Dah Sing Financial Holdings' strategy of diversifying and focusing on the domestic market has helped it perform much better than its larger competitors in the first half of this year. The listed financial-services company reported a modest 6.19 per cent increase in attributable profit to $242.78 million for the six months to June 30. However, operating profit before provisions surged 54.84 per cent to $516.42 million. In addition, net interest income jumped 23.76 per cent to $642.94 million, bolstering substantially the company's operating profit. Among the firm's main subsidiaries are Dah Sing Bank and Dah Sing Life Assurance. Managing director Ronald Carstairs said Dah Sing Financial's fixed-rate loans, which made up about one-fourth of its loan portfolio, generated better returns in the half because of lower market interest rates. A $31 million gain from the liquidation of certain interest-rate contracts provided an added boost to the net interest income. Mr Carstairs said the company would continue to implement active hedging strategies to mitigate risks from interest-rate volatility. At present, the company's hedge on interest-rate risks covers about 52 per cent of its $26.74 billion loan portfolio. However, the company's loan-loss provisions jumped more than threefold to $232.58 million, of which $212.06 million was for specific provisions and $20.52 million was for general provisions. Group financial controller Gary Wang said Dah Sing Financial had adopted a provisioning policy much different from that of competitors. The company continued to lend to clients in the fourth quarter of 1997 and the first half last year without special general provisions for possible bad-loans. However, because of the deepening recession and rising unemployment in the SAR in the past 12 months, the company made more provisions, he said. Mr Carstairs said that, while no signs of significant turnaround in asset quality occurred in the first half, he expected non-performing loans to reach a peak but later ease by the end of the year. 'Specific provisions were coming down since May,' he said. 'We may have seen the worst.' Non-performing loans - on which interest had been suspended or on which interest accrual had ceased - rose to 3.16 per cent of total loans from 2.3 per cent the same time last year. Dah Sing Financial does not maintain a huge equity investment portfolio, so the new accounting practice allowing long-term investments to be marked-to-market did not materially change its bottom-line profit. With a modest 6.9 per cent growth in retained earnings but an 8.2 per cent increase in loans before provisions, the company's capital-adequacy ratio declined to 13.6 per cent in June from 14.9 per cent in December.