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

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.

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.

When there is no realistic prospect of recovery, the outstanding advances and other accounts is written off.

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.

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:

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.

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.

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.

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:

The general reserve is a distributable reserve set aside from profit each year. The amount to set aside is recommended by the board of directors and is reflected in the accounts in the year when the reserve transfer is approved at the Annual General Meeting.

The statutory reserve is a non-distributable reserve set aside from profit each year in accordance with the Financial System Act of Macau which provides that an amount of not less than twenty percent of the profit after taxation be set aside each year until the reserve reaches fifty percent of the Bank’s issued share capital and thereafter at ten percent of the profit after taxation each year until the reserve is equal to the Bank’s issued share capital. The amount set aside is reflected in the accounts in the year when the reserve transfer is approved at the Annual General Meeting.