| High profile corporate failures have brought a stark reality to how poor transparency, inadequate management oversight, misguided managers, misaligned compensation programs, and inadequate risk management can lead to the downfall of even great organizations. |
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| DBS views sound corporate governance as fundamental to our aim of building a competitive franchise and value for our stakeholders. |
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| We embraced the highest standards in corporate governance, as well as timely and transparent disclosure - long before they became the watchwords of shareholders, regulators, rating agencies, analysts and journalists the world over. The 2000 and 2001 annual reports emphasized in great detail DBS?progress in these areas. |
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| We have been consistently recognized for the highest corporate governance standards among listed companies in Asia. |
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DBS is a three-time winner, and the 2002 Second Runner-up of "The Best Corporate Governance Award" at the 29th Singapore Annual Report Award. |
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DBS ranked second in Asia in Asiamoney’s survey of Corporate Governance among Asian financial institutions. |
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| Embracing Corporate Governance |
| DBS views Corporate Governance as the foundation and conscience of the Bank. Our Board and management carefully balances the often divergent interests of our constituents, including shareholders, customers, depositors, business partners, debt holders, regulators, ratings agencies, and employees in pursuing the objective of maximizing long-term shareholder value. The key elements of DBS?Corporate Governance are timely and transparent disclosure; a management team with strong values and principles; a balanced management structure that is actively monitored by an independent Board of Directors; and a pervasive risk management and compliance culture. |
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| Timely and Transparent Disclosure |
| DBS takes pride in being a leader among Asian financial institutions in the standards of timely and full disclosure. We took the lead after the 1997 Asian financial crisis highlighted the importance of clear and transparent reporting. |
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The information disclosed in our financial statements is in line with the best practices adopted by leading international banks. And to help our stakeholders better understand our progress and the underlying risks, we added a management discussion and analysis section to our annual reports. |
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DBS became the first Singapore bank to adopt quarterly reporting in September 2001, more than a year ahead of the regulatory requirement for quarterly reporting. Although we are concerned that quarterly reports may cause investors to become obsessed with short-term results as compared to the creation of sustained and longer-term value, we provide the added transparency for the benefit of our stakeholders. |
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DBS selected new external auditors of our financial statements well ahead of the new regulatory requirement that Singapore banks rotate their auditors every five years by 2006. We are comfortable with the corporate governance philosophy of having a new team of accountants independently comb through our accounts and review our accounting principles. We will bring the rotation for shareholder ratification at our Annual General Meeting in April, 2003. |
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| Our philosophy is that the discipline of the markets provides a de facto "checks and balances" to the proper management of the Group’s businesses. A transparent organization is subject to timely, comprehensive and regular review by its stakeholders and the public as a whole. In turn, the capital markets, the job markets, as well as customers will provide clear feedback to management and the Board as to our performance, conduct of business, principles and values. |
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| Management Team with Strong Values and Principles |
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| The seven members of the Management Committee are (from left to right): Jeanette Wong, Chong Kie Cheong, Ng Kee Choe, Jackson Tai, Frank Wong, Oon Kum Loon and David Lau |
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| Our Chairman S Dhanabalan leads a seasoned executive management team with longevity and leadership in the financial markets, both at home in Asia and in the leading centers abroad. |
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| Although we undertook a leadership change mid-year, members of the Management Committee have worked closely as a team since 1999 in mapping the Bank’s vision and overseeing execution. The members each have over 20 years experience in a range of financial disciplines, and have been accountable to the scrutiny of regulators, analysts, rating agencies and the public markets. |
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| Management Committee |
| The Management Committee is the highest management decision-making body at DBS, responsible for setting DBS' business strategy, prioritizing the allocation of DBS' overall resources, monitoring adherence to DBS' core principles and values, driving higher returns to shareholders, and ensuring outstanding service to our customers. The members are Jackson Tai, Ng Kee Choe, Frank Wong, Chong Kie Cheong, David Lau, Oon Kum Loon and Jeanette Wong. S Dhanabalan serves as Advisor. |
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| We believe we serve our shareholders best by placing our customers?interests at the forefront, ahead of our own economic objectives. Our Policy Committee, the Bank’s executive forum, monitors business progress and deliberates on the coordination of new products, services, customer and business issues. |
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| Policy Committee |
| The Policy Committee serves as an executive forum for information and business progress update sharing, deliberations on new product, service, business, program initiatives, and deliberations on and coordination of client, customer, business and operational issues. The Policy Committee members are Jackson Tai, Ng Kee Choe, Frank Wong, Eric Ang, Chan Tak Kin, Chong Kie Cheong, Elsie Foh, Hong Tuck Kun, Steve Ingram, Edmund Koh, David Lau, Oon Kum Loon, Rajan Raju, Greg Seow, Randolph Sullivan, Pornsanong Tuchinda, Wong Ban Suan and Jeanette Wong, with S Dhanabalan as Advisor. |
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| Management Structure and Board Supervision |
| Another critical element of Corporate Governance at DBS is an active board and management committee structure that undertakes a careful review of decision making within the Group at various levels. Many wellpublicized failures in Corporate Governance in the last few years can be directly linked to inadequate oversight of various key management responsibilities. |
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| During the year, DBS further strengthened the depth and breadth of its Board. The Board now comprises thirteen members with extensive financial and nonfinancial experience. We limit ourselves to only two executive board members; the rest are non-executives who are, with the exception of Chairman Dhanabalan, independent or outside directors. |
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| Our Board is engaged in our strategic issues and actively participates in major decisions. In particular, we insist that certain matters must always be approved by the Board. These include the review and approval of the consolidated financial statements and directors?report for the DBS Group; strategic plans and acquisitions; the annual budget; major fund-raising exercises of the Group; and all decisions that will have a major impact on the business, reputation or standing of the Group. |
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| DBS Group keeps its board members fully engaged through five Board committees that oversee key management functions. |
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| Executive Committee: The Executive Committee reviews the major strategies and operations of the Group. Its key role is to provide oversight of executive management decisions. The members of the Executive Committee are S Dhanabalan (Chairman), Jackson Tai, Ng Kee Choe, Bernard Chen, and Fock Siew Wah. |
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| Audit Committee: The Audit Committee provides diligent oversight of the financial reporting of the Group and ensures that the high transparency standards of DBS are met. The Audit Committee also reviews with the external auditor the audit plan, the evaluation of the system of internal accounting controls and the external auditor's audit report. Our Group Audit Head has direct access to the Audit Committee Chairman. The members of the Audit Committee are Bernard Chen (Chairman), Tommy Koh and Moses Lee, all of whom are independent, non-executive directors. |
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| Compensation Committee: The Compensation Committee includes Thean Lip Ping (Chairman), S Dhanabalan, Fock Siew Wah, Leung Chun Ying, and Yeo Ning Hong. The Committee reviews and approves the framework of remuneration for executive directors, and senior employees. The Committee approves the aggregate amount of performance-based cash and share-related compensation to be paid each year. |
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| Nominating Committee: As required by regulation and its Articles, DBS Group Holdings has established a Nominating Committee to identify all candidates to the Board and the Board committees, and to approve the appointment of the Chief Executive Officer, the Deputy CEO, President, Deputy President and Chief Financial Officer. The members are Tommy Koh (Chairman), S Dhanabalan, Bernard Chen, Thean Lip Ping, and Yeo Ning Hong. |
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| Board Risk Management Committee: This Committee sets the risk policies and the overall risk limits, parameters and framework for the Group. The members of the Committee are Fock Siew Wah (Chairman), Bernard Chen, and Tommy Koh. |
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| Pervasive Risk Management and Compliance Culture |
| DBS has implemented policies and procedures to identify, mitigate and monitor risk across the firm. These policies and procedures rely on constant communication, judgment, and knowledge of products, markets and controls by business and supportunits. The Group believes that business and support units have the primary responsibility for managing risk. At the same time, we insist on independent risk management and oversight. |
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| DBS considers having world-class skills in monitoring, interpreting and forecasting our risk profile to be a critical internal capability. Our approach to risk management has several components: comprehensive risk management processes, early identification systems, accurate risk measures, investments in people and technology to interpret and manage risk on a daily basis, stress tests and comprehensive process reviews in conjunction with internal auditors, external auditors and regulatory officials. |
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| Credit Risk Management: Credit risk is the potential earnings volatility caused by an obligor’s inability or unwillingness to fulfil its payment obligations. Exposure to credit risks arises primarily from lending activities and, to a lesser extent, from sales and trading activities, derivatives activities and from participation in payment transactions and securities settlements. |
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| Credit exposure includes current as well as potential credit exposure. Current credit exposure is represented by the notional value or principal amount of on-balance sheet financial instruments and off-balance sheet direct credit substitutes, and by the positive market value of derivative instruments. DBS also estimates the potential credit exposure over the remaining term of transactions. |
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| At DBS, a disciplined credit risk management process integrates risk management into the business management processes, while preserving the independence and integrity of risk assessment. Policies and procedures, which are communicated throughout the Group, guide the day-to-day management of credit exposure and are an essential part of the business culture. The credit risk management process involves senior management, Group Risk, Credit Management, Relationship Management, as well as independent credit risk control functions. |
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| In 2002, DBS implemented an enterprise-wide Core Credit Risk Policy that governs the extension of credit throughout the organization. The Policy, based on best practice standards, sets forth the principles and policies by which the Bank and its subsidiaries conduct their credit risk management activities. It ensures credit risk underwriting consistency across the Group, and provides guidance to various credit management units in the formulation of supplementary credit policies specific to their businesses. Each corporate borrower is assigned a rating under the Counterparty Risk Rating process. The Counterparty Risk Rating process is further enhanced by the Facility Risk Rating System which takes into consideration facility specific considerations such as credit structuring, collateral, third party guarantees, and transfer risks. These credit risk rating tools are used to assess the credit quality of the portfolio, so that deteriorating exposures are quickly identified and appropriate remedial action is taken. |
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| DBS has been actively preparing for the Internal Ratings Based (IRB) approach for Credit Risk under the New Basel Capital Accord (Basel II), scheduled to be implemented in 2006. Using historical internal ratings and default data, DBS has commenced extensive efforts to estimate and validate probability of default, a key requirement for the IRB approach. Efforts are also underway to collect internal data on loss given default and exposure at default. |
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| Concentration Risk: The Group’s corporate credit portfolio is diversified by industry and limits are in place to manage these exposures, that would give rise to concentration risk. |
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| The Group has successfully implemented the new Country Risk Management Process to limit concentration risk in terms of country exposure. The process is now driven by a unit within Group Risk, ensuring independence from business originators. Models which are focused, transparent and flexible have been constructed to help in the assessment of country risks in over 60 economies where the bank has exposure, as well as translating the internal country ratings to the country limits for the bank. This second model places emphasis on making explicit the assumptions the bank adopts when it decides on its risk appetite with regard to country limits. |
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| Trading Market Risk Management: Trading market risk arises from changes in market rates such as interest rates, foreign exchange rates and equity prices, as well as in their correlation and implied volatilities. DBS takes trading market risk in the course of making market to meet customer requirements as well as to benefit from market opportunities. |
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| The trading market risk framework establishes limits to ensure that risk-takers do not exceed aggregate risk and concentration parameters set by senior management. The framework also requires independent validation of valuation and risk models and methodologies as well as independent mark-tomarket valuation, reconciliation of positions and tracking of stop-loss for trading positions on a timely basis. Risk issues are identified for new products and services before launch. |
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| DBS adopts a Daily Earnings at Risk (DEaR) methodology to estimate the Group’s trading market risk with a 99% level of confidence over a one-day horizon. DEaR is computed using a combination of parametric and historical simulation approaches. It takes into account all pertinent risk factors and covers all financial instruments which expose the Group to market risk, across all geographies. On a daily basis, DBS estimates DEaR for each trading business unit, as well as for the Group. These daily reports also provide DEaR estimates for individual activity and risk type such as foreign exchange, interest rate or equity. To complement the DEaR framework, daily stress testing is carried out to monitor the Group’s vulnerability to unlikely but plausible events in extreme market conditions. |
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| Structural Market Risk Management: Structural interest rate risk arises from mismatches in the interest rate profile of customer loans and deposits. The structural interest rate risk relates to basis risk arising from different interest rate benchmarks, interest rate repricing risk, yield curve movements and embedded optionality. |
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| In managing structural interest rate risk, DBS tries to achieve a desired profile given the strategic considerations and market conditions of the various business segments. To monitor the structural interest rate risk, various tools are used including repricing gap reports, sensitivity analysis and income simulations under various scenarios. |
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| DBS attempts to limit the effect of exchange rate movements on its earnings where possible. Our policy is to fund foreign currency lending with the same foreign currencies. For foreign currency investments, the Group’s general policy is to borrow fundable currencies. Non-fundable or illiquid currencies may be hedged using other instruments. Where appropriate for currencies with high hedging costs or lack of liquidity, alternative hedging strategies may be used. |
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| Liquidity Risk Management: Liquidity obligations arise from withdrawals of deposits, repayments of purchased funds at maturity, extensions of credit and working capital needs. DBS seeks to manage its liquidity risk across all classes of assets and liabilities to ensure that even under adverse conditions, DBS has access to funds at a reasonable cost. |
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| The primary tool for monitoring liquidity is the maturity mismatch analysis, which is monitored over successive time bands and across functional currencies. This analysis includes behavioural assumptions on, inter-alia, customer loans, customer deposits, and reserve assets. This is tested under normal and adverse market scenario conditions. Guidelines are established for the cumulative negative cash flow over successive time bands. In addition to reserve assets, DBS maintains a diverse source of funding that includes customer deposits, domestic and foreign interbank borrowings and through the swap and repurchase markets. Additional foreign currency liquidity is available through foreign currency deposits from overseas branches and subsidiaries. |
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| Operational Risk Management: Operational risk is the risk of loss arising from inadequate or failed internal processes, people or systems, or from external events. An Operational Risk Management Framework has been developed by Group Risk to ensure that operational risks within DBS are properly identified, monitored, managed and reported. Key elements of the framework include risk and control self assessment, risk event management, key risk indicators reporting, process risk mapping, risk analysis and reporting, Global Insurance Program and Business Continuity Planning Program. |
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| Each new product introduced is subject to a risk review and sign-off process where all relevant risks are identified and assessed by departments independent of the risk-taking unit proposing the product. Variations of existing products, as well as outsourcing initiatives, are also subject to a similar process. |
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| Strengthened Compliance Capabilities |
| During the year, DBS centralized and strengthened its compliance capabilities across the region and across businesses. We recognize that if DBS does not have a reputation for integrity and trust, we will not be much of a bank. |
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| We build a reputation for integrity and trust every day by demonstrating good judgment, applying high ethical standards to our work, and by acting within the spirit and letter of regulations governing our business, as well as within our own code of conduct, policies and rules. We aim not only to fulfill regulatory and legal requirements, but also to protect our franchise by actively meeting the expectations of our many constituents, including our employees, shareholders, customers, regulators, and the public at large. |
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| DBS Risk Managers Recognized |
| In its annual "Asia Risk Awards for Excellence 2002", Asia Risk magazine picked DBS?Oon Kum Loon and Chng Sok Hui for its "Risk Managers of the Year" award. DBS was recognized for its enterprise-wide risk management, and its efficient and sophisticated risk management framework. DBS has the added distinction of being the first Asian bank to receive this award. |
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