Notes to the Accounts
  
   
   
 
1 Principal activities
     
  The principal activities of Banco Tai Fung S.A.R.L. (“the Bank”) are the provision of banking, financial and other related services.
     
     
2 Basis of preparation
     
 

The accounts have been prepared in accordance with the accounting principles set out in Section 3 of Chapter 1 of the Macau Commercial Code and the following principal accounting policies. The accounts are prepared under the historical cost convention except that bullion is carried at market value.

Subsidiaries are those entities in which the Bank controls the composition of the board of directors, controls more than half the voting power or holds more than half of the issued share capital. Investments in subsidiaries are stated at cost. Results of the subsidiaries are accounted for by the Bank on the basis of dividends received or receivable.

An associate is a company, not being a subsidiary, in which an equity interest is held for the long term and significant influence is exercised in its management. The investment in an associate is stated at cost. The results of the associate are accounted for by the Bank on the basis of dividends received or receivable
     
     
3 Principal accounting policies
     
  (a) Revenue recognition
     
    Interest income is recognised in the profit and loss account as it accrues, except in the case of non-accrual loans where interest is credited to a suspense account which is netted in the balance sheet against the relevant balances. Suspended interest recovered is recognised in the profit and loss accounts when received.

Non-accrual loans represent advances to customers which are overdue for more than three months or advances to customers which are overdue for less than three months but the directors have doubt on the ultimate recoverability of principal or interest in full.

Fee and commission income are recognized in the period when earned.

Dividend income is recognised when the right to receive payment is established.

     
     
  (b) Advances and other accounts
     
    Advances to customers, banks and other financial institutions are reported on the balance sheet at the principal amount outstanding net of provisions for bad and doubtful advances and other accounts. Advances to banks and other financial institutions include placements with banks and other financial institutions maturing more than one year.

Assets acquired by repossession of collateral for realisation is reported as repossessed assets at cost less provision under “Advances and other accounts”.

All advances are recognised when cash is advanced to borrowers.

     
     
  (c) Provisions for advances and other accounts
     
    Provisions are made against specific advances as and when the directors have doubts on the ultimate recoverability of principal or interest in full. Specific provision is made to reduce the carrying value of advances to customers, net of any collateral, to the expected net realisable value based on the directors’ assessment of the potential losses on those identified advances, and with reference to the requirements of Autoridade Monetaria de Macau (“AMCM”).

In addition, amounts have been set aside as a general provision for advances and other accounts. Both specific and general provisions are deducted from “Advances and other accounts” in the balance sheet.

When there is no realistic prospect of recovery, the outstanding advances and other accounts is written off.
     
     
  (d) Bullion
     
    Bullion is stated in the balance sheet at market value. All realised and unrealised gains and losses from trading in bullion are included in “Other operating income”.
     
     
  (e) Treasury bills
     
    Treasury bills are debt securities issued by AMCM which the Bank has the intention and ability to hold to maturity. Treasury bills are stated at face value. The amortisation of premiums or discounts arising on acquisition over the periods to maturity is grouped under “Other liabilities” in the balance sheet. Interest earned on treasury bills is reported as interest income.
     
     
  (f) Certificates of deposit held
     
    Certificates of deposit held are unlisted dated investments which the Bank has the intention and ability to hold to maturity. Certificates of deposit held are stated at cost adjusted for the amortisation of premiums or discounts arising on acquisition over the periods to maturity. Interest earned on certificates of deposit is reported as interest income.
     
     
  (g) Investments in securities
     
   

Investments in securities include dated debt securities and equity securities.

Investments in dated debt securities are investments which the Bank has the intention and ability to hold to maturity. These securities are stated at cost adjusted for the amortisation of premiums or discounts arising on acquisition over the periods to maturity, less provision for other than temporary diminution in value.

Investments in listed shares are stated at the lower of cost and market value at the balance sheet date. Investments in unlisted shares are stated at cost less provision for other than temporary diminution in value.
     
     
  (h) Fixed assets
     
   

Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated to write off the cost of the assets on a straight line basis over their estimated useful lives as follows:

Freehold land Not depreciated
Leasehold land Lesser of period of lease or 50 years
Buildings 50 years
Fixtures and furniture 3-20 years
Computer equipment 3-4 years
Motor vehicles 5-6 years

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant fixed asset, and is recognised in the profit and loss account.

     
     
  (i) Operating leases
     
    Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals applicable to such operating leases net of any incentives received from the lessor are charged to the profit and loss account on a straight line basis over the lease term.
     
     
  (j) Translation of foreign currencies
     
    Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. All exchange differences are dealt with in the profit and loss account.
     
     
  (k) Contingent liabilities
     
    A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.
     
     
  (l) Pension obligations
     
   

The Bank operates a defined contribution plan and a defined benefit retirement scheme.

The defined contribution plan requires members of the plan to contribute 5% of their basic salary while the Bank to contribute 5% or 10% of the member’s salary depending on the number of year of service of the employee concerned. The Bank’s contributions to the defined contribution plan are charged to the profit and loss account in the year to which they relate. Contributions made under the defined contribution plan after 1st January 2003, the effective date of Macau Decree Law 6/99/M which sets out certain requirements of retirement schemes, together with part of the contributions made before this date, are held separately in independently administered funds.

The Bank also operates a defined benefit retirement scheme for employees with employment commenced before 31st January 1998. The scheme is administered by an external retirement fund management company in accordance with Macau Decree Law 6/99/M. Annual contributions made to the scheme, which are determined with the agreement of AMCM, are charged to the profit and loss account in the year when the contributions are made.
     
     
  (m) Cash and cash equivalents
     
    For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition including cash, balances with banks and other financial institutions, treasury bills, other eligible bills and certificates of deposits.
     
     
  (n) Dividends
     
    Dividends proposed or declared after the balance sheet date are disclosed as a post balance sheet event but not recognised as a liability at the balance sheet date.
     
     
 
 
  4 Interest income
 
 
     
2003
MOP’000
  
2002
MOP’000
  
     
 
 
    Deposits with AMCM
2,799
  
4,689
  
    Placements with banks and other
financial institutions
107,292
  
161,808
  
    Certificates of deposit held
34,861
  
28,525
  
    Treasury bills
46,479
  
75,174
  
    Advances and other accounts
227,619
  
242,862
  
    Investments in debt securities
73,493
  
69,802
  
    Customer margin financing
32,122
  
18,274
  
    Others
28
  
33
  
     
     
 
 
     
524,693
  

601,167

  
     
             
             
  5 Interest expense        
     
2003
MOP’000
  
2002
MOP’000
  
     
     
   
Deposits and balances with banks and
other financial institutions		  
649
  
832
  
    Customer deposits
174,629
  
248,451
  
    Customer margin deposits
9,546
  
17,048
  
    Others
23
  
133
  
     
             
     
184,847
  
266,464
  
     
             
             
  6 Other operating income        
     
2003
MOP '000
  
2002
MOP '000
  
             
    Fees and commission income
59,573
  
59,941
  
    Less: fees and commission expense
(4,890
 )
(5,003
 )
     
    Net fees and commission income
54,683
  
54,938
  
             
    Net gain from foreign exchange trading
76,869
  
71,412
  
    Dividend income from investments in:
   
  - Securities
1,148
  
1,074
  
   
  - Subsidiaries
10,000
  
-
  
   
  - Associates
762
  
762
  
    Investment income from securities
6,470
  
2,091
  
    Others
21,973
  
5,783
  
     
             
     
171,905
  
136,060
  
     
             
             
  7 Operating expenses
     
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Staff costs (including directors’ remuneration)
114,069
  
112,998
  
    Premises and equipment expense excluding
depreciation:
 
 
   
  - Rental of premises and equipment
4,301
  
4,338
  
   
  - Repair and maintenance
11,206
  
9,321
  
    Depreciation
36,453
  
33,360
  
    Auditors’ remuneration
453
  
180
  
    Other operating expenses
34,062
  
39,280
  
     
             
     
200,544
  
199,477
  
     
     
 
 
     
 
 
  8 Charge for bad and doubtful
advances and other accounts		        
     
2003
MOP '000
  
2002
MOP '000
  
             
    Net charge for bad and doubtful advances
and other accounts		        
             
    Specific provisions        
   
  - new Provisions
268,027
  
213,083
  
   
  - releases
(88,174
 )
(24,965
 )
   
  - recoveries
(14,128
 )
(9,315
 )
     
             
     
165,725
  
178,803
  
    General provisions
41,240
  
-
  
     
             
    Net charge to profit and loss account (Note 14)
206,965
  
178,803
  
     
             
     
  9 Taxation
     
    Complementary tax has been provided at the rate of 15.75% (2002: 15.75%) on the estimated assessable profit for the year.
     
     
 
 
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Macau complementary tax
15,000
  
14,400
  
    Over provisions in prior year
(350
 )
(531
 )
     
             
     
14,650
  
13,869
  
     
     
 
 
     
 
 
  10 Dividend
 
 
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
   
Proposed 2003 of MOP70 per share (2002:
27th March 2003, of MOP60 per share)		  
70,000
  
60,000
  
     
     
    At a meeting held on 25th March 2004, the Board proposed to declare a dividend of MOP70 per share for the year ended 2003 amounting to MOP70 million. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained profits for the year ending 31st December 2004.
     
             
  11 Cash and short-term funds
 
 
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Cash
233,922
  
193,686
  
    Money at call and short notice
12,960
  
9,349
  
   
Placements with banks and other financial
institutions maturing within one month		  
3,288,979
  
3,042,495
  
    Deposits with AMCM (Note)
344,184
  
308,836
  
     
             
     
3,880,045
  
3,554,366
  
     
     
 
 
     
   

Note: According to the statutory requirement, the Bank is required to maintain a minimum deposit balance with AMCM for liquidity purpose. The required weekly average of the MOP current deposit balance should not be less than 70% of the aggregate of the following amounts:

(a) 3% on all the liabilities which are repayable on demand;
(b) 2% on all the liabilities which are repayable within 3 months (3 months inclusive) except for those already counted in (a);
(c) 1% on all the liabilities which are repayable beyond 3 months.
     
     
  12 Placements with banks and other financial institutions maturing between
one and twelve months
     
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Three months or less, but over one month
2,891,808
  
2,743,715
  
    One year or less, but over three months
667,069
  
886,830
  
     
             
     
3,558,877
  
3,630,545
  
     
     
 
 
     
 
 
  13 Certificates of deposit held
 
 
     
 
 
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Unlisted, at amortised cost
1,826,010
  
1,340,441
  
     
     
 
 
     
 
 
  14 Advances and other accounts
 
 
     
 
 
     
2003
MOP '000
  
2002
MOP '000
  
     
 
 
    Advances to customers
7,131,009
  
6,729,047
  
    Trade bills
295,502
  
406,311
  
   
Placements with banks and other financial
institutions maturing over one year		  
6,183
  
-
  
    Repossessed assets
165,607
  
509,808
  
     
             
     
7,598,301
  
7,645,166
  
   
Less: Provision for advances and
other accounts
(283,652
 )
(283,825
 )
     
             
     
7,314,649
  
7,361,341
  
     
       
    An analysis of provision for advances
and other accounts is as follows:-		  
     
2003
Provision for bad and doubtful debts
 
                 
     
Specific
MOP '000
  
General
MOP '000
  
Total
MOP '000
 
     
     
 
    Balance as at 1st January 2003
223,002
  
60,823
  

283,825

  
    Amounts written off
(221,266
 )
-
  

(221,266

 )
    Recoveries of advances written off in
previous years
14,128
  
-
  

14,128

  
    Charge to profit and loss account
(Note 8)
165,725
  
41,240
  

206,965

  
     
                 
    Balance as at 31st December 2003
181,589
  
102,063
  

283,652

  
     
     
     
 
       
     
2002
Provision for bad and doubtful debts
 
                 
     

Specific
MOP '000

  

General
MOP '000

  

Total
MOP '000

  
     
     
 
    Balance as at 1st January 2002
348,865
  
90,831
  

439,696

  
    Amounts written off
(343,989
 )
-
  

(343,989

 )
    Recoveries of advances written off in
previous years
9,315
  
-
  

9,315

  
    Charge to profit and loss account
(Note 8)
178,803
  
-
  

178,803

  
    Transfer
30,008
  
(30,008
 )
-
  
     
                 
    Balance as at 31st December 2002

223,002

  

60,823

  

283,825