Board Matters

Board’s Conduct of its Affairs
Principle 1: Every company should be headed by an effective Board to lead and control the company.

Role of the Board
The Articles of Association of DBS Group Holdings (DBSH) state that the business of DBSH will be managed by the directors, who may exercise all the powers of DBSH, subject to the provisions of the Companies Act or the Articles of Association and to such regulations as may be prescribed by DBSH in general meeting. Without detracting from the Articles, the DBSH Board has also decided that certain matters must always be approved by the Board.

These include:

Board Meetings
The DBSH Board (Board) conducts regular scheduled meetings five times a year and also holds ad hoc Board meetings as and when required. Board meetings may be conducted by way of teleconference, which is permitted under the Articles. The attendance of the directors at meetings of the Board and Board committees, as well as the frequency of such meetings, are disclosed in this Report.

Training
Orientation and training programmes are conducted for existing and new directors. New directors attend at the minimum a one-day briefing session by all key business and functional heads, as well as a briefing session on their duties as a director under Singapore law.

Board members are updated regularly on key accounting and regulatory changes. Directors may also at any time request further explanations, briefings or informal discussions on any aspect of DBS’ operations.

Board Committees
DBS has established a number of Board committees to enhance its corporate governance structure, including Nominating, Audit, Compensation, Board Risk Management, and Executive Committees. The terms of reference of the Audit Committee are described in the section “Audit Committee”.

Executive Committee
The DBSH Executive Committee (Exco) comprises six members
(S Dhanabalan (Chairman), Jackson Tai, Frank Wong, Bernard Chen, Fock Siew Wah and Kwa Chong Seng) and is authorised to exercise all the powers of the Board, except those which the Board may only exercise by law or which DBS has expressly reserved for itself.

Board Risk Management Committee
The Board Risk Management Committee (BRMC) comprises five members (Fock Siew Wah (Chairman), Bernard Chen, Kwa Chong Seng, Peter Ong and John Ross).

The role of the BRMC is to:

Compensation Committee
The Compensation Committee (CC) comprises five members (Thean Lip Ping (Chairman), S Dhanabalan, Fock Siew Wah, Leung Chun Ying and Dr Yeo Ning Hong). As recommended by the Code, Mr Thean is an independent director.

The role of the CC is to:

Nominating Committee
As required by regulation and its Articles, DBSH has established a Nominating Committee (NC) comprising six members (Bernard Chen (Chairman), S Dhanabalan, Gail Fosler, Leung Chun Ying, Thean LipPing and Dr Yeo Ning Hong). Mr Chen is an independent director.

The role of the NC is to identify candidates and review all nominations by the Board, any Director or any member of DBSH for the following positions in DBS:

Board Composition and Balance
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board’s decision-making.

The Board comprises five non-independent directors, namely,
S Dhanabalan (Chairman), Jackson Tai, Frank Wong, Fock Siew Wah and Kwa Chong Seng.

Mr Dhanabalan is a nominee of Temasek Holdings (Pte) Ltd (Temasek), DBSH’s substantial shareholder. Jackson Tai and Frank Wong are executive directors. Mr Tai is the Vice Chairman and CEO of DBSH and DBS Bank, and Mr Wong is Vice Chairman of DBS Bank and Chairman, DBS Bank (Hong Kong). Mr Fock and Mr Kwa are non-executive directors of Temasek. Under the draft Banking (Corporate Governance) Regulations 2003 (the Regulations) issued by the Monetary Authority of Singapore (MAS), directors who are also non-executive directors of a substantial shareholder are deemed not to be independent. Although the Regulations are not yet law, we have treated Mr Fock and Mr Kwa as not independent.

The independence of each director is reviewed annually by the Nominating Committee (NC). The NC adopts the definition of independence as stated in the Code and the Regulations.

Apart from the five directors mentioned above, the NC considers the remaining directors (Bernard Chen, Gail Fosler, Moses Lee, Leung Chun Ying, Narayana Murthy, Peter Ong, John Ross, Thean Lip Ping and Yeo Ning Hong) to be independent as they do not fall within
the examples of relationships rendering a director non-independent under the Code or the Regulations. Neither are there any other
circumstances that would lead the NC to consider these directors non-independent. The NC also considers Mr Thean to be
independent. Mr Thean is a non-profit sharing consultant at Singapore law firm Khattar Wong & Partners (KWP). As he does not participate in deliberations in the firm on matters relating to DBS, the NC views him as independent, notwithstanding that KWP is one of a number of law firms providing legal services to DBS.

The Board members are professionals with diverse and deep experience who provide valuable insight at Board deliberations.

While there is no limit on the number of directors that may be appointed under DBSH’s Articles, the Board is of the view that its current board size of 14 members is appropriate, taking into account the nature and scope of DBS’ operations.

Chairman and Chief Executive Officer
Principle 3: There should be a clear division of responsibilities at the top of the company – the working of the Board and the executive responsibility of the company’s business – which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.

The Chairman and CEO functions in DBS are assumed by different individuals. The Chairman, Mr Dhanabalan, is a non-executive
director, while the CEO, Mr Jackson Tai, is an executive director.

The CEO is the most senior executive in DBS and assumes executive responsibility for DBS’ business, while the Chairman assumes responsibility for the management of the Board.

The Chairman ensures that regular Board meetings are held and ad hoc Board meetings are convened when necessary. The Board agenda is set by the CEO and approved by the Chairman. The Chairman ensures that Board members are provided with complete, adequate and timely information.

Board Membership
Principle 4: There should be a formal and transparent process for the appointment of new directors to the Board. As a principle of good corporate governance, all directors should be required to submit themselves for re-nomination and reelection at regular intervals.

New directors are at present appointed by way of a Board resolution, after the Nominating Committee recommends their appointment. Such new directors must submit themselves for re-election at the next annual general meeting of DBSH. One-third of the directors must also retire by rotation at each annual general meeting.

Board Performance
Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board.

DBSH has implemented a process to assess the performance of the Board as a whole as well as to assess the performance of individual directors.

For Board appraisal on a collective basis, each Director assesses the Board’s performance as a whole and provides feedback to the
Chairman of the Board and the Chairman of the Nominating Committee. Both Chairmen consolidate the feedback and present the findings to the Board at the Board meeting held before the annual general meeting. Board performance is judged on the basis
of accountability as a whole, rather than strict definitive financial performance criteria, as it would be difficult to apply specific
financial performance criteria to evaluate the Board.

In the case of individual assessment, each Director completes a self and peer evaluation form, which is seen only by the Chairman of the Board. The Chairman conducts a one-on-one session with each Director to discuss the assessment.

Access to Information
Principle 6: In order to fulfill their responsibilities, Board members should be provided with complete, adequate and timely information prior to Board meetings and on an ongoing basis.

Management provides the Board with a monthly update covering financial results, market and business developments, business and operations metrics and other important and relevant information.

If Directors, whether as a group or individually, require independent professional advice, the company secretary will seek the appropriate external advice. The cost of such professional advice will be borne by DBS.

The company secretary attends all Board meetings and ensures that Board procedures are followed and relevant regulations are complied with. The company secretary attends all meetings of the Board, the Audit Committee and the Nominating Committee.

Remuneration Matters
Principles 7 to 9 of the Code deal with remuneration matters. These matters will be covered separately in the Remuneration Report.

Accountability and Audit

Accountability
Principle 10: The Board is accountable to the shareholders while the Management is accountable to the Board.

As stated above, Management provides the Board with a monthly update, apart from the regular Board meetings. Disclosure to investors is addressed in the section “Communication with Shareholders”.

Audit Committee
Principle 11: The Board should establish an Audit Committee (AC) with written terms of reference which clearly set out its authority and duties.

The Audit Committee comprises independent non-executive directors Bernard Chen (Chairman), Moses Lee and Peter Ong.

The role of the AC is to:

The AC also has explicit authority to investigate any matter within its terms of reference, full access to and co-operation by management, and full discretion to invite any director or executive officer to attend its meetings. The AC has reasonable resources to enable it to discharge its functions properly.

In its review of the audited financial statements for the financial year ended 2003, the AC discussed with management and the external auditors the accounting principles that were applied and their judgement of items that might affect the financials. Based on the review and discussions with management and the external auditors, the AC is of the view that the financial statements are fairly
presented in conformity with generally accepted accounting principles in all material aspects.

The AC meets with the external auditors separately after each AC meeting.

2003 saw a change in DBS’ auditors from PricewaterhouseCoopers (PwC) to Ernst & Young (EY), in response to MAS’ requirement that
banks in Singapore must rotate their auditors every five years. The change took effect on April 21, 2003, the date that shareholders approved the appointment of EY.

The AC has received the requisite information from EY and has considered the financial, business and professional relationship between EY and DBS, for the financial year 2003. The AC has also conducted an annual review of the volume of non-audit services
provided by EY to satisfy itself that the nature and extent of such services will not prejudice the independence and objectivity of the
auditors before confirming their re-nomination. The AC is of the view that EY can be considered independent.

Internal Controls
Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders’ investments and the company’s assets.

A sound system of internal controls can only operate within a defined organisational and policy framework. The management framework at DBS clearly defines the roles, responsibilities and reporting lines of business units and support units. Delegations of authority, control processes and operational procedures are documented and disseminated to staff. While all employees have a part to play in upholding the system of internal controls, DBS has established certain units to provide independent oversight and control. These units include Group Audit, Group Risk and Group Compliance.

Internal controls are reviewed on an ongoing basis by Group Audit, whose work is supplemented by that of the external auditors. The
role of Group Audit and the external auditors is described in the section on “Internal Audit”.

Risk management is essential to DBS Group’s business. Group Risk Management is responsible for instituting a firm-wide risk
management framework and infrastructure. Risk management processes have been integrated throughout the DBS Group into the business planning, execution and monitoring processes, particularly through the approval process for new products and/or services.
Business units also perform periodic control self-assessment processes to review and attest to the effectiveness of their internal control environment. The risk management process in DBS is also strengthened through the regular deliberations of the Board Risk
Management Committee.

The Group Compliance function has specific accountability for instilling and maintaining a strong compliance culture and framework within the DBS Group.

The AC has reviewed DBS’ risk assessment and has made its report to the Board.

Based on the information furnished to the Board, nothing has come to the Board’s attention to cause the Board to believe that the internal controls and risk management processes are not satisfactory for the type and volume of business conducted.

Internal Audit
Principle 13: The company should establish an internal audit function that is independent of the activities it audits.

Group Audit is an independent function that reports directly to the Audit Committee and the CEO. Its scope of work covers all business
and support functions in the DBS Group, both in Singapore and overseas. All audit offices in the Group follow a consistent code of
ethics based on principles recommended by the USA Institute of Internal Auditors.

The annual audit plan is developed under a structured Risk Assessment Approach that examines all of the Group’s activities and
entities, the inherent risks and internal controls. Audit assignments are identified based on this approach and audit resources are
focused on the higher risk activities.

The progress of corrective actions on all outstanding audit issues is monitored monthly through Group Audit’s centralised Global Audit
Tracking System. Information on outstanding issues is categorised and reported to senior and line management through the Monthly
Control Reports.

All audit reports are copied to the Audit Committee, external auditors and senior executives of the Group, including the Chief
Executive Officer, Chief Financial Officer, Chief Compliance Officer and Head of Group Risk Management.

Group Audit meets regularly with the external auditors to strengthen working relationships between both parties, discuss matters of
mutual interest, develop a common understanding and co-ordinate the audit efforts.

During 2003, Group Audit carried out its functions in accordance with the general description provided above.

The professional competence of the internal auditors is maintained through Group Audit’s continuing professional development programme, which focuses on updating auditors’ knowledge of auditing techniques, regulations and banking products and services.

Ng Peng Khian was Acting Head of Group Audit from February 2003 until March 8, 2004, when Edmund Larkin was appointed Group Audit Head. Mr Ng is a Certified Internal Auditor (CIA) and a Certified Information Systems Auditor (CISA). Mr Larkin has a Bachelor of Commerce degree from the University of New South Wales and is an Associate Member of the Institute of Chartered Accountants in Australia and Securities Institute of Australia. Prior to joining DBS, Mr Larkin was Regional Head of Equities Business Control at J.P. Morgan Chase, Sydney.

As stated above, Group Audit works closely with the external auditors, Ernst & Young. The external auditors carry out, in the
course of their annual statutory audit, a review of the effectiveness of DBS’ material internal controls and risk management to the
extent of their audit plan. Material non-compliance and internal control weaknesses noted during their audit, along with any recommendations, are reported to the AC.

Communication With Shareholders
Principle 14: Companies should engage in regular, effective and fair communication with shareholders.

DBS adopted quarterly results reporting in September 2001.

DBS has an active dialogue with shareholders, both institutional and retail, and takes its responsibilities towards shareholders very seriously. DBS holds a media and analysts briefing for the release of its quarterly results. All press releases, audited financial statements and financial results announcements are published on MASNET and DBS’ website. A dedicated investor relations team meets key institutional investors on a regular basis.

DBS does not practise selective disclosure. Price sensitive information is first publicly released, either before DBS meets with any group of investors or analysts or concurrently.

DBS has reviewed the Code recommendation that companies encourage greater shareholder participation at annual general meetings by allowing shareholders to vote in absentia via such methods as email and fax. Following advice that the present legal and regulatory environment is not entirely conducive to absentia voting methods (particularly email voting), DBS has decided to defer the introduction of absentia voting methods until an appropriate time.

The following disclosures are required to be made under the SGX Listing Manual and the Working Group recommendations.

Dealings in Securities/Best Practices Guide
In line with the recommendation under the SGX-ST Best Practices Guide, DBS prohibits all staff in the DBS Group from trading in DBSH securities:

and ending on the date of release of the said results.

Related Party Transactions
The DBS Group’s policy on transactions with related parties is driven by compliance with statutory and regulatory requirements, namely:

Under Section 29(1)(d) of the Banking Act, a bank cannot grant unsecured credit facilities, directly or indirectly, which in the aggregate and outstanding at any one time exceed the sum of $5,000 to:

In addition, under Section 29(1)(e) of the Banking Act, a bank shall not grant to any of its officers (other than a director) or its employees or other persons, being persons receiving remuneration from the bank (other than any persons receiving remuneration from a bank in respect of their professional services) unsecured credit facilities which in the aggregate and outstanding at any one time exceed one year’s emoluments of that officer or employee or person.

To ensure compliance with Section 29(1)(d) and (e), DBS Bank has taken the following steps:

Directive 8 restricts lending and guarantees by a financial holding company such as DBSH. Under Directive 8(1)(a), a financial holding company may not, inter alia, grant any credit facility to any person other than a subsidiary or any of its officers (other than a director) or its employees or other persons, being persons receiving remuneration from the financial holding company (other than in respect of professional services rendered). In particular, under Directive 8(2), a financial holding company shall not grant, directly or indirectly, unsecured advances or loans under Directive 8(1)(a) to:

Compliance with MAS Directive No. 8 is an integral part of the credit approval process for all credit facilities granted by DBSH.

The DBSH Group has granted credit facilities to the following related parties in the ordinary course of business on normal terms and conditions. The outstanding amounts of these credit facilities and the estimated values of collaterals at December 31, 2003 are as follows:

Interested Person Transaction Policy

As a listed company on the Singapore Exchange, DBSH is required to comply with Chapter 9 of the SGX Listing Manual on interested person transactions. To ensure compliance with Chapter 9, the DBS Group has taken the following steps:

The following are details of the interested person transactions entered into by the DBS Group in 2003: