months 1 to 5years

Over5 years

No fixed term Total

GROUP2012


Deposits from banks and other financial institutions (1,056,360) (3,011,063) (10,159,363) - - - (14,226,786)

Deposits from customers (3,165,521) (734,180) (858,455) - - - (4,758,156)

Other liabilities (41,513) (114,603) (184,674) - - - (340,790)

(4,263,394) (3,859,846) (11,202,492) - - - (19,325,732)

Total financial assets 9,131,896 9,638,336 6,867,376 22,738,478 11,819,121 8,164 60,203,371


Commitments (1,105,380) (1,266,270) (1,522,906) (40,000) - - (3,934,556)

Net liquidity gap 3,763,122 4,512,220 (5,858,022) 22,698,478 11,819,121 8,164 36,943,083

In KHR’ 000 equivalent (unaudited) 15,033,672 18,026,319 (23,402,798) 90,680,420 47,217,388 32,615 147,587,616





(in US$) Up to

1 month

1 to 3

months3 to 12

months1 to 5years

Over5 years

No fixedterm Total

GROUP2011


Deposits from banks and other financial institutions (102,875) - (2,047,486) - - - (2,150,361)



(2,709,376) (72,255) (2,760,004) - - - (5,541,635)



Commitments (689,450) (599,634) (200,000) (155,000) - - (1,644,084)

Net liquidity gap 1,667,555 11,297,721 2,970,756 15,839,083 6,053,624 17,077 37,845,816

In KHR’ 000 equivalent (unaudited) 6,735,255 45,631,495 11,998,884 63,974,056 24,450,587 68,974 152,859,251

BANK2012


Deposits from banks and other financial institutions (1,056,360) (3,011,063) (10,159,363) - - - (14,226,786)



(9,241,628) (3,859,846) (11,202,492) - - - (24,303,966)



Commitments (1,105,380) (1,266,270) (1,522,906) (40,000) - - (3,934,556)

Net liquidity gap (1,215,112) 4,512,220 22,698,478 11,819,121 8,164 31,964,849

In KHR’ 000 equivalent (unaudited) (4,854,372) 18,026,319 90,680,420 47,217,388

32,615 127,699,572

29.3 Liquidity risk (continued)


(c) Non-derivative cash flows (continued)

(23,402,798)

(5,858,022)




29.4 Operational riskOperational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external

events. This includes legal, compliance, accounting and fraud risk.

The Bank has established policies and procedures to provide guidance to the key operating units on the risk governance

structure and baseline internal controls necessary to identify, assess, monitor and control their operational risks. Internal

control policies and measures that have been implemented including the establishment of signing authorities, defining system

parameter controls, streamlining procedures and documentation ensuring compliance with regulatory and legal requirements.

The policies and procedures are reviewed periodically, taking into account the business objectives and strategies of the Bank

as well as regulatory requirements.

The internal audit function provides independent assessment of the adequacy of the internal control policies and procedures of

the Bank to mitigate risk associated with operational activities. Any findings arising from the audit and review will be escalated

to the senior management of the Bank and the Audit Committees of the Bank and of the parent company.

(in US$) Up to

1 month1 to 3

months3 to 12

months1 to 5years

Over5 years

No fixedterm Total

BANK2011


Deposits from banks and other financial institutions (102,875) - (2,047,486) - - - (2,150,361)



(7,689,787) (72,255) (2,760,004) - - - (10,522,046)



Commitments (689,450) (599,634) (200,000) (155,000) - - (1,644,084)

Net liquidity gap (3,312,856) 11,297,721 2,970,756 15,839,083 6,053,624 17,077 32,865,405

In KHR’ 000 equivalent (unaudited) (13,380,625) 45,631,495 11,998,884 63,974,056 24,450,587 68,974 132,743,371

29.3 Liquidity risk (continued)


(c) Non-derivative cash flows (continued)




29.5 Fair value of financial assets and liabilitiesAs at the balance sheet date, the fair values of financial instruments of the Group and of the Bank approximate their carrying amounts.

The estimated fair values are based on the following methodologies and assumptions:

(i) Balances and placements with banks and other financial institutionsThe fair values of balances and placements with banks and other financial institutions with maturity of less than one year approximate their carrying amounts.

(ii) Loans and advances to customersFor fixed rate loans with remaining period to maturity of less than one year, the carrying amounts are generally reasonable estimates of their fair values.

For fixed rate loans with remaining period to maturity of one year and above, fair values are estimated by discounting the estimated future cash flows using the prevailing market rates of loans with similar credit risks and maturities.

(iii) Other investment

The fair value of other investment was based on the net asset value of the investment.

(iv) Deposits from banks, other financial institutions and customersThe fair values of deposits payable on demand (current and savings accounts), or deposits with remaining maturity of less than one year are estimated to approximate their carrying amounts. The fair values of deposits with remaining maturity of more than one year are estimated based on discounted cash flows using prevailing market rates for similar deposits from banks, other financial institutions and customers.

(v) Other financial assets and liabilities

The carrying amounts of other financial assets and liabilities are assumed to approximate their fair values as these items are

not materially sensitive to the shift in market interest rates.

29.6 Capital managementThe Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the balance sheet, are:

● TocomplywiththecapitalrequirementsetbytheCentralBank;● To safeguard the ability of the Group and of the Bank to continue as a going concern so that it can provide returns to its shareholderandbenefitsforotherstakeholders;and● To maintain a strong capital base to support the development of business.

The Central Bank requires all commercial banks to i) hold a minimum capital requirement, ii) maintain the Bank’s net worth equal at least to the minimum capital and iii) comply with solvency and liquidity ratios.






As at the balance sheet date, the Bank’s net worth of US$38,721,812 is above the minimum capital requirement of US$37,500,000.

2012 2011


Unaudited

Statutory capital 40,000,000 159,800,000 40,000,000 161,560,000


38,548,558 154,001,489 38,704,600 156,327,880

Less: Intangible assets (132,610) (529,777) (189,132) (763,904)

Add: General provision for loan losses 305,864 1,221,927 181,128 731,576

Net worth 38,721,812 154,693,639 38,696,596 156,295,552


The table below summarises the composition of the Bank’s regulatory capital:

29.6 Capital management (continued)

CORPORATECORPORATE

| របាយការណ៍កបចាឆំ្នា ២ំ០១២ធនាគារហ្វង ឌីប៊ីេអស ពាណិជ្ជ ភីអិលសីុ | របាយការណ៍កបចាឆំ្នា ២ំ០១២ធនាគារហ្វង ឌីប៊ីេអស ពាណិជ្ជ ភីអិលសីុ 384

mercial Bank Plc,HwangDBS Comm-Office Centre,Ground Floor of B-O

lvd Corner Street 306,# 61-64 Norodom Blvg Kang 1,Sangkat Boeung Keng

Khan Chamkamorn,a.Phnom Penh, Cambodia.

Tel : (+855) 23 218 866Fax : (+855) 23 220 108

om.khWebsite: www.hwangdbs.co

ANNUAL REPORT2012 - phillipbank.com.kh · hwangdbs commercial bank plc | annual report 2012 3...

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