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KIATNAKIN BANK PUBLIC COMPANY LIMITED

KIATNAKIN BANK PUBLIC COMPANY LIMITED

ANNUAL REPORT 2006

ANNUAL REPORT 2006

Kiatnakin Bank Public Company Limited 500 Amarin Tower, 12th Floor, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. +662-680-3333 Fax +662-256-9933 www.kiatnakin.co.th

www.kiatnakin.co.th


Annual Report 2006 Table of Contents Financial Highlights

4

Message from the Chairman

5

Report of the Audit Committee

7

General Information

8

Nature of Business

11

Risk Factors

17

Shareholding and Management Structure

21

Related Transactions

40

Analysis of Financial Position and Operating Performance

42

Profiles of Directors and Executives

52

Report From the Board of Directors

59

Report from Nomination and Remuneration Committee

60

Financial Statements Branch Offices Kiatnakin Bank Public Company Limited

136

Kiatnakin Securities Company Limited

137

List of Information Required by The Office of Securities Exchange Commission

2

61-135

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

139


“To be specialized bank of customers’ first choice”

“To provide financial services and support to enhance the competitiveness of customers/business partners while maintaining social responsibilities”

Discipline

: being determined to perform our job in an orderly manner

Integrity

: being honest and adhering to the code of ethics

Expertise

: being determined to acquire more knowledge and skills

Teamwork

: being determined to work as a team

Entrepreneurship : being determined to drive the business and contributed to the bottom line of the Bank. Dynamic

: being adaptable to changes

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

3


Financial Highlights Unit : Baht Million Consolidated

Operation Results Total Assets

Company

2004

2005

2006

2004

2005

2006

57,454

68,051

76,763

58,077

68,658

80,212

Total Loans

38,042

46,122

51,858

37,436

45,554

51,175

Total Liabilities

42,971

51,842

59,259

43,623

52,489

62,749

Total Deposits*

34,418

43,420

44,560

35,624

44,556

44,567

Shareholders’Equity

14,483

16,209

17,504

14,455

16,170

17,464

2,807

3,328

3,497

1,915

2,526

2,673

Net interest and dividend income after bad debts and doubtful accounts and loss on troubled debt restructuring Non-interest Income

1,439

1,534

1,075

1,678

2,034

1,733

Non-interest Expenses

1,883

2,147

2,250

1,252

1,849

2,087

Minority Interest, NET Net Profile (Loss)

2

3

3

2,208

2,436

2,034

2,208

2,436

2,034

406

473

610

406

473

610

Unrealized loss in Financial Claim Recorded in Shareholder’s Equity

Consolidated

Financial Ratio

Company

2004

2005

2006

2004

2005

2006

Return on Equity (%)

16.15

15.87

12.07

16.18

15.91

12.09

Return on Asset (%)

4.41

3.88

2.81

4.45

3.84

2.73

Earning per share (Baht)

4.77

4.95

3.98

4.77

4.95

3.98

Book Value (Baht)

30.74

32.68

34.01

30.68

32.60

33.93

Tier 1 and Tier 2 Capital Ratio (%)

25.80

22.59

22.17

25.80

22.59

22.17

2.25

2.30

2.20

Dividend (Baht) *include interbank and money market items - domestic items

Continues growth in assets averaged at 15% Baht Million

Continues growth in lending, mostly from hire purchase Baht Million

76,763

51,858

68,051 46,122

57,454 38,042

2004

2005

2006

2004

Net income still increasing from growth in lending Baht Million

3,328

3,497

2,807

2004

4

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

2005

2006

2005

2006


Message from the Chairman During the past year, Thai economy continuously expanded due to exports and tourism sector. However, the political turmoil, prolonged southern unrest, political conflicts which finally led to a change of government, bombings in central Bangkok near the end of the year, and the record high oil prices have been the major factors that contributed to the increase in inflation rate to 4.7% and lower consumer and investor confidence. The SET index dropped to 679.84 with stagnant trading volume. Automobile and home purchases reduced by 3% and 8%, respectively. Due to the decelerated growth rate of monetary system, the loan volume had increased by 5.8%. Since the interest rate for Thailand was relatively high, the Baht currency rapidly strengthened and large amount of funds entered the system, which resulted in continuously high liquidity. This is the first full year that Kiatnakin Bank operated as a full-service commercial bank. The adjustment happened smoothly and the business was able to operate normally. The Bank’s performance as at year end 2006 are summarized below: ●

The Bank continued to grow with an increase in total asset of 13% to Baht 76,763 million, while the entire commercial banking system grew at 8%.

The Bank was able to satisfactorily increase the outstanding of the hire purchase loans by 26% and effectively increased the total outstanding loan by 12%, while the entire commercial banking system only had a total loan growth of 5.8%.

Net profits in 2006, when combined with the improvement in the unrealized gain of the investment in financial claims and equities, equaled Baht 2,171 million, a reduction of 13% when compared to Baht 2,504 million at year end 2005. The reduction can be attributed to the intense competition for deposits during the first 2 quarters, which resulted in higher cost of funds, reduction of non-interest income, and higher operating cost due to the change in status to be a full commercial bank.

The Bank made continuous progress in restructuring the investment in financial claims during 2006, the Bank has also acquired an additional amount of 2,481 million Baht from the Legal Execution Department. Thus the year end outstanding amount was Baht 9,082 million, making a net reduction of Baht 1,072 million.

Foreclosed assets increased by Baht 2,364 million to Baht 8,333 million due to debt restructuring and legal processes in which the bank must accelerate the sale of such assets in the future.

The Bank mobilized funds to use in its operation by accepting deposits and issuing debentures in conjunction to the loan growth; thus, the total liability for the Bank was Baht 59,259 million, an increase of 14%.

During the year 2006, there was Baht 291 million worth of warrants conversion. When this is combined with net profit, the shareholders’ equity increased to Baht 17,463 million, reflecting an increase of 8% from 2005.

In 2006, the Bank of Thailand required all commercial banks to adopt the new accounting standard IAS 39 by gradually change as per the guideline and complete the process within 2006. The Bank has chosen to adopt the change in one shot and the results are recorded in the financial statement as at year end 2006.

The Bank received approval by The Bank of Thailand to open five more branches, three of which are to be opened by the end of 2006. As at end of 2006, the Bank has 19 branches in total.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

5


The Bank is one of the 61 companies from 402 listed companies that received a ‘very good’ rating in terms of corporate governance from the Thai Institute of Directors Association (IOD).

The Board of Directors proposed the payment of interim dividend of 1 Baht per share to general shareholders based on the financial results from 1 January to 30 June, 2006. When combined with the interim dividend, the Board proposed in the amount of 1.20 Baht per share based on the financial results from 1 July to 31 December, 2006, the total dividend for the year is 2.20 Baht per share.

In 2007, based on the assumptions that the world economy continues to expand; oil prices remain constant; the US dollar steadily adjusts itself; and no violence situations occur in world politics, the Thai economy is expected to slow down noticeably from the previous year due to internal political issues which can brings down consumers and investor’s confidence. The monetary system will continue to expand under intensified competition, especially for personal and hire-purchase loans because large commercial banks have fully entered into the market. The interest rate is likely to fall as inflation rate declines and liquidity rises. Kiatnakin’s operations plan in 2007 will concentrate on expanding modestly by only adding new branches as required to serve the existing market, increase our competitive position, and provide better service. The Bank plans to focus mainly on expanding hire-purchase loan and commercial loan businesses; becoming more cautious of loan quality and be consistent with the economic situation; expediting debt restructuring process for investment in financial claims and the disposition of foreclosed assets in order to maintain the growth of assets and profitability. The Bank must closely monitor the operating impact that can occur if there are political unrests, massive valuation of the US dollar and/ or huge rise of oil prices due to violent situation in the Middle East, because these events will further decelerate the economy, affect loan quality, and cause the slow down in the debt restructuring process even more. Nevertheless, in this sluggish and volatile environment, the Bank will proceed cautiously by expanding on good quality assets rather than on volume of assets; focusing on developing the market that the Bank has expertise in; maintaining liquidity by effectively manage assets and liabilities; and maintaining sufficient capital requirement to support the risk of asset devaluation as a result of economic instability. The Bank will continue to develop in technology to provide more efficient service; become more specialized in the Bank’s area of expertise to create more value for our customers; and reinforce higher level of good corporate governance, to be well accepted by all stakeholders to ensure a sustainable growth and profitability. On behalf of the Bank’s Board of Directors, I would like to take this opportunity to thank you all our shareholders in entrusting Kiatnakin Bank with your investments and in supporting our operations during 2006.

Mr. Supol Wattanavekin Chairman of the Board of Directors

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


Report of the Audit Committee Dear shareholders, The Audit Committee was appointed as per Board of Directors, meeting no: 8/48 meeting on 27 October 2005, comprising of 3 independent directors. The name and title of the Audit Committee Members are 1. Ms. Nawaaporn

Ryangskul

Chairperson

2. Mr. Manop

Bongsadadt

Member

3. Mr. Pichai

Dachanapirom

Member

The Audit Committee operated according to its Charter. The responsibilities of the committee are to report the audit procedures to the Bank’s Board of Directors and provide accurate, complete and reliable disclosure of financial information and reports. Other responsibilities are to propose the name and remuneration of an external auditor to the Bank’s Board of Directors in order to obtain approval for an appointment at the Annual General Shareholders Meeting; to ensure that business has been conducted in accordance with the relevant laws and regulation; to coordinate with the Risk Management Committee to make sure that the operations adhered to the Bank’s risk management policy; to make certain that there are no conflicts of interest; to supervise, provide recommendations and observations on the Internal Audit Office’s work practice; and to consider and approve the Internal Audit Office’s annual audit inspection plan. The Audit Committee held a total of seven meetings in 2006. In addition to performing the above-mentioned duty over the past year, the committee also emphasized credit review and risk management operations as per the Bank’s risk management. The committee examined and monitored branch performance throughout the country and audited cash deposit operations and transactions to ensure that this new banking service is sound and in line with set regulations. Special measures were set in place to closely monitor to make certain that the regulations are being adhered to. Moreover, the Audit Committee had four additional meetings with the external auditor to discuss the audit results and jointly contemplate with the external auditor. The Audit Committee followed-up on which suggestions for management to consider revising or improving. A meeting with the Bank’s management was held to summarize the findings from the mid-year financial statements in 2006. The Internal Audit Office, which is under the jurisdiction of the Audit Committee, had conducted audits on various departments to ensure sufficient internal control compliance with rules, regulations and announcements; and review of financial reports. It also served as a central unit to receive complaints to improve the Bank’s services, facilitate efficient work management, satisfy customers, treat all stakeholders equally, consider the rights of the shareholders, and transparently disclosed all information. Quarterly reports were submitted to the Bank’s Board of Directors. The Audit Committee found that the Bank’s financial statement preparation and information disclosure process has appropriate and sufficient control. The Bank’s financial statements were reliable and in accordance to the Generally Accepted Accounting Principles (GAAP) and the Bank’s operation was appropriate.

Ms. Nawaaporn Ryangskul Chairperson of the Audit Committee KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

7


1. General Information 1.1 General Information / Other References Company

Kiatnakin Bank Public Company Limited

Nature of Business

Banking

Registration Number

172

Address

500 Amarin Tower, 12th Floor, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0-2680-3333 Fax 0-2256-9933 www.kiatnakin.co.th 514,748,416 shares as of December 31, 2006

No. of ordinary shares sold

8

Registrar

Thailand Securities Depository Company Limited 62 Stock Exchange of Thailand Building Ratchadapisek Road, Klongtoey, Bangkok 10110 Tel. 0-2229-2800, 0-2654-5599 Fax. 0-2359-1259

Auditor

Boonmee Ngotngamwong PriceWaterHouseCooper ABAS Limited 179/74-80 Bangkok City Tower, 15th Floor, South Sathorn Road, Bangkok 10120 Tel. 0-2286-9999 Fax: 0-2286-5050

Legal Adviser

None

Consultant / Manager under Contract

None

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


1.2 Companies in which Kiatnakin Bank holds 10% or more of the total registered shares (as of 31 December, 2006)

Name and Address

% of Shares No. of Business Type owned by the ordinary Bank shares issued

BTMU Leasing (Thailand) Company Limited 54 Harindhorn Tower, 4th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel. 0-2266-3060 Fax. 0-2266-3067

Leasing / Hire purchase

10

600,000

Attakorn Company Limited 200 Juldis Haadyai Plaza, 4th Floor, Niphat Uthit 3 Road, Haadyai, Songkhla 90110 Tel. 0-7435-4334-5 Fax. 0-7435-4336

Car hire purchase

10

800,000

Securities business

99.99

65,000,000

Kiatnakin Fixed Income Fund Tisco Asset Management Company Limited 48/16-17 Tisco Tower, 9th Floor, North Sathorn Road, Silom, Bangrak, Bangkok 10500 Tel. 0-2633-7777 Fax. 0-2633-7300

Fund Management

10.33

7,221,223

Asia Recovery Fund 1 Kasikorn Asset Management Company Limited 252/38-41 Muangthai-Phatra Tower 1, 30th - 32nd Floor, Ratchadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.95

125,947,412

Asia Recovery Fund 2 Kasikorn Asset Management Company Limited 252/38-41 Muangthai-Phatra Tower 1, 30th - 32nd Floor, Ratchadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.59

187,239,308

Kiatnakin Securities Company Limited 500 Amarin Tower, 7th Floor, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0-2680-2222 Fax. 0-2680-2233

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

9


Name and Address

Asia Recovery Fund 3 Kasikorn Asset Management Company Limited 252/38-41 Muangthai-Phatra Tower 1, 30th - 32nd Floor, Ratchadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.97

190,832,895

Thai Restructuring Mutual Fund One Asset Management Company Limited 989 Siam Tower Building, 24th Floor, Rama 1 Road, Pathumwan, Bangkok 10330 Tel. 0-2659-8888 Fax. 0-2659-8860-1

Fund Management

98.91

78,698,484

Asia Recovery Property Fund 1 One Asset Management Company Limited 989 Siam Tower Building, 24th Floor, Rama 1 Road, Pathumwan, Bangkok 10330 Tel. 0-2659-8888 Fax. 0-2659-8860-1

Fund Management

99.50

24,418,404

Asia Recovery Property Fund 3 One Asset Management Company Limited 989 Siam Tower Building, 24th Floor, Rama 1 Road, Pathumwan, Bangkok 10330 Tel. 0-2659-8888 Fax. 0-2659-8860-1

Fund Management

98.77

93,340,500

Ayudhya Tuntawee Fund 5 Ayudhya Fund Management Company Limited 898 Ploenchit Tower Building, 12th Floor, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0-2657-5757 Fax. 0-2263-0199

Fund Management

83.57

5,983,265

Office Building Rental

80.57

230,000,000

CMIC Development Company Limited 209 CMIC Tower, 10th Floor Sukhumvit 21 Road, Klongtoey Nua, Wattana, Bangkok 10110 Tel. 0-2664-1396-7 Fax. 0-2664-2163

10

% of Shares No. of Business Type owned by the ordinary Bank shares issued

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


2. Nature of Business 2.1 Important Business Characteristics Kiatnakin Bank Public Company Limited offers a full range of commercial banking services, such as accepting deposits, extending credits, issuing and endorsing bill of exchange or negotiable instrument, foreign exchange business, aval /acceptance of bills, issuing letters of credit or guarantee, and operating hire purchase and leasing business, etc. Kiatnakin Bank Public Company Limited received permission to operate a financial group as per the document BOT. FSD. (21) 1984/2549 from the Bank of Thailand dated 4 December 2006. The Bank is the parent company and has one subsidiary company named Kiatnakin Securities Company Limited (KKS). KKS is a full service securities company and is member #19 of the Stock Exchange of Thailand. Currently, the Bank has 19 branch offices throughout the provinces and Greater Bangkok Metropolitan area; it’s in the process of requesting permission to open 10 more branches in 2007.

Kiatnakin Bank Public Company Limited

Banking Business

Kiatnakin Securities Company Limited

Securities Business

Commercial Bank’s Main businesses ●

Deposit Service The Bank offered a variety of ways to save money. Depositors can choose from savings or fixed deposit schemes which fit their needs.

Hire Purchase Loan The Bank offered auto hire purchase services for all types of automobiles, both new and used car, so that borrowers are able to manage their cash flow properly at a suitable interest rate and repayment period. For additional convenience, the Bank also provides related services such as automobile registration service, licensing service, and automobile insurance and tax service, including personal loans for customers with good repayment records.

Auction of Repossessed Automobile In the past year, the Bank completed the construction of a modern, stylish and spacious automobile auction house where our professional auction team arranges monthly auction for interested parties from the central region and other parts of Thailand. The Bank extended hire purchase loans to the people who won the bid. In addition, Trainings organized are for the general public who are interested to know more about second-hand automobiles.

Residential Project Loan The Bank offered comprehensive residential project lending to developers of all types of residential projects. Our customers received rapid credit processing, desirable credit limits, repayment schedules that corresponde to their project revenue. The Bank’s team of professionals provided advice on finance, project development and management. Furthermore, the Bank continued to hold the policy to provide on-going customer support in the areas of public relations and sales promotion of their projects.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

11


Corporate Loan The Bank offered a full range of corporate credits for qualified businesses with good potential. Customers received rapid credit processing and prompt response on their credit request, sufficient revolving credit, and a repayment schedule that correspond to their revenue. The main businesses in which the Bank focus on are automobile dealers, auto tent dealers, apartment business, logistic business, packaging and printing business.

Assets for Sale The Bank had a variety of assets for sale to people seeking a residence or investment, such as single houses, townhouses, vacant land, commercial buildings, and office buildings. Interested person can contact Call Center 0-2680-3420-1 or www.kkasset.com to obtain more information on available assets based on type, location, size, or price. In addition, the Bank can estimate the loan amount and monthly payment for customers who wanted to obtain some preliminary figures.

Security Brokerage Service Kiatnakin Securities Company Limited (KKS), a subsidiary of the Bank, has an objective to become a leading financial service provider. KKS offers comprehensive financial and investment services by highly proficient personnel in the following areas: ●

Securities Brokerage Agent KKS has an experienced team of advisors to provide sound advice and present analysis which can add real value to our investors’ investments. Investors can trade securities via our marketing personnel during office hours or internet using KK E-Trade service. Our internet service also allows investors to check the status of their buysell orders and portfolio at anytime.

Investment Banking Service KKS offered financial advisory service which comprises of consultation in issuing equity, such as initial public offering, and offering other types of equities, such as warrants. In addition, the company also provides advisor service on other financial matters, such as mergers and acquisitions, financial arrangement/structuring, and debt restructuring, etc.

Mutual Fund Selling Agent Many types of mutual funds can be bought and sold via KKS, such as Retirement Mutual Funds (RMF), Long-term Mutual Fund (LTF), Fixed Income Funds and Equities Funds, etc.

2.2 Revenue Structure Kiatnakin Bank Public Company Limited’s revenue structure and shareholding in its subsidiaries and affiliates are specified in section 1.2 The revenue structure by each business group is as follows:

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


2004 Fund Management 1,179 Million Baht 19%

2005 Banking Business 4,323 Million Baht 71%

Fund Management 1,261 Million Baht 18%

Banking Business 4,323 Million Baht 77%

Securtites Business 389 Million Baht 5%

Securtites Business 546 Million Baht 9%

2006

Banking Business 5,641 Million Bath 80%

Fund Management 1,102 Million Baht 15% Securtites Business 343 Million Baht 5%

Consisted of 6 Mutual Funds as shown in 1.2 Juristic entities in which the Bank holds at least 10% (sequence number 5-10)

2.3 Summary of Significant Changes during 2006  The Bank won the auction assets from Legal Execution Department with total assets value of Baht 2,481 Million.  The Bank maintained its “A-� credit rating from Thai Rating and Information Services Ltd. (TRIS) which reflected our highly secure financial position.  The Bank had been approved to open 5 more branches in the following provinces: Chantaburi, Chachoengsao, Chumphon, Nakhonpathom and Saraburi. The first 3 branches started their operation in 2006. Altogether, the Bank has a total of 19 branches.  The Bank was one of the 61 Companies that had been evaluated by the Thai Institute of Directors Association (IOD) in the area of Good Corporate Governance and received very good rating from the total 402 listed companies. The Board of Directors proposed the payment of interim dividend of 1 Baht per share to general shareholders based on the financial results from 1 January to 30 June 2006. When combined with the interim dividend the Board proposed in the amount of 1.20 Baht per share based on the financial results from 1 July to 31 December 2006, the total dividend for the year is 2.20 Baht per share.

2.4 Competition, Industry Trends and Future Competitiveness Total Assets 9 Small Banks Total assets .85 Baht trillion

4 Large Banks Total assets 4.6 Baht trillion

11% 61% 28%

4 Medium Banks Total assets 2.1 Baht trillion

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

13


2006 Assets and Liabilities

Loans (Net) Total assets Liabilities Deposits Total Liabilities Shareholder’s equity Total Liabilities and Equity

Balance Sheet Total

Large Bank

Medium Small Bank Bank

Change (%) Total Bank

Large Bank

5,014,080 3,126,520 1,376,494 511,066 48,925 7,627,990 4,665,531 2,117,060 845,399 76,763

5.8 7.6

10.1 10.7

-1.4 3.4

1.6 1.8

14.5 12.8

5,955,749 3,737,954 1,628,944 6,942,273 4,235,090 1,961,138 685,717 430,441 155,922 7,627,990 4,665,531 2,117,060

6.0 7.7 6.3 7.6

8.0 11.1 7.9 10.7

4.7 3.4 3.5 3.4

-2.7 1.5 4.1 1.8

4.2 14.3 8 12.8

534,851 746,046 99,353 845,399

KK

42,103 59,259 17,463 76,763

Medium Small Bank Bank

KK

Sources : Financial Statement, The Stock Exchange of Thailand

At the end of 2006, there were 17 Thai commercial banks with total assets in the amount of Baht 7.63 trillion, an increase of 7.6% from last year. Four large-scale commercial banks (proportion of assets more than 10%) had total assets of Baht 4.66 trillion, representing 61.2% of total assets of the Banking system and a 10.7% increase from previous year. Four medium-scale commercial banks (proportion of assets more than 3% but lower than 10%) had total assets of Baht 2.11 trillion, representing 27.8% of total assets of the Banking system and a 3.4% increase from the previous year. The remaining smallscale commercial banks (proportion of assets lower than 3%) had total assets of Baht 0.85 trillion, representing only 11.1% of total assets of the Banking system and a 1.8% increase from previous year. At the end of 2006, Kiatnakin Bank, a small-scale commercial bank, had a total assets of Baht 76,763 million, reflecting a 12.8% increase which is higher than the rate of the market expansion. The Bank was ranked as number 13 in terms of asset size, which is equivalent to 1% of total commercial bank’s assets. Total Loans (Net) At the end of 2006, Net loans of Thai commercial banks were Baht 5.01 trillion, which representing a 5.8% increase from previous year. Net loans of the large-scale commercial banks were Baht 3.12 trillion, reflecting an increase of 10.10%. That is the highest expansion of the Commercial banks. Net loans of medium-scale commercial banks were Baht 1.38 trillion at the decrease of 1.4%. Net loans of small-scale commercial banks were Baht 0.51 trillion, which represented a 1.60% increase. Manufacturing businesses received the highest percentage of loans at 25% of total loans, reflecting a slight decline from previous year figure of 26%. Due to the expansion of the commercial banks personal consumption loans, the figure increased from 18% to 20%. This increase was mainly attributed to the auto hire purchase loans. At the end of 2006, the Bank’s Net loans amounted to Baht 48,925 million or a 14.50% increase. Total amount of Net loans for the Bank represents 1% of the total amount of the commercial banks. Total Deposits At the end of 2006, total deposits for Thai commercial banks amounted to Baht 5.95 trillion, an increase of 6% from the previous year. Total deposits for large-scale commercial banks were Baht 3.74 trillion, a 8% increase. Total deposits of medium-scale commercial banks were Baht 1.63 trillion, a 4.7% increase. Total deposits of small-scale commercial banks were Baht 0.53 trillion, a 2.7% decrease. 2006 was one of the years in which commercial banks intensively competed for deposits. High interest rates

14

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


were offered to attract depositors and were eventually given the signal by the Bank of Thailand to reduce interest rate competition. At the end of 2006, the Bank had a total deposit of Baht 42,103 million, reflecting a 4.2% increase, as the Bank also mobilized funds through the issuance of debentures. Shareholders’ Equity At the end of 2006, Thai commercial banks had a total of Baht 685,717 million, representing a 6.3% increase from last year. Large-scale commercial banks had total Shareholders’ Equity of Baht 430,441 million representing 7.9% increase. Medium-scale commercial banks had total Shareholders’ Equity of Baht 155,922 million, representing a 3.5% increase. Small-scale commercial banks had total Shareholders’ Equity of Baht 99,353 million, representing a 4.1% increase. This increase in Shareholders’ Equity was partly attributed to better performance and rise in accumulated profits. At the end of 2006, the Bank’s total Shareholders’ Equity amounted to Baht 17,504 million or an 8% increase, which is the higher than as the commercial bank market. Overall, the Bank’s total Shareholders’ Equity represented 2.6% of the commercial bank market. Competitive outlook for commercial banks is expected to be very challenging for management due to the economic slowdown, which effect deposits and need for loans and changing regulations, such as the implementation of a new international accounting standard IAS 39 and application of Basel II Framework, which makes lending more burdensome for commercial bank capital. Competition is expected to intensify from Non-bank businesses that offer personal loans as well as payment services. Rapid and continuous advances in technology cause the Bank to invest heavily in technological development in order to stay abreast with the competition. Hire Purchase Business At the end of 2006, automobile sales volume was 680.9 thousand vehicles, a decrease of 3% from last year’s volume of 703.5 thousand vehicles. Personal automobiles sales volume was up by 2% and finished the year at 190.3 thousand vehicles. Commercial vehicle sales volume declined by 5% from previous year and finished at 490.6 thousand vehicles.

Bank

2005

2006

change

Market share 05

Market share 06

TCAP

121,251

163,259

35%

52.1%

52.6%

TISCO

45,074

54,245

20%

19.4%

17.5%

SCB Leasing

40,706

52,095

28%

17.5%

16.8%

KK

23,556

29,666

26%

10.1%

9.6%

K Leasing

2,154

11,000

411%

0.9%

3.5%

Total

232,741

310,265

33%

100%

100%

GE Capital lease

62,416

N.A.

Grand Total

295,157

Source : Financial Statement, the Stock Exchange of Thailand.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

15


The top 5 hire purchase debtors of commercial banks had an outstanding loan amount to Baht 310,265 million, representing a 33% increase. Thanachart Bank had the highest market share of 52.6%, a slight increase from 52.1% last year. For Kiatnakin Bank, the number of hire purchase loan increased by 26% and total number of loan ranked the fourth highest with market share of 9.6% compared to last year’s of 10.1%. In 2007, the Bank expects to witness high expansion rate for hire purchase loans because many commercial banks still have strong interest in this business based on the publicly released bank’s policy. The returns and risk level for this business remains attractive as well as incentives from the reduction of reserves specified in IAS 39 and Basel II Framework.

16

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


3. Risk Factors Banking operations is directly related to dynamic changes of business and the environment, such as macro economic outlook and various changes in industries and organizations. These changes create a variety of risks that must be tracked, managed and controlled. The Bank consistently and continuously places great emphasis on the risk management by establishing an independent Risk Management Unit, which reports directly to the Risk Management Committee. The Unit is responsible for setting risk management policies, developing strategic plans and advocating risk protection measures in order to reduce the existing and expected risks. In conformity with Risk Management Policies of the Bank of Thailand, five major risk classifications have been identified and are described as follows:  Strategic Risks  Credit Risks  Market Risks  Liquidity Risks  Operational Risks

Strategic Risks Kiatnakin Bank’s main strategy is to be the Bank that has expertise in specialized area in order to build proficiency and competitiveness in each specific business areas. At the same time, the Bank has expanded its major businesses and sought out additional core businesses so that the banks’ competencies are spread out. With aforementioned business strategies, the Bank implemented the basic level of risk control by ensuring that the expansion of its major businesses is at the appropriate level. Concurrently, the bank maintained a high capital/assets ratio in order to protect the business from the impact of future income fluctuations. The Bank sustained a capital/assets ratio that is higher than the average of all financial institutions. As of 31 December 2006, the Bank maintained a consolidated capital/assets ratio at 22.17%, which is higher than the guideline established by the Bank of Thailand (BOT) by 8.5% with a total capital of Baht 16,304 million. The Bank had also established proportions for various types of loans in order to ensure that there is appropriate balance. Furthermore, the Bank had made preparation to switch to using Basel II Framework for minimum capital requirement, which will be deployed in the near future. The result of the preparation showed that if Basel II Framework was used with the present fund, the Bank will have a capital adequacy ratio that is equivalent to 22.63, which higher than minimum of 8.5.

Credit Risks At present, the Bank’s loans comprised of 38% hire purchase loans, 25% residential project loans, and 11% commercial loans (of which 26% are investments in financial claims under resale agreements). Doubtful credits amounted to Baht 5,866 million or 12.7% of total loans. Hire purchase loan is a low fluctuation and high growth business. The interest rates are highly competitive; therefore, the risk is automatically distributed. The effect of major risks will arise from significant changes in the economy, legislation, automobile industry which will have an effect on the customer’s loan repayment ability as well as the Bank’s own policy and business processes. In managing the risk for hire purchase loans, the Bank focused on the major factors that affected the entire hire purchase loan portfolio as well as on the development of the loan approval KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

17


In managing risks for hire purchase loans, the Bank focused on follow up as the major factor that affected the entire hire purchase loan portfolio as well as on the development of the loan approval process and the loan amount. At the same time, the Bank monitored on quality of loans, as well as net benefits received. The Bank clearly segmented the business types in order for the business to be highly effective and adaptable. Residential project loan is a business with high fluctuations depending on the condition of the property market. The residential project loan portfolio is characterized by having a high number of clients but the top twenty major clients represented about 50% of the total residential project loans. As at the end of 2006 total principal for residential project loans was Baht 15,135 million of which Baht 4,226.86 million were classified loans (27.9%). Reserve had been set at a level higher than the required standard as per the table below.

(Baht Million)

Principal

Allowance for doubful

Allavance for Doubtful by IAS 39

Normal debts

10,908.99

235.79

3.37

Classified loan

4,226.86

974.43

957.46

15,135.85

1,210.22

960.83

Total

In managing the risks involved in residential project financing, the Bank emphasized having sufficient level of capital funds that is much higher than the standard level; making provisions for higher than normal non-performing loans including diversifying project locations and type of products; Selecting and approving process for projects of good potential are likely to succeed in current and future market conditions. Rates of return will vary according to the loan risk in order to minimize the impact from changes in the real estate market, competitors and consumers. Loan quality is verified according to the size of loan in each group and following up more closely on loans that are below standards. Moreover, the Bank has improved its lending policy for residential project loans which will take effect in 2007. We believe that it will improve the quality of new loans and spread the projects appropriately and in line with the market conditions. Managing investments in financial claims is a fluctuating business in terms of cash flow, duration of the restructuring processes and collateral value. The success depend on the capability and efficiency of restructuring processes that suit the customers’ repayment ability, collateral, and internal and external legal processes. Bank realizes the fluctuations in business performance, including project’s remaining time to completion; thus, higher than normal standard loan allowances are imposed and follow up on the management of the loan along with all legal procedures. In addition, the Bank allocated higher than standard allowances for depreciations of assets in order to ensure that they are sufficient to support the variations in the market conditions that affect the business. In adhering to the Bank of Thailand’s instruction for all financial institutions to use the IAS 39 international accounting standard to calculate provisions for non-performing loan in 2006 and 2007, the Bank discovered that by applying this once in 2006, it increased the provision amount by only Baht 31 million, which was considered very small when compared to industry standard. This clearly demonstrated the Bank’s determination in having strict and adequate provision standards in order to manage risks in the past, present and future.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


Market Risks Interest rates, market value of assets and exchange rates are market risk factors that have direct effects on the Bank’s status and performance. Nevertheless, the Bank has a policy to operate by reducing the effect of the above mentioned risk factors to a very low level. The Bank recognizes the importance of the interest rate fluctuations, which directly impact net interest income. Therefore it has assigned the Assets and Liabilities Management Committees (ALCO) to monitor and minimize the impact by adjusting the terms and types of the liabilities to be consistent with the assets. ALCO also uses a monitoring instrument; for example, measuring the impact on net interest income based on various simulated scenarios in order to be within an acceptable range. As a result, the Bank was able to achieve low market risks, e.g. if the interest rate rises by 1%, the Bank’s net interest income will be reduced by only Baht 68 million, or 1.43% of net interest income in 2006. Because the Bank has a high proportion of assets for sale when compared to the overall Bank’s assets, real estate market price can affect the Bank’s status and performance even when past sales were close to the appraisal value. The Bank still maintained the accounting policy by strictly adhering to the progressive asset value reduction for the specified holding period. As of 31 December, 2006, the Bank has Baht 8.2 trillion of assets for sale, whereby the appraisal value was Baht 11.4 trillion, or 140% of book value. At present, the Bank has no significant impact by the exchange rate and has no investment in securities for trading. The Bank reports asset values based on daily market rate for securities available for sale and has specified a threshold to cut loss and control the impact.

Liquidity Risks Being a small bank, our loan portfolios are in clusters of industries, Cash flow, such as from real estate businesses and distressed asset management are characterized by high fluctuations and unpredictability, therefore, limited the ability to forecast cash flow. In addition, future changes in legislations regarding Deposit Insurance Fund will greatly impact the future financial instruments and cause the Bank to have higher liquidity risks. Thus, the Bank places great importance in maintaining high level of liquidity by assigning the responsibility to Assets and Liabilities Management Committees (ALCO) to strictly maintain and manage the Bank’s liquidity regularly basis through the implementation of the following policies:  Continuously maintain high level of liquidity while setting the average due date of all liabilities as of 31 December, 2006 at 357 days  Adjust the terms of the liabilities to be consistent with the terms of the assets.  Maintain high proportion of long term liabilities  Dispurse types of liability types  Expand the deposit base from major depositors and also due dates, even for large customers.  Have liquidity contingency plan to handle liquidity crisis.

Operational Risks In operating a commercial bank, there are various operational risks involved, which can result in damages to the Bank. The Bank believes that effective operational risk management will help the Bank achieve its goal in reducing operational losses, improving efficiency of operating procedures, and increasing efficiency of internal audit process by assessing the impact of operational risk. Managing operational risks is essential in adding more value for our shareholders as well as enhance our competitive advantage. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

19


During the past year, the Bank has arranged trainings for personnel to increase their knowledge in managing operational risks and has applied various operational risk management tools (e.g. recording actual operational losses in the Loss Unit Database, Risk & Control Self-Assessment and Key Risk Indicators) to Retail Cerdit, Treasury and Funding, and Asset Management Department, including all 19 branches. The plan for 2007 is to officially expand the use of operational risk management tools to the entire bank so that the Bank can fully manage its overall operational risks. In addition, the Bank has performed risk assessment and evaluation for all new products, financial services, and processes to ensure there are appropriate level of risk management prior to offering the new service to our customers. The Bank is focusing on developing systems and procedures to continuously manage risks. At present, we are in the process of developing an information system which will assist in raising efficiency in data collection . The project is expected to be completed in 2007 and will provide the Bank with the ability to manage risks in accordance with the Bank’s policy and the Bank of Thailand’s guideline. Additionally, it will support the Basel II Framework, a more comprehensive measure and minimum standard for capital adequacy as per Basel II Framework. As of 31 December 2006, the Bank fried applying the new framework and computed the minimum capital requirement using the Standardised Approach (SA) and the result was approximately Baht 435 million.

Preparation for Basel II The Bank has submitted a request to use the Basel II Framework by utilizing the Standardized Approach (SA) to compute the minimum capital requirement for credit and operational risks. Trial run began in May 2006 and the computation was carried out at every month-end. As of 31 December, 2006, the Bank’s minimum capital requirement as per Basel II Framework was at 22.63%, which is more than the minimum guideline specified by the Bank of Thailand of 8.5%.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


4. Shareholding and Management Structure Organization Chart Kiatnakin Bank Public Company Limited Board of Directors

Nomination and Remuneration Committee

Audit Committee

Risk Management Committee

Internal Audit

Risk Management

Executive Board

Investment Committee

Credit Committee

Assets and liabilities Management Committee

Debt Restructuring Sub-Committee Retail Lending Sub-Committee

Treasury and Funding

Asset for Sale Sub-Committee

Process Development Committee

Human Resourcs Committee

Debt Restucturing

Office of the Directors

President

Residential Project Lending

Commercial Lending

Retail Lending

Operations

Finance and Budgeting

Information Technology

Human Resources

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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4.1 List of 10 Largest Shareholders (as of August 11, 2006) Name

Number of shares

Percentage

42,475,989 29,171,128 25,704,697 25,648,100 25,258,800 24,741,972 24,701,780 17,401,420 14,341,575 13,981,200

8.26 5.67 5.00 4.99 4.91 4.81 4.80 3.38 2.79 2.72

Ms. Panida Thepkanchana* The Stock Exchange of Thailand State Street Bank And Trust Company Thai NVDR Company Limited Chase Nominees Limited 42 Ms. Thitinan Wattanavekin Ms. Vansamorn Wannamethee* Norbax Inc., 18 Trinya Company Limited Chase Nominees Lmited 30

Source: Top 20 Major Shareholder’s Report, Thailand Securities Depository Company Limited. Juristic Person Name

Address

Shareholders

1. The Stock Exchange of Thailand

62 The Stock Exchange of Thailand Building, Ratchadapisek Road, Klongtoey, Bangkok 10110

N.A.

2. State Street Bank and Trust Company*

Standard Chartered Bank, Custody and Clearing Services Dept. 100 Sathornnakorn Tower, 14Bth Floor, North Sathorn Road, Bangkok 10500

N.A.

3. Thai NVDR Company Limited

62 The Stock Exchange of Thailand Building, 7th Floor, Ratchadapisek Road, Klongtoey, Bangkok 10110

N.A.

4. Chase Nominees Limited 42*

Standard Chartered Bank, Custody and Clearing Services Dept. 100 Sathornnakorn Tower, 14Bth Fl., North Sathorn Road, Bangrak, Bangkok 10500

N.A.

5. Norbax Inc., 18*

Standard Chartered Bank, Custody and Clearing Services Dept. 100 Sathornnakorn Tower, 14Bth Floor, North Sathorn Road, Bangrak, Bangkok 10500

N.A.

6. Trinya Company Limited

78 Kiatnakin Building, 10th Floor, Soi Captain Bush, New Road, Bangrak, Bangrak, Bangkok 10500

1. Eastern Sugar Company Limited 97.49% 2. Ms. Chansamorn Wattanavekin 2.51%

7. Chase Nominees Limited 30*

Standard Chartered Bank, Custody and Clearing Services Dept. 100 Sathornnakorn Tower, 14Bth Floor, North Sathorn Road, Bangrak, Bangkok 10500

N.A.

* There is no one in the Wattanavekin’s family or in the group of companies in the Bank’s subsidiary along with stakeholders in the capacity of a shareholder’s nominee in the list of investors of the company.

The Bank does not have a major shareholder which through conduct has significant influence on management policy or the Bank’s operations, for instance, making someone any an Authorized Director.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


4.2 Management 1) Management structure The Bank’s management structure is made up of five major panels as follows: Board of Directors, Audit Committee, Executive Board, Risk Management Committee and Nomination and Remuneration Committee.  Board of Directors As a representative of shareholders, the Board’s roles, duties and responsibilities is to manage the Bank to achieve stability, giving good returns on investments by having integrity and preventing issues related to conflicts of interest. The authorities and responsibilities of the Board were set and are described as follows: ●

Set key policies and strategic goals of the Bank. Review and approve strategic plans recommended by the Executive Commitiee. Supervise and monitor the Executive Board to manage the Bank, according to the approved plans efficiently and effectively.

Set up regulations to ensure good corporate governance in matters related to professional ethics of the Banks directors and staff. Supervision aims to establish a guideline for the organization to follow; to consistently maintain a fair and high level of business ethics as well as responsibilities towards all stakeholders; and to raise awareness and prevent conflicts of interest.

Set up internal audits and ensure that there are sufficient reports and information for the Board of Directors, including the Bank’s past results and future trends.

Supervise the Risk Management Committee to ensure that they set up policies, procedures and control measures on management of major types of risks, namely credit risks, Strategic risks, market risks, liquidity risks and operational risks.

Consider the appointment and set the authority level of executives starting with the Head of Business Unit and upwards as well as the five major committees in order for them to assist in management of the Bank according to the set policies. These committees include the Audit Committee, the Nomination and Remuneration Committee, the Risk Management Committee and the Executive Committee.

Endorse the annual financial reports that have been examined by the auditor and reviewed by both the Executive Committee and the Audit Committee in order to seek approval at the Shareholders’ Meeting. Acknowledge the auditor’s opinion through the Management Letter as well as the opinion of the Executive Committee.

Conduct the business in accordance with the laws, Articles of Association and Memorandum of Association of the Bank, including the resolutions passed in the Shareholders’ Annual Meeting.

In addition, the Board of Directors may seek further professional opinion from external consultants related to banking operations, on the Bank’s. The Expense Board of Directors must meet at least once every 3 months. Each meeting must have at least half of total number of directors present to form a quorum and the meeting resolutions must be based on the majority votes from all the attending directors.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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The Board of Directors consists of 10 directors, 5 of which are independent directors, 3 are executives, 2 are non-executive directors and and a secretary. Their names are as follows: Mr. Supol Ms. Nawaaporn

Wattanavekin Ryanskul

Mr. Manop

Bongsadadt

Mr. Mr. Mr. *Mr. *Mr. *Mr. *Mr. Ms.

Tarnin Pichai Chet Pravit Suraphol Pracha Tawatchai Sineenath

Chirasoontorn Dachanapirom Pattrakornkul Varutbangkul Kulsiri Chumnarnkitkosol Sudtikitpisan Tejagupta

Chairman Independent Director / Chairperson of the Audit Committee Independent Director / Chairperson of the Nomination and Remuneration Committee Independent Director Independent Director Independent Director Director Director Director President Secretary

Remarks * Have authority in the Bank  Audit Committee The Audit Committee has been assigned the following duties as authorized by the Board of Directors: ●

Ensure that the Bank produces accurate and sufficient financial reports.

Ensure that the Bank has appropriate and efficient internal control and internal audit system in place.

Ensure that the Bank conducted its business in accordance with the securities laws, the Stock of Exchange regulations and the relevant laws related to the Bank’s business.

Consider, select and recommend an auditor for the Bank and the auditor’s remunerations.

Review all disclosures of the Bank’s information where connected transactions have taken place or where there may be conflicts of interest in order to ensure their accuracy and completeness.

Present a report of the Audit Committee by disclosing the information in the Annual Report, duly signed off by the Chairperson of the Audit Committee.

Consider, select, rotate, transfer or terminate internal audit officers.

Report on the Audit Committee’s operations and make recommendations to the Board of Directors.

● The Audit Committee has the authority to inspect or to question any relevant personnel regarding any related issues to the Bank. The Audit Committee is authorized to hire or bring in specialists to assist with the auditing process, as they deemed appropriate. ● The Audit Committee is required to meet at least 4 times per year or more if necessary. The Committee may invite the management team or any connected person(s) to join the meeting to give additional information related to the matter being audited. ● The Audit Committee must coordinate with the Risk Management Committee to ensure that management adhere to the Bank’s Risk Management Policy. By the Board of Directors and endorsed by the Audit Committee. ●

24

Carry out other duties assigned

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


Each meeting held by the Audit Committee must have at least half of its members present to form a quorum and the meeting’s resolutions must be based on the majority votes from the members present at each meeting. The Chairperson and members of the Audit Committee are all independent directors. The Audit Committee consists of 3 members and a secretary as follows: Ms. Mr. Mr. Mr.

Nawaaporn Manop Pichai Kriengsak

Ryanskul Bongsadadt Dachanapirom Sukhanaphon

Chairperson Member Member Secretary

 Executive Committee The Executive Committee was appointed by the Board of Directors to set strategies, develop business plans and efficiently and effectively supervise the management team accordingly. Thus, the Board of Directors decided to set the following authorities and responsibilities for the Executive Committee: ●

Set strategies, business plans, annual budget to be in line with the policy and goals approved by the Board of Directors and comply with the authority’s rules and regulations.

Set the organization structure for all business units under its responsibility. Appoint and set limits for the authority and responsibilities for the Bank’s management officers from the position of deputy managing director downwards.

Set limits on credit line approval, investments, purchasing and expenses to maximize the Bank’s benefits while complying with the respective laws.

Efficiently set work procedures, rules, operational processes and internal control system.

Consider and approve credit lines, authorize sales of foreclosed assets, and set prices of foreclosed assets to be purchased from the Legal Executive Department and raise objections in accordance to the set limits.

Supervise and manage the Bank to be in line with the risk framework set by the Risk Management Committee, which includes the following types of risks: strategic risk, credit risks, market risks, liquidity risks, operational risks, reputation risks and legal risks.

Conduct as well as supervise the management team and staff members to ensure compliance with the regulations related to the business code of ethics and professional ethics.

Appoint one or more committees or sub-committees to scrutinize, consider and approve specialized work on behalf of the Board of Directors.

Prepare quarterly management and operational reports for the Board of Directors.

The Executive Committee may seek further professional opinion from external consultant related to Bank’s business operations with expense incurred to be paid by the Bank. The Executive Committee must meet at least once a month. Each meeting must have at least half of its members present to form a quorum and the meeting resolutions must be based on the majority votes from the members present at each meeting.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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The Executive Committee consists of 5 members and a secretary as follows: Mr. Supol

Wattanavekin

Chairman

Mr. Tawatchai

Sudtikitpisan

Member

Ms. Thitinan

Wattanavekin

Member

Mr. Sarawut

Jaruchinda

Member

Ms. Sineenath

Tejagupta

Member

Ms. Porntip

Chuprakhun

Secretary

 Risk Management Committee The Risk Management Committee has the following authorities and responsibilities: ●

Set the overall risk management policy which covers important types of risk such as strategic risks, credit risks, market risks, liquidity risks, operational risks, including and legal risk and reputation, risks.

Set strategies that are consistent with the Bank’s risk management policies, which enables the Bank to assess, monitor and control risks to be within an acceptable level.

Review the adequacy, effectiveness and practicality of the existing risk policies management and systems.

Regularly report the results of the operations to the Board of Directors in order to make further improvements and corrections and remain in line with the risk management policies and principles. Periodically inform the Audit Committee of the status.

The Risk Management Committee must meet at least once every 3 months. Each meeting must have at least half of its members present to form a quorum and the meeting’s resolutions must be based on the majority votes from the members present at each meeting. The Risk Management Committee consists of 8 members and a secretary as follows: Mr. Supol

Wattanavekin

Chairman

Mr. Chet

Pattrakornkul

Member

Mr. Pravit

Varutbangkul

Member

Mr. Tawatchai

Sudtikitpisan

Member

Mr. Pracha

Chumnarnkitkosol

Member

Ms. Thitinan

Wattanavekin

Member

Ms. Sineenath

Tejagupta

Member

Mr. Kriengsak

Sukhanaphorn

Member

Mr. Siwaphong

Plangthrakul

Secretary

 Nomination and Remuneration Committee The Nomination and Remuneration Committee has the following authorities and responsibilities:

26

Set the policy, principles and procedures for recruiting and selecting qualified candidates for directors and senior executives from the President level upwards. The selected candidates will be proposed to the Board of Directors for approval.

Screen and propose candidates with suitable qualifications for the following positions in the Bank:

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


 Directors  Member for the committees which would receive authorization and responsibilities direct from the Board of Directors  Senior executives from the President level upwards. ●

Ensure that the number of Bank director is sufficient and appropriate for the Bank, paying special attention to the qualification of members of the Board of Directors who must have diversified knowledge, ability and experience.

Disclose the recruiting policy as well as the detailed procedures involved in the Annual Report.

Set the remuneration policy and other benefits for directors and senior executives from the President level upwards.

Set the guidelines on performance appraisal for director and senior executive from the President level upwards in order to appropriately adjust the annual remuneration package. The performance appraisal takes into consideration the responsibilities, associated risks and ability to increase long-term shareholders’ values.

Disclose the remuneration policy and available options and comments from the Nomination and Remuneration Committee in the Annual Report.

Propose and search for successor for the President and present it to the Board of Directors.

The Nomination and Remuneration Committee must meet at least twice a year. Each meeting must have at least half of its members present to form a quorum and the meeting’s resolutions must be based on the majority votes from the members present at each meeting. The Nomination and Remuneration Committee consists of 3 members, of which the Chairperson and 2 members are independent directors and another is not, as follows: Mr. Manop Mr. Chet Mr. Suraphol Msr. Nujaree

Bongsadadt Pattrakornkul Kulsiri Sithasrivong

Chairperson Member Member Secretary

2) Director and Executive Recruitment  Selection Procedures for bank directors The process of selecting directors begins with the nomination of names and background of the candidates by shareholders, directors and senior executives. The Namination and Remuneration Committee evaluate each candidate’s qualifications based an good, governance and necessity determine appropriate remuneration, and then make a proposal at the Board of Directors meeting. The Board of Directors makes recommendations and obtains final approval at the General Shareholders meeting. This procedure must be governed by the following Bank’s rules and regulations: (1) Each shareholder’s total number of votes is based on one vote per share. (2) Each shareholder must exercise all votes granted under rule number 1; he/she can select one or more Directors, but cannot determined how the votes are to be divided up.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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(3) The candidates who receive the most votes, in descending order, are appointed as Directors. The total number of appointment may be based on the existing number of Directors or the number desired at the time. In case of a tie for the final available appointment, the chairman cast the deciding vote. ●

Allowance of Minority Shareholders to Propose the Agenda in the General Shareholders Meeting and Nominate director Allowing minority shareholders to propose agenda in the General Shareholders Meeting and nominee in advance is part of the principles of good governance. It demonstrates fair and equitable treatment toward all shareholders and clear guidelines in ensuring that all agenda items are related to the Bank’s operation and is genuinely beneficial to the Bank. This procedure is consistent with related laws and regulations that require for the Nomination and Remuneration Committee to consider and advise the Board of Directors as well as to make necessary proposals in the General Shareholders Meeting.

Qualifications of Shareholder The shareholder who wishes to propose the agenda or nominate director to the General Shareholders Meeting must possess the following qualifications: – Be the Bank’s shareholder with a minimum of 200,000 shares (two hundred thousand shares) which can be either owned by one shareholder or combined. – Has owned the shares as stipulated above continuously for at least 1 year leading by the date that shareholder proposes the agenda or the director nomination. – Show proof of share ownership, such as certified letter from securities company or other evidence from the Stock Exchange of Thailand (SET) or Thailand Securities Depository Company Limited or custodian. Proposal of the Meeting Agenda Shareholders who are qualified can propose the agenda for the ordinary shareholders meeting by filling out the “Agenda Proposal Form for the 2007 Annual Ordinary shareholders meeting” and send the documents along with appropriate evidence as set forth by the Bank so that the Bank receives it before the deadline. Criteria for evaluate shareholder’s proposal of an agenda In order to ensure an effective General Shareholders Meeting, the Bank will use the following criteria in evaluating the shareholder’s proposal of an agenda. 1) The proposal that is related to the normal banking operations and the shareholder has expressed concern of some irregularities. 2) The proposal that is within the control of the Bank. 3) The proposal that complies with the law, and regulations of governing agencies, articles of association, shareholders’ resolution and good corporate governance of the Bank. 4) The proposal that is beneficial to the shareholders and the public. 5) The proposal that has been put forward by the shareholder who is qualified as per (1) and that shareholder has acted according to the criteria set forth by the Bank. 6) To proposal in which the shareholder has provided information or supporting documents that is complete, sufficient, accurate and within the specified duration. 7) The proposal which the Bank’s Board of Directors deemed necessary to add to the agenda. 8) The proposal regarding activities the Bank has never engaged in before and the Bank’s Board of Directors considered beneficial the Bank’s operations. 9) The proposal that the Bank has never considered or put on the agenda before.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


The Board of Directors will determine the appropriateness of the agenda proposed by the shareholder, who must possess the qualification outlined in the above criteria (1) - (9) unless otherwise stated by the Board. The Board’s resolution is considered final. In case many shareholders have proposed related agenda, the Board may be consolidated them into one agenda item. Proposal(s) that are approved by the Board along with the Board’s opinion will be included as agenda(s) in the General Shareholders Meeting invitation letter. For the proposal(s) not approved by the Board, the Bank will immediately inform the shareholder(s) after the Board’s Meeting within March 2007 via the Bank’s website or other appropriate channel. 3) Executive’s Remuneration ●

Financial remuneration

Other remunerations (None)

Policy for Setting Director’s Remuneration In setting the director’s remuneration, 3 main portions are considered as follows: – Monthly compensation while the director is a chairman and directors on the Board of Directors. – Meeting allowance paid to the chairman and directors on attendance basis to each meeting on various boards. – Annual bonus paid in based on the company’s overall performance and longevity of service as a director. The average bonus amount for a director is equivalent to the average bonus amount of all the employees. The Bank set a clear and transparent policy for the director’s remuneration that is in line with the industry. The remuneration is sufficiently high to attract and retain directors with desirable qualities. Our shareholders’ approval has been duly sought and granted at the shareholders’ meetings. In 2006, total remuneration for the Bank’s 6 senior executives, which included salaries, bonus and provident fund, amounted to Baht 51,698,540. The Bank did not offer stock options or opportunity to buy or sell company assets to the senior executives. The remuneration of other Board members on Executive Board, Audit Committee, and Nomination and Remuneration Committee, will be increased as appropriate. The details are as follows:

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

29


Remuneration Meeting (Baht/year) Name - Surname 1 2 3 4 5 6 7 8 9 10

Mr. Supol Wattanavekin Ms. Nawaaporn Ryanskul Mr. Manop Bongsadadt Mr. Chet Pattrakornkul* Mr. Tanin Chairasoonton Mr. Pichai Dachanapirom Mr. Pravit Varutbangkul Mr. Surapol Kulsiri Mr. Pracha Chumnarnkitkosol** Mr. Tawatchai Sudtikitpisan

Remark :

Board of Director Audit Committee 540,000 360,000 360,000 360,000 360,000 360,000 360,000 360,000 360,000 270,000 3,690,000

– 202,500 150,000 – – 150,000 – – – – 502,500

Nomination and Remuneration Committee

Bonus Paid in 2007

Total Remuneration Paid in 2006

– – 30,000 – 45,000 – – 30,000 – – 105,000

260,100 270,938 260,100 173,400 195,075 245,650 173,400 187,850 173,400 130,050 2,069,963

800,100 833,438 800,100 533,400 600,075 755,650 533,400 577,850 533,400 400,050 6,367,463

* The Committee was nominated as Nomination and Remuneration Committee since October 27, 2006 ** The Committee was nominated as Board of Directors since April 1, 2006

Number of Ordinary Shares held by Executive in 2006 Name

Position

Number of shares

changes in 2006

1

Mr. Supol Wattanavekin

Chairman

8,668,808

2

Mr. Tawatchai Sudtikipisan

President

0

3

Mr. Pracha Chumnarnkitkosol

Head of Risk Management

0

4

Ms. Thitinan Wattanavekin

Head of Treasury and Funding

24,741,972

In crease 1,360,344

5

Mr. Sarawut Jaruchinda

Head of Debt Restructuring

0

6

Ms. Sineenath Tejagupta

Senior Executive Vice President - Director Office

0

7

Ms. Suree Harnpinijsak

Senior Vice President

37,500

4) Auditor’s Remuneration The Bank incurred Baht 1,450,940 in external auditor’s fee for auditing its financial statements, Baht 2,011,595 for the consolidated financial statement, and Baht 3,199,434 for auditing all subsidiaries’ financial statements. And additional amount of Baht 100,000 has been paid for tax advice and Baht 270,000 for special audit procedure required by the Bank of Thailand. 5) Good Corporate Governance The Bank’s Board of Directors placed a great deal of importance in having good corporate governance policy issued by the Bank’s regulators. In 2006, the Bank operated using 15 principles of good corporate governance established by the Stock Exchange of Thailand as follows: 5.1 Good Corporate Governance Policy The Bank’s Board of Directors emphasizes on having good corporate governance in order to enhance transparency, raise the ability to conduct businesses, and increase confidence of the shareholders, investors, and all related parties. The Board of Directors has approved a corporate governance policy in writing at its 2/2549 meeting. The content includes details regarding equal rights of shareholders and all stakeholders; structure, responsibility and independence of the Board of Directors; information disclosure and transparency; risk control and management; and business ethics. All the relevant details are posted on the Bank’s website www.kiatnakin.co.th along with seminars conducted to circulate information to employees and Bank’s executives.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


5.2 Shareholders: Equal Rights of Shareholders The Bank’s policy stipulates that General Shareholders Meeting must be held once a year and within four months from the date of the accounting year end. The Bank allows minority shareholders to propose the agenda in the General Shareholders Meeting and propose director nominee in advance. Meeting invitation, agenda and supporting information for various agenda items must be made available to shareholders in advance through the Bank’s website (www.kiatnakin.co.th) at least 21 days prior to the meeting date. All the documents are to be sent to the shareholders 14 days prior to the meeting date. The meeting invitation shall contain a list of all the members of the Board of Directors, both new and reelected, and their profile; the auditor’s name, profile and remuneration; dividend policy, with explanation and the amount paid; meeting agenda together with objectives and rationale. There must be a record of the Board of Directors’ opinion for each agenda and any discussion on each agenda, including questions, answers, discussions and voting results. Guidelines Information on how shareholders can cast their votes and how votes are counted are informed. These documents provide shareholders with complete and sufficient information to reach their voting decision on each agenda. Moreover, the Bank gave opportunities to all shareholders to ask questions or discuss the issues that arose in the meeting. Time is set aside in the agenda to answer shareholders’ questions so that shareholders obtain sufficient clarity. The Bank is responsive to the equal right of each shareholder as an owner and thus, the Bank fairly and continually paid out dividends as per its dividend policy. In addition, the Bank allowed shareholders to take part in deciding on the Bank’s policy regarding directors’ remuneration that must be approved annually by the shareholders. The Bank also permit shareholders to participate in the selection of each director by voting for the desired director individually. The Bank always provide accommodation for shareholders to attend the Annual General Meeting. If any shareholder is unable to attend, then a proxy can be appointed to vote in his place. 5.3 Rights for Stakeholders The Bank places great emphasis on the rights of each group of stakeholders and has a policy to ensure that all stakeholders are protected regardless of whether they are internal stakeholders, such as employees and executives of the Bank and its subsidiaries, or external stakeholders. All transactions that occur between the Bank and related individuals and businesses are clear, fair, transparent and auditable. Moreover, the Bank publishes the details of such transactions in the Notes to the Financial Statements every quarter as well as in the Annual Report. The Bank realizes that strong stakeholders’ support can enhance the Bank’s competitiveness, which ultimately leads to its long term success. The Bank has mechanisms to protect those who reported the wrongdoings or conducted any transactions that was certain to cause damage to the Bank. The Bank has the following guidelines for each group of stakeholders: Customers The Bank believes that our customers are the key supporters that enable us to achieve our main goals; therefore, the Bank is determined to deliver a high quality service by making sure that our employees have in-depth knowledge of our customer’s business as well as continuously introducing new and innovative products and services for our customers. For these reasons, the Bank is obligated to continually develop our work systems, branch network and new technology in order to provide prompt, accurate and superior services. To facilitate service improvements, the Bank has provided a means to receive customer feedback through our website www.kiatnakin.co.th. or customers can send in information to the Bank’s Internal Audit Office.

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Employees The Bank considers our personnel to be our most important assets; therefore, the efficiency of our personnel management system are continuously enhance in order to maintain and develop quality personnel and achieve the Bank’s main goals. We achieved this by making sure that the work environment is conductive to conducting business, and the policies regarding security and health care; code of ethics and code of conducts; transparent and auditable management systems; and employee’s benefits are appropriate, clearly defined, and are easily accessible by all personnel. Furthermore, the Bank provides appropriate and competitive compensation and benefits as well as the training programs to develop the skills and capability of our personnel so that everyone is able to progress in their chosen field. The Bank also have the policies reguarding safety and benefits as follow. Benefits Policy The Bank provided many benefits for the employees, such as provident fund, group life and accident insurance, health insurance for staff and their family and excellent work environment. Moreover, we also have other programs that give financial assistance or bonus in various situations like Buddhist ordination, weddings, childbirth for pregnant female employee and baby bonus for male and female employee who has a new baby in their family. Safety Policy To foster safety at the workplace and for all employees, the Bank created a Work Safety System in order to set forth the policy and standard procedures for every work unit to adhere to, such as have security guards on duty from 7.00 a.m. to 7.00 p.m.; prohibit outsiders or customers to enter the office area and have them meet or hold their discussions in a meeting room or other locations arranged by the Bank; close the Security Door at all times; develop a list of name and phone number of people to contact in case of an emergency, schedule the period each person is responsible for and post the list in a visible location; set up a closed circuit TV (CCTV) to record events; have an alarm system and finger scan security doors; have fire extinguishers at every branch that are installed at appropriate locations and are properly maintained to ensure they are in workable conditions at all time. In addition, the Bank requests employees’ cooperation in keeping a look out for anything out of the ordinary, taking care of the company, and promoting safety as the means to raise the level of awareness and caution. Creditors The Bank continues to strictly adhere to the agreed terms and conditions it had with creditors, while being deeply grateful to our creditors and depositors for their continuous support and trust, especially during the past crisis. Business Partners The Bank acknowledges the importance of our business partners because their support made a significant contribution to the Bank’s success. The Bank continues to strictly adhere to the agreed terms and conditions it had with our partners, which are based on the concept of succeeding together as business partners. Social, Community and Environmental Responsibilities Kiatnakin Bank’s purpose is not only to create value for shareholders while being mindful of the social, community and environment responsibilities. In addition to its financial objectives, the Bank also has another key objective in establishing relationships with local people and making social contributions. These objectives have been communicated to the management and staff throughout the organization. Aside from generating employment opportunities in the area where the Bank has expanded its network to, the Bank also adhered to the policy of continual sharing and contributing back to the community through the “Better People for a Better Nation with Kiatnakin” project, which comprises of 4 major groups of activities as follows:

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


– Financial Knowledge Promotion Activities The Bank, together with Duang Prathip Foundation, supported the activities to disseminate knowledge and understanding on investments and savings. We recognize the importance of savings with cooperatives which is deemed essential in having a sufficient lifestyle and assist the community to be strong and self-dependent. Thus, the Bank supports “Annual Awards for Excellent Member of the Cooperatives”. – Educational Activities ●

Joined Sasin and Krungthepthurakij Newspaper for the first time in Thailand as the main sponsor of “The Bangkok Business Challenge”, a business plan competition conducted in English, which Kiatnakin has been involved for 5 consecutive years to challenge people’s skills and abilities for continuous learning. Joined with Kiat Ruammit Education Foundation in providing scholarships to underprivileged students, constructing school building and providing educational supplies. Worked together with World Vision Foundation of Thailand, which is a public meritorious organization that focused on assisting disadvantaged children and families, by arranging “Bicycles for Children Project” to assist underprivileged students who live far from schools so that they can borrow the bicycles and travel to school with more convenience.

– Activities on Ethics and Social Immunity Creation ● Worked in conjunction with the Young Buddhist Association of Thailand to support meditation training by Khun Mae Siri Karinchai called “Spiritual Development for Wisdom and Peace” and a variety of other courses since 1994. ● To join with the Metropolitan Police Bureau and Youth Relations Center to arrange the Youth Relations Cooperation to Suppress Drugs Project, aiming to train the youths in schools in Bangkok Metropolis Area to know and understand the danger of drugs. – Support in the form of donation on other special opportunities, as follows: ● Gave monetary assistance to disaster areas where any one of our 19 branches is situated. ● Joined the Office of Vocational Education Commission in constructing floating restroom in Nakhon Sawan, Sing Buri and Ayutthaya Provinces. ● Prepared measures to assist flood victims especially for our loan clients by granting credit to repair residences and suspending principal and interest payment for 6 months. ● Worked with the Office of Vocational Education Commission to establish a maintenance center for schools and residences in Nakhon Ratchasima, Phitsanulok, Chiang Mai, and Chiang Rai Provinces. ● The Bank executives and personnel handed out essential consumer products to the temples that were devastated by natural disaster, namely Wat Tan Chet Chor, Wat Bot Woradit, and Wat Sa Kaeo in Ang Thong Province. ● Donated money through Mirror Foundation to assist in the rehabilitation of the disaster inflicted area in Uttaradit Province. ● The Bank and its staff jointly donated money to “This Hour ...for Children Project” under the patronage of HRH Princess Maha Chakri Sirindhorn. ● Supported the printing of the first Dharma Scholar Book by the Department of Religious Affairs, Ministry of Culture.

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Sponsored the Special Olympics for the mentally retarded, hosted by the Foundation of the Mentally Retarded of Thailand Under the Royal Patronage of Her Majesty the Queen.

Donated money to the Office of Prime Minister and supported the arrangement of Thailand Premier League Football Tournament.

Supported hockey tournament for the Ice Hockey Association of Thailand

All of the aforementioned projects aimed to embed and develop the youths of the country, including other people, because we believe that human resources are the most crucial and valuable for country development. The Bank aims to instill the concepts of environmental and energy conservation in our executives and employees. We have issued energy conservation measures relating to the usage of electricity, telephone, water and office equipments. These social, community and environmental responsibilities are consistent with the wishes of our founder who is determined to operate a sound business that go hand in hand with high level of social responsibilities. 5.4 General Shareholders Meetings The Bank has a policy that requires the Chairman of the Board of Directors, Chairperson of the Audit Committee, Chairperson of Nomination and Remuneration Committee, Chief Executive Officer, President, Chairperson of all other sub-committees, and the auditor attend every General Shareholders Meeting in order to provide additional information and answer questions from our shareholders. In the past year, the Bank’s Chairman and Chairperson of the Audit Committee, Chairperson of Nomination and Remuneration Committee, Chief Executive Officer, President, Chairman of all other sub-committees, and the auditor attended the meeting. In addition, the Chairperson of the Meeting has duly given equal opportunities to all shareholders to examine the Bank’s operations, pose questions, share their opinion and make various suggestions including nominations for new directors. 5.5 Leadership and Vision The Bank’s Board of Directors set and took part in the Bank’s vision, mission, strategies, goals, business plans and budget as well as supervision in order to ensure that Bank’s executives effectively and efficiently operate the business in accordance with the set business objectives and budget. The Bank also arranged meetings to develop business plans for executives and staffs to ensure that there is a common understanding on an on-going basis. The Board of Directors ensured that the Bank has a good system for internal control, corporate governance and risk management. Additionally, all the Bank’s directors have received training from the Thai Institute of Directors Association (IOD). The Bank’s Board of Directors and Executive Directors have responsibilities according to their duties towards the shareholders. There is a system which clearly separates the roles and responsibilities between the Board of Directors and Executive Directors. All the details are provided in the Management Structure Section of the Annual Report. 5.6 Conflicts of Interest In order to prevent any conflict of interest, the Bank’s Board of Directors exercised utmost care in monitoring transactions that may potentially cause conflicts of interest. The Board formally set up policies and procedures for the approval of related transactions. Bank’s executives must report any changes of their securities holding to the Securities and Exchange Commission (SEC), as per Article 59 of the Securities Exchange Act (BE 2535). In addition, the Bank’s directors involved in related transactions must abstain from voting due to conflicts of interest. The Bank adhered to the guideline stipulated by the Stock Exchange of Thailand which states that the price and terms of the transaction must be carried out as we normally do with any outside parties. All the details including price and contract partners are disclosed in the annual report and Form 56-1.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


5.7 Business Ethics The Bank has a definite stance on professional ethics. We made announcements, which served as a guide to good practice, and issued the Code of Professional Ethics for executives to ensure that all related parties used them as guidelines and conduct their duties for the Bank with honesty, integrity and fairness towards the Bank and all other stakeholders. The Bank regularly communicates this message to all personnel and followed up to ensure that everyone abides by it. Seminars were conducted regularly to ensure that all staffs and executives are aware of this issue and have the common understanding. 5.8 Balance of Power for Non-Executive Directors The Board of Directors has 10 members, consisting of 3 executive members and 7 nonexecutive members, 5 are independent directors, and 3 are members of the Audit Committee. 5.9 Consolidation or Separation of the Director’s Position The Bank’s Chairman is not an independent director, nor is he the same person as the Bank’s President; therefore there is a clear separation of responsibilities between policy setting and dayto-day operations. If there are any related transaction with the Bank’s Chairman, a senior independent director will be appointed to take up the duty of the Chairman for that occasion. The Bank’s definition of an independent director is as follows: Such director: – Can hold no more than 0.5% of the total number of voting shares of the Bank, its subsidiaries or affiliates, or a person that may have conflicts of interest (including a person those involved according to Section 258 of the Securities and Exchange Act BE 2534). – Cannot be involved with the management of the Bank. Such person must not be a staff member of the Bank, or a consultant who receives regular income from the Bank. Such person does not have authority over the Bank, its subsidiaries or related companies, nor may the person has conflicts of interest with the Bank. Such person must not receive any gain or suffer any loss from providing such service to the Bank as mentioned above for at least one year. – Has no business relationship or receives any gains or loss, whether directly or indirectly, from the financial and managerial position with the Bank, its subsidiaries or related companies. Such person must not have conflicts of interest that may lead to the loss of independence. – Is not a close relative of any members of the Bank’s management, major shareholder of the Bank, its subsidiaries or related companies. Such person must not be appointed in order to look after the interests of the Bank’s directors or major shareholders. 5.10 Executive’s Compensation: Please refer to Director and Executive Remuneration section. 5.11 Board Meetings The Board of Directors scheduled Board Meetings in advance with a clearly defined agenda. The Secretary of the Board of Directors and office of the directors are responsible for arranging the meetings and sending invitations along with the agenda, which included the objectives and explanations to each item on the agenda, to members of the Board at least seven days in advance. These tasks are carried out to allow sufficient time for the directors to consider matters prior to attending each meeting. In 2006, the Bank’s Board of Directors held 6 meetings, each lasted approximately 4 hours. For each meeting, minutes was formally prepared, endorsed by the Board, and made available for the Board and other related parties to examine.

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The Board of Director Meeting Attendance in 2006 Unit: Attended/No. of Meeting held Name - Surname

Board of

Executive

Audit

Directors

Committee

Committee

13/13

1

Mr. Supol Wattanavekin

6/6

2

Ms. Nawaaporn Ryamskul

6/6

6/7

3

Mr. Manop Bongsadadt

6/6

7/7

4

Mr. Chet Pattrakornkul

6/6

5

Mr. Tarnin Chirasoonton

5/6

6

Mr. Pichat Dachanapirom

5/6

7

Mr. Pravit Varutbangkul

4/6

8

Mr. Suraphol Kulsiri

4/6

9

Mr. Tawatchai Sudtikipisan

6/6

13/13

10

Mr. Pracha Chumnarnkitkosol

4/6

11

Mr. Thitinan Wattanavekin

6/6

12/13

12

Mr. Sarawut Charuchinda

13/13

13

Ms. Sineenath Tejagupta

12/13

Nomination & Remuneration Committee

2/2

2/2 7/7 3/13 2/2

The Board of Director and sub-committes Meeting Attendance in 2006 The Board of Director and sub-committes Meeting

Number of Meetings Attended

Number of Committee

% of meetings attended*

Risk Management Committee

4

8

84

Executive Committee’

13

5

97

Investment Committee

12

2

100

Assets and Liabilities Management Committee

12

3

92

Process Development Committee

6

3

100

Credit Committee

48

3

93

Corporate Lending sub-committee

40

4

92

Retail Lending sub-committee

12

8

94

Asset Management sub-committee

47

4

93

Debt Restructuring sub-committee

7

3

95

* Remark : average % of meetings attended by each member.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


5.12 Other Sub-committees The Bank’s Board of Directors has appointed the Audit Committee, the Risk Management Committee and the Nomination and Remuneration Committee to assist in supervising the business. Details of the committee’s responsibilities and authorities are described in the Management Structure Section of the Annual Report. 5.13 Internal Control and Internal Audit Systems The Bank placed great emphasis on having efficient internal control system, both at the management and operational levels. Staffs’ and executives’ authorities and duties were clearly and formally defined in writing. Control was instigated to ensure that all assets are used to create benefits in the most optimal way. The duties of the operational staffs, supervisors and approvers were separated to create appropriate check and balance system. Financial reports also had their own control system, and regularly submitted to the responsible executive. The Bank has an Internal Audit Office, an independent unit directly reporting to the Audit Committee, to assure that our major work and key financial activities were carried out effectively and as designated. Our Internal Audit Office conducted their work that was consistent with legal requirements. To maintain its independence and a check and balance system, the Board of Directors has instructed the Internal Audit Office to report their audit findings directly to the Audit Committee and the Board of Directors. Another area of great importance to the Board of Directors is risk management. The Risk Management Committee and Risk Management Unit have set up protective measures and steps in managing the risks. These measures were closely monitored to ensure compliance with related laws and regulations. Appropriate reports were duly prepared which recorded all risks related matters. Furthermore, the Bank’s Board of Directors has developed and distributed the Internal Control Assessment Form for each director to review and evaluate the Bank’s internal control system and determine whether it’s acceptable and stringent enough. The Internal Audit Office collected the forms and summarized the findings. 5.14 Report from the Bank’s Board of Directors The Board of Directors is responsible for the consolidation of financial statements of the Bank, shown together with Auditor’s report in the section: Report from the Board of Directors. The Bank’s Board of Directors conducted an annual self assessment in order to review the Board’s performance over the past year, including the performance of Chief Executive Officer, President, and Chairman to determine whether they have carried out their duties completely and appropriately as per their jurisdiction and the principles of good corporate governance. The Internal Audit Committee gathered and summarized all the assessments. 5.15 Relationship with Investors The Board of Directors focuses on the correct, complete, transparent, and thorough information disclosure, covering reports, financial information, and general information, including critical information affecting the prices of the securities of the Bank. The Bank discloses such information to investors and related parties via a variety of channels and media of the Stock Exchange of Thailand and the website of the Bank and sets up the Investor Relations unit (IR unit) to provide data and information of various activities of the Bank to investors, shareholders, analysts, and general public. Interested party can contact the IR unit at telephone number at telephone number 0-2680-3160-1 or www.kiatnakin.co.th or e-mail address: investor_relation@kiatnakin.co.th Additionally, the Bank has held analyst meetings directly to distribute the information on a continuous basis and has cooperated with the Securities Analysts Association to arrange such meetings on a regular basis. In 2006, the Bank held 3 domestic analyst meetings and directly invited the analysts/investors to meet the management of the Bank for 82

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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times: The Bank also arranged 2 foreign inrestors meetings. Additionally, press conferences are held each year on a regular basis. 6) Policies and Procedures for monitoring Executives on Usage of Internal Information To prevent the usage of internal information that has not yet been disclosed to general public, the Bank defines that its directors and management prepare their securities holding reports of the Bank shares, inclusive those of their spouses and minors and related persons, within 3 working days from the date of trading transaction. Regarding integrity, every director and officer of the Bank is prohibited from use his/her authority or working opportunity to seek advantage contrary to his/her ethics, codes of conduct, working cultures, or benefits of the Bank. In addition, the Bank has disclosed the shareholding of the Bank by the Board of Directors, management, and related persons in Annual Report on a continuous basis. The Internal Audit Office must review the operations regarding the use of internal information and the compliance with the requirements concerning the codes of conduct. Whoever violates or commit offenses will be reported to the Audit Committee and the Board of Directors for judgment. In the past year, the Bank did not have to take any action with respect to non-compliance with the rules and regulations under the related transaction topic whatsoever. 7) Internal Control The Bank evaluates the Internal Control Systems under the good corporate governance by taking into account 5 factors, as follows:  Control Environment The Bank promotes all Bank personnel to be aware of the necessity of the internal control systems by stating clear and measurable missions and goals. Manuals are provided to assist with the supervision and control of the operations so that everyone conforms to the rules and regulations. These manuals can be used as guidelines for all personnel. The Bank also emphasizes the importance of integrity and business ethics as well as having appropriate organization structure.  Risk Assessment The Bank has formulated and implemented risk management policies to assess a variety of risks from external and internal factors under the supervision and management of the Risk Management Committee and Risk Management Unit.  Control Activities The Bank clearly specified the scope, power, duties, and levels of approval for all transactions. Preventative measures against lost property, dishonesty and recovery procedures have been established, such as asset counting, segregation of duties, review of operations by the chief of each section, and auditing to ensure compliance with the relevant laws and regulations.  Information and Communication The Bank provides up-to-date and relevant information for decision-making which are organized and presented in an easy to understand format. These information are communicated internally within the Bank and distributed to all stakeholders.  Monitoring and Evaluation The Bank has procedures and measures to assist management in monitoring and assessing the existence and continual usage of the Internal Control System. Modifications and improvements are made promptly and as necessary to reflect the changing situations or to correct any insufficiency.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


8) Dividend Policy The Bank’s dividend policy stated that no more than 60 per cent of net income will be allocated for dividend distribution annually. The dividend policy of the Bank’s subsidiaries is decided by the Board of Directors with no preset rate or amount. 9) Personnel Policy Kiatnakin Bank’s business in 2006 grew successively which resulted in the expansion of various business units; Marketing, Operations, Information Technology, and Human Resources. With the Bank’s determination to develop personnel on a continuous basis to maintain its competitive advantage in an ever-changing economic situation, the Bank placed tremendous value on human capital. In fact, it considered human capital to be the foundation and essential element for the growth and success of the Bank. Therefore, the Bank initiated many human resources strategy, especially in the area of personnel development by issuing policies that focused on systematically and continuously increasing personnel skills and competencies. The Bank created its own set of core competencies under the name of “KK Life” and used it as a basis in creating its training and development programs to ensure that the Bank’s objectives are achieved. The Bank catered to staff a number of training and development programs. More than 30 courses were organized which generated more than 106 groups of graduates. Majority of those courses focused on the development of personnel’s competency as per the following details:  Basic / General Courses: Orientation, KK Life, Work Smart & Self Development, Team Building  Functional Courses: Scotwork Negotiating Skills, Service Smart, Marketing for Hire Purchase Loans, How to write a marketing plan, Consumer Credit Reporting System, Know Your Customer, Check and Signature Basics  Service Courses: Corporate Governance, Project Management, Futuristic Leader, Managerial Skills For 2007, the Bank is planning to develop personnel using the Competency Based Training as well as to recruit new personnel using the Competency Based Selection. Human resources development is not only limited to a coursework or classroom. With that it mind, the Bank encourages their staff to do self-study through the Bank’s online library entitled “KK Link & Learn” which allows personnel to borrow and return various resources, such as books and CDs. The Bank, in addition, realizes that good relationships among staff and executives are of paramount importance. In an effort to foster two-way communications, last year, the Bank organized a program titled “KK on a Journey” to visit the Bank branches throughout the country. An internal newsletter called “KK Family” also introduced later that year. The quarterly newsletter serves as a central source in building and maintaining relationships among staff of the Bank.

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5. Related Transactions During 2006, the Bank had the following related transactions Name and Relationship

40

Description and Amount (per Annum)

Necessity and Reasonableness

Fairness of Price and Terms

1

Lending transaction  A person related to the by which a person Bank’s director/executive related to the Bank’s gave a short term loan to director/ executive CMIC Development lend money to Co., Ltd., which is a CMIC Development company that the Bank Co., Ltd. own 80.57% of the shares through debtrestructuring process. Total loan amount is Baht 63 million with no collateral.

2

Leasing transaction between the Bank and the Erawan Group Co., Ltd. (formerly known as Amarin Plaza Co., Ltd.)

 The bank lease spaces as a  Leasing and service place of business from the fee for Bank’s Erawan Group Co., Ltd. business that has which has people that are been on-going related to the director/a since 1984. Bank’s executive who is also a shareholder or have controlling power or able to significantly influence decisions. Total leasing and service fees are Baht 25.9 million per annum.

3

Leasing transaction with Chotthanawat Co., Ltd.

 The bank lease storage and  Leasing and service  Leasing and service parking spaces from fees for the Bank’s fees are comparable Chotthanawat Co., Ltd. parking spaces and with market rates. which has people that are auction place for related to the director or repossesed Bank’s executive who is also automobiles a shareholder or has that have been controlling power or able on-going since 2004. to significantly influence decisions. Total leasing and service fees are Baht 10.77 million.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

 CMIC Development  Interest rate Co., Ltd. is a MLR of the Bank + property leasing 1% p.a. Which is a company which normal term for the Bank performed financial businesses debt restructuring for. CMIC need funds to renovate buildings for leasing and generate income, but do not have sufficient credit to obtain a loan from other financial institutions.  Leasing and service fee are comparable with market rates.


Name and Relationship

Description and Amount (per Annum)

Necessity and Reasonableness  A normal deposit transactions by the Bank’s directors, executives, and related persons

Fairness of Price and Terms  Provided service with same interest rates as other customers.

4

Deposit transactions by 34 of the Bank’s directors, executives, and related persons

Transactions conducted by 34 of the Bank’s directors, executives and related person. Total deposits was Baht 211.76 million and total interests paid was Baht 8.08 million.

5

Securities trading transactions by the Bank’s directors / executives with the securities company (KKS).

 Securities trading  A normal security transactions by Bank’s brokerage service directors /executives with provided by KKS to the securities company directors/executives. (KKS). Total traded amount is Baht 460 million which resulted in a total commission of Baht 1.01 million.

6

Guaranteed a loan  A loan guaranteed by  Transaction based  A guarantee for a person related persons related to the Bank’s on auction won from for debt auction from to the Bank’s director/executive for FRA that has been FRA that directors /executives debt auction from FRA restructured and has been restructured 2 of the 16 guaranteed resolved as per as per normal terms the loan in the amount of normal banking for debt acquired Baht 46.6 million. procedures for all from auctions. debt acquired from auctions.

 Provided service with the same commission fee as other customers.

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6. Analysis of Financial Position and Performance Performance The Bank’s consolidated financial statements for the 12-month period ended December 31, 2006 recorded a net profit before tax of Baht 2,034 million, which is a Baht 402 million or 17% decrease from last year. It posted a revaluation gain of the investment in financial claims of Baht 586 million an increase of Baht 84 million from 2005 and an improvement in revaluation gain on the investment in financial claims and investment availalote for sale of Baht 24 million increase Bath 53 million from 2005. Taking this into an account, the adjusted net profit for 2006 is Baht 2,171 million, down 13% from previous year. In 2006, the Bank derived its income from the following 5 main businesses: Investment in financial claims, commercial lending, hire purchase lending, residential project lending, and securities business that is operated by Kiatnakin Securities Co., Ltd.. The detailed performance of each business is as follows: 1) Investment in Financial Claims In 2006, the Bank continued to make good progress in managing its investment in financial claims. The progress of debtre structuring proceeded as well. Moreover, the Bank won another bid of investment in the claim in the amount of Baht 2,481 million from the auction held by the Loan Execution Department. Altogether, total outstanding of investment in financial claims at 2006 year end was Baht 9,082 million, a decrease of Baht 1,072 million from 2005. 2) Commercial Lending The Bank expanded its commercial lending service to several new sectors that has strong potential, namely logistie, packaging, printing, apartment business, and used automobile deoler business. In 2006, the Bank Sueceled in its expansion strategy and was able to manage to keep the non-performing loan in the sectors at a low level. Additionally, a portion of the outstanding loan was the remainder from the Past financial crisis. The Bank is undergoing a debt-restructuring negotiation in order to decrease the outstanding balance. The remainder was investment in claims with debtre structuring completed and return to general loans status. At the end of 2006, the Bank had an outstanding commercial loan balance of Baht 6,243 million. 3) Residential Project Lending The Bank began its residential project lending services since 2001. At the end of 2006, the Bank had a total outstanding of residential project loan of Baht 15,248 million. Majority of the loans were for medium to small scale developers and projects, usually single houses and townhouses construetion situated in greater Bangkok Metropolitan area. The real estate business was affected by the increase in costs and interest rates. Overall, there were more new residential project completions in greater Bangkok Metropolitan area this past year than the year before. For apartments and condominiums, the growth in 2006 was more than double that of the previous year. In 2006, the Bank gave residential project loans of more than Baht 6,900 million to developers. The Bank’s goal was to focus on increasing the portfolio size of existing clients when they launch new projects. Since the prospects were existing clients, the Bank are familiar with their profile and business records. We assisted the clients by providing rapid transfer of houses, marketing support for developers, and hous loans for the home buyers.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


4) Hire Purchase Lending Hire purchase lending business has been a core business for the Bank for many years. At the end of 2006, auto hire purchase loans recorded a balance of Baht 29,666 million. We set equal proportions for used automobile hire purchase clients and new automobile hire purchase clients. The ratio of personal cars to other types of cars was 35:65. The ratio of clients in Greater Bangkok Metropolitan area and in the provinces equalled 20:80. Overall, the majority of the Bank’s auto hire purchase are in Commercial, used vehicle, in the provinces. In order to expand customer base and provide better services, the Bank aims to add 10 more branches in the provinces and Greater Bangkok Metropolitan in 2007. Thus, in addition to the existing 19 branches, the Bank will have a total of 29 branches. Additionally, in 2006 the Bank has improved the automobile auction service by opening an automobile auction house located on Bangna-Trad Km. 8 Highway to provide added convenience for those interested in buying good and ready to use automobiles. 5) Securities Business The Bank has one subsidiary named Kiatnakin Securities Co., Ltd. (KKS) which is listed as broker number 19 in the Stock Exchange of Thailand. KKS has been in business for an extended number of years ever since we received permission to operate a securities business in 1973. KKS mainly provides stock brokerage service to retail customers through our marketing officers and internet channel. At the end of 2006, the company trading volume was Baht 117.9 billion with a 1.48% market share. In September 2006, the Company began allowing clients to make forward agreement to buy or sell securities and was very successful in gaining market share. In 2007, the company plans to offer it as an alternative investment choice for existing securities clients and expects to achieve rapid expansion.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

43


Analysis of the performance of the Bank 1) Interest and Dividend Income (Unit: Baht Million)

Interest and Dividend Income

2004

Interest on loans* Hire Purchase and Financial lease income Interest and dividend on securities Interest on investment in financial daims

1,795 1,490 138 1,027

2,288 2,093 124 1,084

2,424 2,465 174 954

4,450

5,589

6,017

Total

2005

2006

* meluding transactions between and money market items banks

Total interest and dividend income increased to Baht 6,017 million in 2006 from Baht 5,589 million in 2005, an improvement of Baht 428 million. The improvement was accounted for by the overall loan growth during the year. Interest income for hire purchase loans increased from Baht 2,093 million to Baht 2,465 million, or 18% over the year, in conjunction with the Hire purchase lending growth of 26%. Interest income for commercial loans increased from Baht 2,288 million to Baht 2,424 million, or 6% over the year, in conjunction with the growth in commercial loans. Interest income on investment in financial claims decreased by Baht 130 million to Baht 954 million due to the success of loan restructuring process.

2) Interest Expenses (Unit: Baht Million)

Interest and Dividend Income Interest on deposits Others Total

2004

2005

2006

658 303

1,178 338

1,759 469

961

1,516

2,228

Total interest expenses increased to Baht 2,228 million in 2006 from Baht 1,516 million in 2005, an increase of Baht 712 million or 47%. The increase was accounted for by the rapid rise in interest rates and the loan growth over the period which stimulated additional deposits. Total loans and deposits as at December 31, 2006 increased 15% to Baht 57,093 million from Baht 49,855 million in 2005. Majority of the loan growth over the period were accounted for by debentures

44

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


3) Loan Recovery/ Provisions for bad debts and doubtful accounts (Unit: Baht Million)

Loan Recovery/Provisions of bad debts and doubtful accounts Total Allowance, 1 January Recoveries Provisions for bad debt and doubtful accounts Charged off Total Allowance, 31 December

2004

2005

2006

3,112 47 625 (173)

3,611 18 724 (470)

3,883 76 287 (863)

3,611

3,883

3,383

Provision for doubtful accounts as at December 31, 2006 was Baht 3,383 million which is a Baht 500 million decrease from 2005. Total allowance for the bank stipulated by the Bank of Thailand amounted to Baht 3,082 million or 110% compared to 168% in 2005. In 2006, the Bank still used a stringent loan classification model combined with the conservative loan loss reserve policy. In Q 4 2006, the Bank changed its loan loss reserve policy as per IAS 39 international accounting standard stipulated by the Bank of Thailand, by using in a one time reserve computation. This new standard causes an increase in the burden for all banks in Thailand because it increased the allowance amount on sueured loans. However, in the high purchase lending business, total allowance dropped because the Bank has been more stringent than industry standard. As a whole, the Bank’s provision for bad debts and doubtful accounts decreased by Baht 453 million during the year and finished at Baht 292 million

4) Non-Interest Income Non-Interest Income Gain of investment in securities Gain on revaluation of investment Impairment gain (loss) on investment in financial claims Brokerage fees Gain from revaluation and sale of foreclosed assets Other income Total

(Unit: Baht Million)

2004 311 297 (398) 530 368 330 1,438

2005 65 728 (206) 370 235 342 1,534

2006 108 198 5 274 – 490 1,075

Non-interest income for the 12-month period ending December 31, 2006 decreased to Baht 1,075 million from Baht 1,534 million in 2005. The decrease was consistent with the overall market and also due to lower profit from restructuring of distressed assets, and deteriorated brokerage fee and securities trading income.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

45


5) Non-interest expenses (Unit: Baht Million)

Non-Interest expenses Personnel expenses Premises and equipment expenses Tax and duties Fee and service expenses Contributions to the Financial Institutions Development Fund Other expenses Total

2004

2005

2006

761 201 121 182

680 229 144 220

695 311 158 310

85 533

136 738

179 597

1,883

2,147

2,250

The Bank aimed to control operating expenses so that it does not keep growing as the Bank grew. However, in 2006 the Bank still opened more branches and renovoted the workplace at headquarters to provide better customer service. In 2006, operating expenses (excluding uncontrollable expenses such as contributions to FIDF and specific business tax) totaled Baht 1,913 million, an increase of 2.4% or Baht 1,867 million from last year. The Bank still had an expense to income ratio of 0.42, which is about the same as 0.38 in 2005.

Analysis of Financial Status Assets (Unit: Baht Million)

Assets Investment in securities, net Investment in loans, net Investment in properties, net Loans Securities business receivables Allowance for doubtful accounts Properties foreclosed, net Land premises and equipment, net Other assets Total Assets

2004

2005

2006

2,714 11,501 213 37,417 625 (3,611) 4,950 378 3,267

3,705 10,154 164 45,536 586 (3,883) 5,969 429 5,391

5,368 9,082 164 51,157 701 (3,383) 8,333 518 4,823

57,454

68,051

76,763

On a consolidated basis, the Bank ended 2006 with total assets of Baht 76,763 million, an increase of Baht 8,712 million or 13% from last year. There was growth in all core Banking business especially commercial loans. The Bank’s five core businesses included Investment in financial claims, Investment in property funds, commercial lending and assets for sale. Details of each major type of assets are as follows:

46

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


(Unit: Baht Million)

Core business Investment in loans Investment in properties Loans Allowance for doubtful accounts Properties foreclosed Total core business

2004

2005

2006

11,501 213 37,417 (3,611) 4,950

10,154 164 45,536 (3,883) 5,969

9,082 164 51,157 (3,383) 8,333

50,470

57,940

65,353

1) Investment in Securities Investment in securities increased to Baht 5,368 million from Baht 3,705 million in 2005. The bank normally invests temporary excess liquidity in government bonds. According to the Bank of Thailand regulations, up to 6% of the 7% cash reserve requirement can be maintained in government bonds or debt instruments issued by states enterprises. 2) Investment in Financial Claims (Unit: Baht Million)

Investment in loans From FRA, set up in funds Investment in Property Funds Restructured Non-Restructured From FRA, set up in KK Restructured Non-Restructured From Loan Execution Department set up in KK Restructured Non-Restructured Total

2004

2005

2006

5,565 696 1,855 3,014 1,481

5,105 694 1,299 3,112 971

4,070 139 1,231 2,700 739

1,481 4,455

971 4,078

739 4,272

4,455

4,078

4,272

11,501

10,154

9,082

During 2006, the Bank was able to manage down the total investment in financial claims, booked in the Funds to Baht 4,070 million from a total of Baht 5,105 million in 2005, represented an decrease of 20%. At the same time, those that were recorded in the Bank’s book were managed down only to Baht 5,011 million in 2006 from Baht 5,049 million in 2005 because during the year, the Bank won anoher bid for investment in financial claim from the Legal Execution Department in the amount of 2,481 million Baht. This decrease in the outstanding amount showed success in the process of restructuring these assets, which were made in four ways: fully settled in cash, installment payment over a period of time, giving up the collaterals in lieu of cash, or the combination thereof. While installment payments were still being treated as part of the investment for those that booked in the funds, it will be reclassified to loans for those that booked in the company. Settlement by collateral in lieu of cash will be booked as assets for sale.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

47


3) Credit (Unit: Baht Million)

Finance Business Loans General Loans Reclassified from Restructured Investment Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Total

2004

2005

2006

5,994

6,247

6,243

2,173 2,686 1,135 13,326 18,097

2,558 2,154 1,535 15,733 23,556

1,862 1,923 2,458 15,248 29,666

37,417

45,536

51,157

The Bank made a significant growth in extending credits in 2006. Total loans grew from Baht 45,536 million in 2005 to Baht 51,157 million, an increase of Baht 5,621 million or 12%. The Bank divided the total credits into three main categories: general loans, residential project loans and hire purchase loans. General Loans Majority of the Bank’s general loans can be categorized into three main types: general commercial loans, investment in financial claims and new loans. The Bank managed down general commercial loans that were extended prior to the financial and economic crisis by either improving the quality through restructuring process and maintaining them as normal loans or liquidating them through a settlement process. In the past years, these loans made up the highest proportion of all general loans. Investments in financial claims had been restructured and transferred to be loans from debt-restructuring process. Continuous progress was made in restructuring problem loans during the year. In 2006, the Bank started offer to new loans in new sectors that the Bank has thoroughly considered as high potential and competitive. The strategy turned out to be very successful and the new loans made up more than 40% of all general loans. Outstanding balance at 2006 year end was Baht 6,243 million. Residential Project Loans The Bank continued to finance new residential projects, mostly to the same developers with proven track records. At the end of 2006, the Bank supported approximately 50 projects with an outstanding balance of Baht 15,248 million plus another Baht 164.3 million booked in two property funds, compared to Baht 15,733 million and Baht 163.8 million in 2005 respectively. While these projects were financed strategically countrywide, 68% were in the Greater Bangkok Metropolitan area. Most of these projects are medium sized single house/townhouse units. Followings are two charts illustrating the demographic in terms of loan outstanding by location and type of projects. Classified by location Central 6%

Northeast 4% North 2%

Classified by types Residential Condo 6% Commercial 1%

South 10%

East 11%

Greater Bangkok 67%

48

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Single House / Townhouse 93%


Hire Purchase Loans Hire purchase loans have also achieved a satisfactory growth rate. The Bank was able to record an outstanding loan of Baht 29,666 million at year-end 2006, an increase of Baht 6,110 million from Baht 23,556 million in 2005, or about 26%. An equal proportion of its hire purchase loans portfolio in used car to new car financing. Followings are two charts illustrating the demographic in terms of accounts by vehicle type and in terms of loan outstanding for new/used vehicles. Classified by location

Classified by new/used

Others 4% (2,761 account) Used Cars 50% Sedan 35% (44,823 account)

New Cars 50% One ton pick-up vans 61% (90,542 account)

4) Classified Loans (Unit: Baht Million)

Classified Loans General Loans Reclassified from Restructured Investment Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Total

2004

2005

2006

1,099 2,119 58 2,185 693

895 1,770 141 4,122 1,132

815 1,167 81 4,227 1,274

6,154

8,060

7,564

The Bank continued to maintain a stringent loan classification model, especially for the residential project and hire purchase loans. Residential project loans were not only classified as a default in financial commitment, but also a breach in progress rate of developing and progress of sales. Hire purchase loans use much more stringent classification model than that of the banking regulation. During 2006, the Bank wrote off bad debts on old loans, causing classified debts to decrease. Details of classification for each type of loan are shown in the table below:

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

49


5) Allowance for Doubtful Accounts Classified Loans

Actual

General Loans Reclassified from Restructured Investment Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Include interbank and money market transaction Total

Required

Excess

498 821 81 1,308 646 3

498 820 61 1,057 646 3

– 1 20 251

3,354

3,082

272

The Bank maintained a conservative loan reserve policy to closely match with the loan classifications. The objective was to have a loan reserve policy, which is more stringent than the requirement of the Bank of Thailand at all time. In the 4th quarter, the Bank revised the policy to set aside in one time the allowance for doubtful accounts according to the new international accounting standard IAS 39 set forth by the Bank of Thailand. This new standard causes an increase in the burden for the Bank because it increased the required allowance for secured loans. However, in the hire purchase lending business, total allowance dropped because the Bank was more stringent than industry standard. 6) Assets for sale The total outstanding of assets for sale increased to Baht 8,333 million in 2006 from Baht 5,969 million in 2005 or about 40% as a result of negotiations and litigation. A total amount of Baht 3,925 million of assets has been acquired by litigation process and by the process of negotiation for a settlement in lieu of cash. While the Bank could sell the foreclosed properties in the amount of Baht 1,495 million, the Bank utilized the marketing promotion measures by taking part in the Property Sales Festival and by supporting low-interest credits to motivate and enhance the purchasing power of those interested in buying the properties of the Bank. The majority of these assets are land and residential house in the greater Bangkok Metropolitan area. The followings chart shows the breakdown in term of amount by location and by type.

Classified by location

Classified by types

North 8% Northeast 9%

South 6%

Housing 34%

Residential Condo 3% Others 2%

East 8%

Central 10%

Greater Bangkok 59%

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Lands 61%


Liability and Shareholders’ Equity (Unit: Baht Million)

Liabilities and Shareholders’ Current deposit Savings deposit Fixed deposit Bill of exchange Debenture Total Deposites Issued and fully paid-up Retained earnings Fair value reserves on investment in loans Fair value reserves on available-for-sale securities Total Shareholders’ equity

2004 – 34,418 – 6,435 40,853 7,167 6,882 365 41 14,455

2005

2006

4 48 43,368 – 6,435 49,855 7,483 8,213 503 (29)

10 113 44,436 100 12,434 57,093 7,774 9,079 586 24

16,170

17,463

1) Deposits and Borrowings The Bank focused on increasing time deposits from the general public as our stable Sources. During the early stages after the upgrade to a full service commercial bank, the Bank did not aim to mobilize current and savings deposits, but would be ready to render these services in the future if there are more demands from customers. In 2006, the Bank continued to expand its deposit base so as to reduce the concentration of the deposit amount Per customer. By that, its customer base and the amount of deposits per customer were reduced from Baht 5.5 million per account to Baht 5.3 million. To support loan growth, total deposits at year-end increased to Baht 57,093 million from Baht 49,855 million in 2005 or 15%. Liabilities were managed closely to maintain a comfortable level of liquidity risks. At the end of 2006, almost 36% of total funding carried a maturity profile of over 12 months. Fixed and floating interest rates have also been closely managed to prevent the bank from the Volatility of interest rate. The Bank’s ratio of liability to the number of shareholders is 3.39, which is lower than the average Thai commercial bank that has a ratio of 10.12. The low ratio is a result of the Bank’s good operating performance and policy of allocating high loan allowance to accommodate future growth and to be consistent with the business that manages auctioned asset. 1.1) Shareholders’ Equity (Unit: Baht Million)

Equity Beginning of the year Dividends payment Conversion of warrants Net profit Improvement/(Deterioration) Profit/(loss) in investment Improvement/(Deterioration) Profit/(loss) in investment Ending of the year

of unrealized in financial claims of unrealized in securities

2004

2005

2006

12,835 (1,493) 1,243 2,208

14,454 (1,104) 316 2,436

16,170 (1,168) 291 2,034

(12)

138

83

(327)

(70)

53

14,454

16,170

17,463

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

51


The shareholders’ equity increased to Baht 17,463 million in 2006 from Baht 16,170 million at the end of 2005 an increase of Baht 1,293 million, or about 8%. This was mainly due to three reasons: 1) Warrants conversions during the year 2) Net profit generated for the year and some pay out of dividend during the year 3) Improvement in revaluation of investment in financial claims as well as improvement in investment available for sale. At year-end 2006, the Bank’s BIS ratio stood at 22.17, which was higher than the 8.5 % set forth by the Bank of Thailand.

7. Profiles of Kiatnakin’s Directors and Executives Details of company directors, executives and controlling authorities (educational background and training)

NameSurname/ Position (1)

1. Mr. Supol Wattanavekin*

Age (Yr.)

52

Education/ Training (2)

Number of Shareholding (%)

Family Relationship with the executives (4)

Work Experiences in 5 years

Period

– Master of Business 11,105,510 Head of Oct. 2005 Administration shares Treasury and - Present (Executive), Sasin (2.16%) Funding’s Graduate Institute brother of Business Administra2004 - Present tion of Chulalongkorn University – Orchestrating Winning 1999 - Present Performance 2005 (IMD) – Board & CEO 1999 - 2005 Assessment, Thai Institute of Directors Association (IOD) – The Role of the Chairman Program, Thai Institute of Directors Association (IOD) – Directors Certification Program (DCP 76/2006), Thai Institute of Directors Association (IOD) – Organizing and Managing Strategic Alliances for Success and Profit, Sasin Graduate Institute of Business Administration of Chulalongkorn University – Leadership Strategic Growth and Change, Sasin Graduate Institute of Business Administration of Chulalongkorn University

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006

52

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Position

Chairman & Chairman of the Executive Board Director

Director Chairman & Chairman of the Executive Board

Name of Company (5) Kiatnakin Bank Public Company Limited The Erawan Group Public Company Limited Kiatnakin Securities Company Limited Kiatnakin Finance Public Company Limited


NameSurname/ Position (1)

2. Ms. Nawaaporn Ryanskul

3. Mr. Manop Bongsadadt

Number of Shareholding (%)

Age (Yr.)

Education/ Training (2)

62

– Master of Business Administration (ECON), University of California at Los Angeles, U.S.A. – Directors Certification Program Association (DCP 1/2000), Thai Institute of Directors Association (IOD) – Audit Committee Program (ACP11/2005), – Thai Institute of Directors Association (IOD)

– Master of Regional Planning Kansas State University Institute of Social Studies, The Netherlands – Master of Architecture, Kansas State University – Directors Accreditation Program (DAP8/2004), Thai Institute of Directors Association (IOD)

65

Family Relationship with the executives (4) –

Work Experiences in 5 years

Period

Position

2005 - Present Independent Director and Chairman of the Audit Committee 2004 - 2005 Independent Director and Chairman of the Audit Committee 2000 - Present Appeals Committee 1989 - Present Director 1987 - Present Director

Oct 2006 Present

2005 Oct. 2006

2005 - 2005

2004 - 2005

Independent Director and Chairman of the Nomination and Remuneration Committee, Member of the Audit Committee Independent Director and Member of the Nomination and Remuneration Committee, Member of the Audit Committee Member of the Audit Committee Member of the Audit Committee Independent Director and Member of the Nomination and Remuneration Committee

Name of Company (5) Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

The Stock Exchange of Thailand P.A. Lynn Philips Company Limited Thai Property Appraisal Company Limited Kiatnakin Bank Public Company Limited

Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006 KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

53


NameSurname/ Position (1)

Age (Yr.)

Education/ Training (2)

Number of Shareholding

Family Relationship with the

Work Experiences in 5 years

Period

Position

2004 - Present Director

2004 - Present Chairman of the Audit Committee 2003 - Present Chairman

2002 - Present Associate Professor 1989 - Present Chairman

4. Mr. Chet Pattrakornkul

5. Mr. Tarnin Chirasoonton

58

54

– Master of Marketing (Certificate program), Thammasat University – Directors Certificate Program (DCP9/2001), Thai Institute of Directors Association (IOD) – Role of The Compensation Committee-Motivating Excellence in Performance, Thai Institute of Directors Association (IOD) – DCP Refresher Course, Thai Institute of Directors Association (IOD)

10,000 shares (0%)

– Bachelor of Law, 42,500 Ramkamhaeng shares University (0.01%) – Directors Certificate Program (DCP10/2001), Thai Institute of Directors Association (IOD)

Oct. 2006 Present

2005 Oct. 2006 2002 - 2005

2000 - 2002

Rasa Property Development Public Company Limited Chulalongkorn University Waterford Company Limited Kiatnakin Bank Public Company Limited

Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

Independent Director

2005 Oct. 2006

Independent Director and Chairman of Nomination and Remuneration Committee Independent Kiatnakin Finance Director and Public Company Chairman of the Limited Nomination and Remuneration Committee

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006 KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Head of Consumer Lending Assistant Managing Director

The Erawan Group Public Company Limited N.C. Housing Company Limited

Oct. 2006 Present

2004 - 2005

54

Independent Director and Member of the Nomination and Remuneration Committee Independent Director

Name of Company (5)

Kiatnakin Bank Public Company Limited Kiatnakin Bank Public Company Limited


NameSurname/ Position (1)

Age (Yr.)

Education/ Training (2)

Number of Shareholding (%)

Family Relationship with the executives (4)

Work Experiences in 5 years

Period

Position

2003 - 2004

2001 - 2004

6. Mr. Pichai Dachanapirom

60

– Bachelor of Accountancy, Thammasat University - Directors Certification Program (DCP 32/2003), Thai Institute of Directors Association (IOD) – Audit Committee Program (ACP 9/2005) Thai Institute of Directors Association (IOD) – Certified Public Accountant

25,000 shares (0.01%)

Independent Kiatnakin Finance Director and Public Company Member of the Limited Nomination and Remuneration Committee Independent Kiatnakin Finance Director and Public Company Chairman of Limited the Audit Committee

2005 - Present Independent Director and Member of the Audit Committee 1994 - 2005 Independent Director and Member of the Audit Committee 2003 - Present Executive Director 2001 - Present Executive Director 1998 - Present Executive Director 1998 - Present Executive Director 1998 - Present Executive Director 1990 - Present Executive Director 1989 - Present Executive Director 1987 - Present Executive Director

7. Mr. Pravit Varutbangkul

59

– Master of Business Administration (Operations Research) University of Santa Clara, California, USA

Apr. 2006 Present April 2006 Present

Name of Company (5)

Director Consultant of the Audit Committee

Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

Dharmaniti Capital Advisory Limited Dharmaniti Press Company Limited Dharmaniti And Truth Limited Dharmaniti Office of Management Company Limited Dharmaniti Seminar and Training Company Limited Grand Success Company Limited Dharmaniti Public Company Limited Dharmaniti Auditing Company Limited Kiatnakin Bank Public Company Limited Kiatnakin Bank Public Company Limited

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006 KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

55


NameSurname/ Position (1)

Age (Yr.)

Education/ Training (2)

Number of Shareholding

Family Relationship with the

– Directors Certificate Program (DCP5/2001), Thai Institute of Directors Association (IOD) – DCP Refresher Course, Thai Institute of Directors Association (IOD) 8. Suraphol Kulsiri**

9. Mr. Tawatchai Sudtikitpisan

54

47

Period

2005 - 2006 2002 - 2005

1992 - 1993

– Bachelor of Marketing, 50,000 Bangkok University shares – Directors Certificate (0.01%) Program (DCP13/2001), Thai Institute of Directors Association (IOD)

– Master of Business Administration and Master of Science in Electrical Engineering, The University of Texas at Austin, Texas, USA – Directors Certificate Program (DCP31/2000), Thai Institute of Directors Association (IOD)

Work Experiences in 5 years

Independent Director and Member of the Nomination and Remuneration Committee 2004 Independent Sep. 2005 Director and Member of the Nomination and Remuneration Committee 2003 - Present Chief Executive Officer 1999 - 2003 Managing Director June 2006 Present Oct. 2005 - Present Oct. 2005 - Present

Feb 2005 Sep 2005

2001 - 2002

1999 - 2001

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006 KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Name of Company (5)

Director, Vice Kiatnakin Bank Public Chairman Company Limited Head of Central Kiatnakin Finance Support Public Company Limited Assistant Kiatnakin Finance Managing Public Company Director Limited

Oct. 2005 - Present

2002 - 2005

56

Position

Director President Head of Residential Project, Head of General Lending Head of General Lending Head of Residential Project Lending Assistant Managing Director Executive Director

Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

Kiatnakin Securities Company Limited Kiatnakin Securities Company Limited Kiatnakin Securities Company Limited Kiatnakin Bank Public Company Limited Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited Asia Recovery Management Company Limited


NameSurname/ Position (1)

10. Mr. Pracha Chumnarnkitkosol

Age (Yr.)

Education/ Training (2)

44

– Master of Business Administration (Finance) University of Texas Arlington, USA – Risk Management, The Thai Institute of Banking & Finance Association – Directors Certificate Program (DCP75/2006), Thai Institute of Directors Association (IOD) – EVA : Managing for Value Creation, Sasin Graduate Institute of Business Administration of Chulalongkorn University

Number of Shareholding

Family Relationship with the

11. Ms. Thitinan* Wattanavekin

49

– Master of Management 24,741,972 Chairman’s Sasin Graduate shares sister Institute of Business (4.81%) Administration of Chulalongkorn University – Directors Certificate Program (DCP1/2000), Thai Institute of Directors Association (IOD) – Board performance Evaluation, Thai Institute of Directors Association (IOD)

12. Mr. Sarawut Charuchinda

48

– Master of Business Administration, University of Mississippi, Mississippi, USA. – Directors Certificate Program (DCP31/2000), Thai Institute of Directors Association (IOD)

Work Experiences in 5 years

Period

Position

Apr. 2006 Present Oct. 2005 Present Feb. 2005 Sep. 2005

Director Head of Risk Management Head of Risk Management

2004 - 2005

Head of Credit Committee

1999 -2004

Managing Director

Name of Company (5) Kiatnakin Bank Public Company Limited Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited Asia Recovery Management Company Limited

Oct. 2005 Present 2002 - 2005

Head of Treasury Kiatnakin Bank Public and Funding Company Limited Head of Treasury Kiatnakin Finance and Funding Public Company Limited 1999 - Present Director Kiatnakin Securities Company Limited 1987 - 2002 Director and Kiatnakin Finance Assistant Public Company Managing Limited Director

Oct. 2005 Present

2002 - 2005

Head of Corporate Lending (Now it changes to Head of Debt Restructuring) Head of Asset Management

Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006 KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

57


NameSurname/ Position (1)

Age (Yr.)

Education/ Training (2)

Number of Shareholding (%)

Family Relationship with the executives (4)

Work Experiences in 5 years

Period

1999 - 2002

13. Ms. Sineenath Tejagupta

53

– Master of Science in Business, Mississippi University for Women, Mississippi, USA – Company Secretary Program #16, Thai Institute of Directors Association (IOD) – Understanding the Fundamental of Financial Statement, Thai Institute of Directors Association (IOD)

14. Ms. Suree Harnpinijsak

48

– Master of Accounting, 37,500 Chulalongkorn shares University (0.01%) – Young Banker’s Executive Development Program # 9, The Thai Institute of Banking and Finance Association – Certificate Program CFO (Chief Financial Officer Certificate Program), Federation of Accounting – Certified Public Accountant

Position

Assistant Managing Director

Name of Company (5) Kiatnakin Finance Public Company Limited

2005 - Present Senior Executive Kiatnakin Bank Public Vice President Company Limited 2002 - 2005 Senior Executive Kiatnakin Finance Vice President Public Company Limited 1991 - 2002 Deputy Managing Kiatnakin Finance Director Public Company Limited

2005 - Present Senior Vice President 2002 - 2005

Senior Vice President

1991 - 2001

Vice President

Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

Remark: * Do not have authority in the subsidiary company, Kiatnakin Securities Company Limited, as a Director ** Have authority in subsidiary company, Kiatnakin Securities Company Limited, as the Chairman of the Board of Directors.

Remark: including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2006

58

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


Report from the Board of Director Dear Shareholders The Board of Directors is responsible for the consolidated financial statements of the Bank and its subsidiaries as well as the financial information which appear in the Annual Report. The financial information was prepared in accordance with the Generally Accepted Accounting Principles (GAAP). An appropriate accounting policy was chosen and consistently maintained, using the most prudent discretion and best judgment. The financial statements were also prepared based on full disclosure of essential information and are include in the Notes to Financial Statement Section. The Board of Directors has established an effective internal control system to ensure that all accounting records are accurate, complete and sufficient to facilitate the Bank in maintaining all of its assets. The system helped the Bank to identify any potential weakness and prevent fraudulent or significant mismanagement of its business operations. The Board of Directors has also appointed the Audit Committee, which consisted of indendent directors to be responsible for ensure that the Bank produces accurate and sufficient financial reports, the Bank has appropriate and efficient internal control and internal audit system in place, Review all disclosures of the Bank’s information where connected transactions have taken place or where there may be conflicts of interest in order to ensure their accurary and completeness and others under their duties. The opinion of the Audit Committee related to these matters is in the report from the Audit Committee Section of the Annual Report. In the Board of Directors’ opinion, the Bank’s overall internal control system is satisfactory and able to confidently and reflect the financial statements as of 31 December 2006 for the Bank and its subsidiaries.

(Mr. Supol Wattanavekin) Chairman of the Board of Directors

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

59


Report from the Nomination and Remuneration Committee Dear Shareholders The Board of Directors # 5/2549 dated October 26, 2006, Mr. Manop Bangsodadt as chairperson of the Nomination and Remuneration Committee. The Board also appointed Mr. Chet Pattrakornkul as a member of the Nomination and Remuneration Committee. The Committee comprised of 3 members, of which 2 are independent directors and 1 is a non-executive director. The Committee held 2 meetings in 2006, and during the past year, all the Committee members conducted their duties while adhering strictly within the boundary of their responsibilities. The responsibilities of the committee are to – Screen and propose candidates with suitable qualifications for various director’s position. – Ensure that the overall size, level of knowledge and capability, and variety of experience of the Board of Directors are appropriate for the Bank. – Set the remuneration policy and other benefits for directors and senior executives from the President level upwards. – Set the guidelines on performance appraisal for directors and senior executives from, the President level upwards in order to appropriately adjust the annual remuneration package. The performance appraisal takes into consideration the responsibilities, associated risks and ability to increase long-term shareholders’ values. The Nomination and Remuneration Committee has disclosed the remuneration in various forms, the preparation of remuneration reports and comments from the Normination and Remuneration Committee in the 2006 Annual Report.

(Mr. Manop Bongsadadt) Chairperson of the Nomination and Remuneration Committee

60

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


AuditorÝs Report To the Shareholders of Kiatnakin Bank Public Company Limited I have audited the accompanying consolidated and company balance sheets as at 31 December 2006, and the related consolidated and company statements of income, changes in shareholders’ equity and cash flows for the year ended 31 December 2006 of Kiatnakin Bank Public Company Limited and its subsidiaries and of Kiatnakin Bank Public Company Limited. The Bank’s management is responsible for the correctness and completeness of information in these financial statements. My responsibility is to express an opinion on these financial statements based on my audit. The comparative consolidated and company financial statements for the year ended 31 December 2005 of Kiatnakin Bank Public Company Limited and its subsidiaries and of Kiatnakin Bank Public Company Limited, were audited by another auditor from the same firm as myself in accordance with generally accepted auditing standards, whose report dated 14 February 2006 expressed an unqualified opinion on those statements. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated and company financial statements referred to above present fairly, in all materials respects, the consolidated and company financial position as at 31 December 2006 and the consolidated and company results of operations and cash flows for the year ended 31 December 2006 of Kiatnakin Bank Public Company Limited and its subsidiaries and of Kiatnakin Bank Public Company Limited in accordance with generally accepted accounting principles.

Mr. Boonmee Ngotngamwong Certified Public Accountant (Thailand) No. 3673 PricewaterhouseCoopers ABAS Limited Bangkok 20 February 2007

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

61


KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS AS AT 31 DECEMBER 2006 AND 2005

Notes ASSETS Cash Interbank and money market items - Domestic items 4 Interest bearing Non-interest bearing Total interbank and money market items Securities purchased under resale agreements 5 Investment in securities 6 Short term investments, net Long term investments, net Investment in subsidiaries, net Total investment in securities, net Investment in loans, neté 7 Investment in properties, net Accounts receivable from Clearing House Loans and accrued interest receivable 8 Loans Securities business receivables Total loans and receivables Accrued interest receivable Total loans and accrued interest receivable Less: Allowance for doubtful accounts 9 Allowance for troubled debt restructuring 10 Net loans and accrued interest receivable Properties foreclosed, neté 11 Land, premises and equipment, net 12 Intangible assets, neté 13 Deferred commission on hire purchase Other assets 14 Total assets

Consolidated 2006 Baht

Company 2006 Baht

2005 Baht

2005 Baht

66,805,308

65,646,347

65,435,308

64,191,347

1,193,173,405 698,852,978

1,896,416,521 428,406,889

1,163,505,341 571,272,662

1,628,456,797 323,020,324

1,892,026,383

2,324,823,410

1,734,778,003

1,951,477,121

1,420,000,000

1,480,000,000

1,420,000,000

1,480,000,000

1,913,063,034 3,455,384,960 – 5,368,447,994 9,081,611,373 164,375,850

2,096,707,118 1,608,599,015 – 3,705,306,133 10,154,053,219 163,894,654

1,463,724,060 3,447,681,736 11,806,854,113 16,718,259,909 5,011,407,705 –

989,608,148 1,516,786,008 10,786,901,035 13,293,295,191 5,048,863,689 –

30,038,285

161,778,221

51,157,296,889 701,109,027 51,858,405,916 450,139,472

45,536,104,555 586,091,508 46,122,196,063 509,730,322

51,157,296,889 17,958,090 51,175,254,979 447,288,707

45,536,104,555 17,958,090 45,554,062,645 507,275,528

52,308,545,388

46,631,926,385

51,622,543,686

46,061,338,173

(3,234,421,219)

(3,648,428,773)

(3,204,903,271)

(3,613,835,898)

(148,674,501)

(235,491,532)

(148,674,501)

(235,491,532)

48,925,449,668 8,333,396,819 517,583,683 123,168,604 380,670,316 459,646,339 76,763,220,622

42,748,006,080 5,969,166,467 429,476,196 74,362,480 308,919,114 465,395,014 68,050,827,335

48,268,965,914 5,690,372,841 415,964,258 107,690,134 380,670,316 398,688,405 80,212,232,793

42,212,010,743 3,738,574,360 263,342,598 64,085,126 308,919,114 233,665,773 68,658,425,062

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT’D) AS AT 31 DECEMBER 2006 AND 2005

Notes LIABILITIES AND SHAREHOLDERS EQUITY Liabilities Deposits Deposits in Baht Total deposits Interbank and money market items - Domestic items Interest bearing Non-interest bearing Total interbank and money market items

Consolidated 2006 Baht

2005 Baht

Company 2006 Baht

2005 Baht

15 42,102,949,014 42,102,949,014

40,395,621,885 40,395,621,885

42,102,949,014 42,102,949,014

41,580,621,885 41,580,621,885

2,457,082,872 –

3,024,147,175 –

2,463,740,052 39,500

2,975,394,539 –

2,457,082,872

3,024,147,175

2,463,779,552

2,975,394,539

153,229,964 47,071,604 297,845,076

84,344,704 – 356,455,805

153,229,964 – –

84,344,704 – –

5,034,200,000 7,500,000,000 12,534,200,000 598,539,094 356,853,019

1,500,000,000 4,935,000,000 6,435,000,000 298,267,173 278,140,024

8,934,200,000 7,500,000,000 16,434,200,000 608,373,724 351,708,657

1,500,000,000 4,935,000,000 6,435,000,000 299,732,695 267,382,414

184,940,602 526,166,561 59,258,877,806

206,775,143 763,492,168 51,842,244,077

184,712,118 449,768,146 62,748,721,175

206,610,171 639,456,487 52,488,542,895

16

Liabilities payable on demand Accounts payable to Clearing House Securities business payables Borrowings 17 Short term borrowings Long term borrowings Total borrowings Accrued interest expenses Other accounts payable Income tax and specific business tax payable Other liabilities 18 Total liabilities

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

63


KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT’D) AS AT 31 DECEMBER 2006 AND 2005

Notes Shareholdersí equity Share capital Registered Issued and fully paid-up Warrants Share premium Fair value reserves on investment in loans Fair value reserves on availablefor-sale securities Retained earnings Appropriated Legal reserve Other reserve Unappropriated

Consolidated 2006 Baht

2005 Baht

Company 2006 Baht

2005 Baht

19

19

21

Minority interests Total shareholdersí equity Total liabilities and shareholders’ equity OFF-BALANCE SHEET ITEMS - CONTINGENCIES 27 Aval on bills and guarantees on loans Interest rate swap Other contingencies and commitments

7,154,600,300

7,154,600,300

7,154,600,300

7,154,600,300

5,147,484,160 22,328,773 2,604,587,600

4,959,732,850 43,584,809 2,479,979,786

5,147,484,160 22,328,773 2,604,587,600

4,959,732,850 43,584,809 2,479,979,786

586,059,743

502,607,895

586,059,743

502,607,895

23,503,571

(29,524,203)

23,503,571

(29,524,203)

680,536,971 380,000 8,398,630,800 17,463,511,618 40,831,198 17,504,342,816

558,736,906 380,000 7,654,384,124 16,169,882,167 38,701,091 16,208,583,258

680,536,971 380,000 8,398,630,800 17,463,511,618 – 17,463,511,618

558,736,906 380,000 7,654,384,124 16,169,882,167 – 16,169,882,167

76,763,220,622

68,050,827,335

80,212,232,793

68,658,425,062

129,750,000 1,000,000,000 902,218,047

20,376,000 1,000,000,000 925,838,256

129,750,000 1,000,000,000 902,218,047

20,376,000 1,000,000,000 925,838,256

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

Notes Interest and dividend income Interest on loans Interest on interbank and money market items Hire purchase and financial lease income Interest and dividend on securities Interest on investment in loans Total interest and dividend income Interest expenses Interest on deposits Interest on interbank and money market items Interest on short term borrowings Interest on long term borrowings Fees and charges on borrowings Total interest expenses Net interest and dividend income Bad debts and doubtful accounts (additon) (Loss) on troubled debt restructuring transactions 31 Net interest and dividend income after bad debts and doubtful accounts loss on troubled debt restructuring Non-interest income Gain (loss) on disposal investment in securities Gain on revaluation of investment Impairment gain (loss) on investment in loans Share of net profit in subsidiaries Brokerage fees Fees and services income Acceptance, avals and guarantees Others Gain (loss) on exchanges Gain from revaluation and sale of foreclosed assets Other income 22 Total non-interest income

Consolidated 2006 Baht

2005 Baht

Company 2006 Baht

2005 Baht

2,247,318,904

2,211,186,242

2,229,767,601

2,199,545,715

177,291,370 2,464,523,979 174,053,201 954,198,938 6,017,386,392

76,825,410 2,092,771,650 124,296,003 1,083,858,127 5,588,937,432

158,378,363 2,464,523,979 149,706,632 298,957,123 5,301,333,698

78,069,017 2,092,771,650 111,873,265 344,034,410 4,826,294,057

1,758,939,790

1,177,839,206

1,843,397,000

1,215,560,813

111,708,314 136,037,879 206,021,198 15,390,152 2,228,097,333 3,789,289,059 (282,278,723)

92,801,334 20,636,301 214,538,964 9,921,506 1,515,737,311 4,073,200,121 (737,933,299)

112,737,061 153,645,413 206,021,198 15,390,152 2,331,190,824 2,970,142,874 (287,526,014)

94,207,441 20,636,301 214,308,795 9,921,506 1,554,634,856 3,271,659,201 (738,127,098)

(9,895,282)

(7,555,255)

(9,895,282)

(7,555,255)

3,497,115,054

3,327,711,567

107,758,845 198,412,476

64,796,599 728,797,595

5,304,581 – 274,076,098

(206,453,073) – 370,588,227

5,304,581 1,025,314,666 –

(206,453,073) 1,159,648,740 –

19,133,257 310,744,225 1,517,444

10,315,311 254,851,441 (76,579)

19,133,257 302,210,539 1,512,383

10,315,311 259,354,343 (76,579)

– 157,861,993 1,074,808,919

235,541,177 75,301,114 1,533,661,812

2,672,721,578

(27,287,110) 320,487,070

– 86,710,895 1,733,386,281

2,525,976,848

80,623,293 661,970,961

– 68,907,113 2,034,290,109

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

65


KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF INCOME (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

Notes Non-interest expenses Personnel expenses Premises and equipment expenses Taxes and duties Fee and service expenses Directors’ remuneration 34 Contributions to the Financial Institutions Development Fund Loss from revaluation and sale of foreclosed assets Other expenses 23 Total non-interest expenses Income before income tax and minority interest Income tax 24 Net income before minority interest Minority interest, net Net income for year

Consolidated 2006 Baht

2005 Baht

Company 2006 Baht

2005 Baht

695,547,126 311,205,852 158,382,532 310,102,602 8,159,125

679,684,912 228,653,610 144,057,039 220,000,623 7,215,000

537,560,678 178,681,634 157,145,980 151,147,651 7,199,125

486,749,509 109,209,134 142,830,394 118,713,612 5,010,000

178,871,610

135,916,331

178,871,610

135,916,331

5,679,362 582,229,945 2,250,178,154

– 731,892,948 2,147,420,463

368,657,917 508,013,451 2,087,278,046

230,771,345 619,631,929 1,848,832,254

2,321,745,819 (285,125,026) 2,036,620,793 (2,916,006) 2,033,704,787

2,713,952,916 (275,433,395) 2,438,519,521 (2,518,213) 2,436,001,308

2,318,829,813 (285,125,026) 2,033,704,787 – 2,033,704,787

2,711,434,703 (275,433,395) 2,436,001,308 – 2,436,001,308

Basic earnings per share

25

3.98

4.95

3.98

4.95

Diluted earnings per share

25

3.63

4.44

3.63

4.44

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

66

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

67

90,315,082 – – – – – (46,730,273) 43,584,809

4,959,732,850

22,328,773

5,147,484,160

4,711,011,920 – – – – 248,720,930 –

43,584,809 – – – – – (21,256,036)

4,959,732,850 – – – – 187,751,310 –

Warrants Baht

2,479,979,786

2,365,185,571 – – – – 114,794,215 –

2,604,587,600

2,479,979,786 – – – – 124,607,814 –

Share premium Baht

502,607,895

365,052,985 137,554,910 – – – – –

586,059,743

502,607,895 83,451,848 – – – – –

Fair value reserves on investment in loans Baht

(29,524,203)

40,966,159 (70,490,362) – – – – –

23,503,571

(29,524,203) 53,027,774 – – – – –

558,736,906

448,312,407 – – 110,424,499 – – –

680,536,971

558,736,906 – – 121,800,065 – – –

Consolidated Fair value reserves on available-forLegal sale securities reserve Baht Baht

380,000

380,000 – – – – – –

380,000

380,000 – – – – – –

General reserve Baht

7,654,384,124

6,433,392,240 – 2,436,001,308 (110,424,499) (1,104,584,925) – –

8,398,630,800

7,654,384,124 – 2,033,704,787 (121,800,065) (1,167,658,046) – –

Unappropriated retained earnings Baht

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

Opening Balance as at 1 January 2005 Fair value reserve Net profit Legal reserve Dividend paid Ordinary shares Warrants Closing Balances as at 31 December 2005

Opening Balance as at 1 January 2006 Fair value reserve Net profit Legal reserve (Note 35) Dividend paid (Note 35) Ordinary shares (Note 19) Warrants (Note 19) Closing Balances as at 31 December 2006

Issued and paid-up share capital Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

Total Baht

38,701,091

28,755,160 7,427,718 2,518,213 – – – –

40,831,198

16,208,583,258

14,483,371,524 74,492,266 2,438,519,521 – (1,104,584,925) 363,515,145 (46,730,273)

17,504,342,816

38,701,091 16,208,583,258 (785,899) 135,693,723 2,916,006 2,036,620,793 – – – (1,167,658,046) – 312,359,124 – (21,256,036)

Minority interest Baht


68

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

90,315,082 – – – – – (46,730,273) 43,584,809

4,959,732,850

22,328,773

5,147,484,160

4,711,011,920 – – – – 248,720,930 –

43,584,809 – – – – – (21,256,036)

4,959,732,850 – – – – 187,751,310 –

Warrants Baht

2,479,979,786

2,365,185,571 – – – – 114,794,215 –

2,604,587,600

2,479,979,786 – – – – 124,607,814 –

Share premium Baht

502,607,895

365,052,985 137,554,910 – – – – –

586,059,743

502,607,895 83,451,848 – – – – –

(29,524,203)

40,966,159 (70,490,362) – – – – –

23,503,571

(29,524,203) 53,027,774 – – – – –

Legal reserve Baht

558,736,906

448,312,407 – – 110,424,499 – – –

680,536,971

558,736,906 – – 121,800,065 – – –

Company Fair value reserves on available-forsale securities Baht

380,000

380,000 – – – – – –

380,000

380,000 – – – – – –

General reserve Baht

7,654,384,124

6,433,392,240 – 2,436,001,308 (110,424,499) (1,104,584,925) – –

8,398,630,800

7,654,384,124 – 2,033,704,787 (121,800,065) (1,167,658,046) – –

Unappropriated retained earnings Baht

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

Opening Balance as at 1 January 2005 Fair value reserve Net profit Legal reserve Dividend paid Ordinary shares Warrants Closing Balances as at 31 December 2005

Opening Balance as at 1 January 2006 Fair value reserve Net profit Legal reserve (Note 35) Dividend paid (Note 35) Ordinary shares (Note 19) Warrants (Note 19) Closing Balances as at 31 December 2006

Issued and paid-up share capital Baht

Fair value reserves on investment in loans Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

– – – – – – –

– – – – – – –

Minority interest Baht

16,169,882,167

14,454,616,364 67,064,548 2,436,001,308 – (1,104,584,925) 363,515,145 (46,730,273)

17,463,511,618

16,169,882,167 136,479,622 2,033,704,787 – (1,167,658,046) 312,359,124 (21,256,036)

Total Baht


KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005 Consolidated 2006 Baht Cash flows from operating activities Net income for year 2,033,704,787 Adjustments to reconcile net profit to cash received (paid) from operating activities: Depreciation and amortisation 291,795,922 Bad debt and doubtful accounts 368,064,861 Loss on troubled debt restructuring transactions 9,895,282 Reversal of provision for off-balance sheet items (Note 18) (63,187,776) Provision for diminution in value of securities 12,859,057 Provision for diminution in value of properties foreclosed (reversal) 51,437,754 Loss on revaluation of investment in loans and properties 123,729,179 (Gain) on transfering investment in loans to loans (307,495,392) (Gain) loss on disposal of securities (19,000,500) (Gain) on disposal of equipment (2,372,198) Loss on write off of equipment 15,806,929 Share of net (profit) in subsidiaries – Share of net profit in subsidiaries to minority interest 2,916,006 Profit from operations before changes in operating assets and liabilities 2,518,153,911 (Increase) decrease in operating assets Interbank and money market items 436,397,028 Securities purchased under resale agreements 60,000,000 Investment in trading and available-for-sale securities 498,838,444 Investment in loans 397,603,972 Investment in properties 3,964,612 Accounts receivable from Clearing House 131,739,936 Loans and receivables (9,630,081,275) Accrued interest receivable and dividend 42,817,727 Properties foreclosed 1,495,499,643 Other assets (119,580,196)

Company 2006 Baht

2005 Baht

2005 Baht

2,436,001,308

2,033,704,787

2,436,001,308

231,417,265 756,355,290

240,279,306 363,585,167

179,250,269 756,318,149

7,555,255

9,895,282

7,555,255

63,187,776

(63,187,776)

63,187,776

(14,785,113)

(219,632,438)

296,429,442

177,013,402

155,769,055

11,511,281

206,460,577

(650,632,550) (4,362,774) (2,538,367) – – 2,518,213 2,760,852,920 (1,167,658,343) (410,000,000)

(307,495,392) 500,500 (1,945,543) 144,466 (1,025,314,666)

(650,632,550) (670,943) (1,557,986) – (1,159,648,740)

1,558,106,854

2,013,276,517

220,299,119 60,000,000

(1,154,092,787) (560,000,000)

(445,826,091) 470,844,596 34,179,958

(151,071,141) (520,718,183) –

301,689,165 (54,754,118) –

(147,625,479) (9,271,495,500) 41,240,989 1,424,645,958 (447,352,658)

– (9,306,963,894) 43,282,971 1,454,868,649 (280,866,157)

– (8,970,136,238) 43,118,297 1,391,815,397 (268,453,074)

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

69


KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005 Consolidated 2006 Baht Cash flows from operating activities (cont’d) Increase (decrease) in operating liabilities Deposits 1,707,327,129 Interbank and money market items (567,064,303) Liabilities payable on demand 68,885,260 Accounts payable to Clearing House 47,071,604 Securities business payables (58,610,729) Short term borrowings 100,000,000 Accrued interest expenses 300,271,921 Accrued corporate income tax (31,944,115) Other liabilities (115,607,081) Net cash (used in) provided by operating activities (2,714,316,512) Cash flows from investing activities Cash paid for purchase of investment in securities (2,233,949,789) Proceeds from sales of investment in securities 143,420,372 Purchase of premises and equipment (231,188,191) Proceeds from sales of equipment 8,161,529 Purchase of intangible assets (135,692,311) Dividend received 42,078,821 Net cash (used in) investing activities (2,407,169,569) Cash flows from financing activities Proceeds from increase in share capital Proceeds from share premium Proceeds from sell of debenture Cash paid for debenture redemption Dividend payment Net cash provided by (used in) financing activities Net increase in cash Cash at beginning of year Adjustment for change in accounting policy for joint venture Cash at end of year

166,495,274 124,607,814 7,499,200,000 (1,500,000,000) (1,167,658,046)

2005 Baht

8,779,528,999 222,184,030 84,344,704 (97,823,529) 85,765,053 – 51,312,987 16,917,759 (331,924,793)

Company 2006 Baht

522,327,129 (511,614,987) 68,885,260 – – 4,000,000,000 308,641,029 (31,944,115) (62,420,079)

2005 Baht

8,653,529,059 278,592,287 84,344,704 – – – 52,049,494 17,532,502 (283,253,738)

1,652,111,560

(2,629,187,545)

(1,003,100,671)

(2,207,654,639)

(833,396,044)

398,005,337 (143,054,627) 4,370,191 (59,238,690) – (803,018,460)

24,857,554 (228,798,362) 3,972,066 (126,668,976) 42,078,821 (2,492,213,536)

287,201,839 (93,891,906) 2,244,437 (58,322,692) – (696,164,366)

201,990,657 114,794,215 – – (1,104,584,925)

166,495,274 124,607,814 9,799,200,000 (3,800,000,000) (1,167,658,046)

201,990,657 114,794,215 – – (1,104,584,925)

5,122,645,042 1,158,961 65,646,347

(787,800,053) 61,293,047 5,960,691

5,122,645,042 1,243,961 64,191,347

– 66,805,308

(1,607,391) 65,646,347

– 65,435,308

1,545,257,467

(787,800,053) 61,293,048 2,898,299 – 64,191,347

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005 Consolidated 2006 Baht Additional cash flows information Cash paid during year Interest expense Income tax expense

1,912,435,260 317,069,141

Non cash transactions Transfer of assets for loan settement 3,944,865,180 Transfer of investments in loans to be loans 616,328,474 Transfer of foreclosed assets to be loans – Transfer of foreclosed assets to be land for own use (Note 12) 17,600,000 Accounts receivable from sales of leasehold right not yet received cash 78,957,167 Deferred income from sales of leasehold right 30,291,817 Transfer of land to be foreclosed assets 3,488,017

2005 Baht

Company 2006 Baht

2005 Baht

1,500,535,197 258,515,637

2,007,159,643 317,069,141

1,492,663,857 257,900,894

2,224,276,925 859,839,858 292,102,389

3,736,765,319 616,328,474 –

1,884,651,006 859,839,858 292,102,389

17,600,000

78,957,167

– –

30,291,817 3,488,017

– –

The notes to the consolidated and company financial statements on pages 72 to 135 are an integral part of these financial statements. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

71


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

1. Approval of the financial statements These consolidated and the company financial statements have been approved for issue by the management on 19 February 2007.

2. General information Kiatnakin Bank Public Company Limited (“the bank”) incorporated in Thailand. The address of its registered office is as follows: 12th Floor, Amarin Tower, 500, Ploenchit Road, Patumwan, Bangkok, 10330. The bank is listed on the Stock Exchange of Thailand. The principal business operations of the bank and the subsidiaries (çthe groupé) are financing services, securities brokering and investing advisory. The group employs 1,489 staff (31 December 2005: 1,466 staff), with 19 branches (31 December 2005: 16 branches).

3. Accounting Policies a) Basis of preparation The consolidated and the company financial statements have been prepared in accordance with Thai generally accepted accounting principles under the Accounting Act B.E. 2543, being those Thai Accounting Standards issued under the Accounting Profession Act B.E. 2547, and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act B.E. 2535 and the Bank of Thailand. The consolidated and the company financial statements have been prepared under the historical cost convention except for investment and foreclosed assets which used fair value as disclosed in related Notes to the financial statements. The preparation of financial statements in conformity with Thai generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses in the reported periods. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. An English version of the consolidated and company financial statements have been prepared from the statutory financial statements that are in Thai language. In the event of a conflict or a difference in interpretation between the two languages, the Thai language statutory financial statements shall prevail.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) b) Income and expenses recognition Interest on loans and deposits Interest on loans and deposits is recognised as income on the accrual basis, except in the case of interest on loans which is over three months past due from the due date where interest is recognised on collection basis. The bank reverses accrued interest income on loan when its principal or interest payment has become over three months past due to comply with the Bank of Thailand’s notification dated 24 December 1998. The bank continues its income recognition on the accrual basis when the entire amount of the principal and overdue interest has been paid. Hire purchase and financial lease income Hire purchase income is calculated by the “sum of the installment digits” method and recognised on the accrual basis, except in the case of interest on hire purchase which is over three months past due from the due date where interest is recognized on collection basis. The bank reverses accrued interest income on hire purchase when its principal or interest payment has become over three months past due to comply with the Bank of Thailand’s notification dated 24 December 1998. The bank continues its income recognition on the accrual basis when the entire amount of the principal and overdue interest has been paid. Lease contracts are recorded by financial lease method. Income from financial lease contracts is recognised on the effective interest method over the year of contracts. Interest and dividend income Interest on investment is recognised as income on accrual basis except in the case of interest on debt securities which is over three months past due from the due date where interest is recognised on collection basis. Dividend income is recognised when dividend is declared. Income from investment in loans Interest on investment in loans is recognized as income on the collection basis based on the outstanding loans multiplied by the effective yield according to contract or new agreement. Fees and services income Fees and services are recognised as income when services are rendered. Expenses and dividend recognition Expenses are recognised on an accrual basis. Dividends are recorded in the consolidated and company financial statements in the period in which they are approved by the shareholders.

c) Cash Cash includes cash on hand and cash on collection.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) d) Investment in securities d.1) Basis of investment classification Investments other than investments in subsidiaries and interest in joint ventures are classified into the following four categories: trading, held-to-maturity, available-for-sale and general investments. The classification is dependent on the purpose for which the investments were acquired. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in short-term investments. Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in long-term investments, except for maturities within 12 months from the balance sheet date, which are classified as short-term investments. Investments intended to be held for an indefinite period of time, which may be sold in response to liquidity needs or changes in interest rates, are classified as available-for-sale; and are included in long-term investments unless management has expressed the intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in short-term investments. Investments in nonmarketable equity securities are classified as general investments. d.2) Book value of investments Trading and available-for-sale investments are stated at fair value. The fair value of debt securities traded in the established market is based on the quoted prices or yields of the debt securities at the balance sheet date, or the latest trading date prior to the balance sheet date if there was no trading on that date. If the debt securities are not traded in the established market, the fair value is calculated by reference to the risk-free yield curve adjusted by an appropriate risk premium. The fair value of equity securities is based on the last bid price quoted by the Stock Exchange of Thailand at the balance sheet date. The fair value of unit trusts is determined from the net assets value (NAV) published by mutual fund management companies as the fund managers. Unrealised gain or losses resulting from changes in fair value of trading investments are recognised in the statements of income. Unrealised gain or losses resulting from changes in fair value of available-for-sale investments are recognised as a net amount in a separate component of shareholders’ equity, except where the securities are sold out, the realised gain or losses will be recognised in the statements of income. Held-to-maturity investments are carried at amortised cost using the effective yield method. General investments are stated at cost less allowance for impairment in value. Investments in subsidiaries are reported by using the equity method of accounting in the company financial statements.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) Subsidiaries are companies in which Kiatnakin Bank Public Company Limited has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, significant accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the bank. Separate disclosure is made for minority interests in the consolidated balance sheet and consolidated statement of income. A list of the subsidiaries is set out in Note 6. A test of impairment is carried out when there is a factor indicating that an investment might be impaired. If the carrying amount of the investment is higher than its recoverable amount, impairment loss is charged to the statements of income. d.3) Income recognition relative to investment On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the statement of income. When partly disposing of a particular investment in debt or equity securities, the carrying amount of disposed part is determined by the weight average carrying amount of the total holding of the investment.

e) Valuation of investment in loans The investment in loans is the investment in commercial and hire-purchase loans with and without collateral. These commercial and hire-purchase loans have no readily ascertainable market values available and, therefore, are reported at estimated fair value as determined by the net present value of estimated future cash flows from selling of collateral, appraised by an external independent valuer or internal valuer according to BOT guideline, discounted by 7% per annum with expected selling period of 4.5 years but not exceeding balance in original contracts (2005: discounted by 15% per annum with expected selling period of 3 years). The values assigned to the investment portfolio are based upon available information and assumptions and do not necessarily represent amounts which might ultimately be realized. Because of the inherent uncertainty of valuation, those estimated fair values might differ from the values that would have been used had a ready market for the investments existed.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) The subsidiaries, which are mutual funds, measured the fair values of the investment in restructured commercial loans and other loans based upon net present value of estimated future cash flows (interest rate as identified in restructuring agreements). Fair value of the investment in nonrestructured commercial loans and other loans are based upon the net present value of estimated future cash flows from selling of collateral, appraised by an external independent valuer or internal valuer according to the BOT guideline, discounted by 7% per annum with expected selling period of 4.5 years but not exceeding balance in original contracts (2005: discounted by 15% per annum with expected selling period of 3 years). Unrealised gain or losses resulting from changes in fair value of investment in loans of the bank are reported as a net amount in a separate component of shareholders’ equity, except where the investments are sold out, the realised gain or losses will be recognised in the statements of income. The subsidiaries, which are mutual funds, recognise the changes in fair value of investment in loans in the statements of income according to TAS 42, “Accounting for Investment Business”. A test for impairment is carried out when there is a factor indicating that an investment might be impaired. If the carrying value of the investment is higher than its recoverable amount, impairment loss is charged to the statement of income. For parent company, where there is a change in terms or contracts, the investment in loans will be transferred to loans account to comply with the Bank of Thailand’s notification no. Thor Por Tor. Sor Nor Sor. (31) Wor. 2775/2545 Re: Accounting procedures regarding purchasing or taking of transfer of loan debters and supervision guidelines. The fair value was adopted for transfer. The difference between net book value and fair value is recognized as gain on revaluation in the statement of income.

f) Valuation of investment in property The investment in property is the investment in real estate business of the subsidiaries, which are mutual funds. These investments generally have no readily ascertainable market values available and, therefore, are reported at estimated fair value calculated from the appraisal value, appraised by an external independent valuer or internal valuer according to the BOT guideline and discount by the risk premium according to the holding period. The values assigned to the investment portfolio are based upon available information and assumptions and do not necessarily represent amounts which might ultimately be realized. Because of the inherent uncertainty of valuation, those estimated fair values might differ from the values that would have been used had a ready market for the investment existed. Unrealised gain or losses resulting from changes in fair value of investment in property are reported in the statements of income according to TAS 42, “Accounting for Investment Business”.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) g) Allowance for doubtful accounts The bank classifies its loan portfolios into categories and sets allowance for doubtful accounts for loans in accordance with the Bank of Thailand’s notification dated 21 December 2006 (For the year ended 2005, allowance set in accordance with the Bank of Thailand’s notification dated 26 August 2004) and with the management estimation over the allowance for doubtful accounts from the ending balance of loans. The period of time that a loan is past due and the ability to repay the debt are the principal criteria utilised in classifying a loan. The collateral value (appraised by an independent valuer or internal valuer every 3 years) used in calculating the required allowance for doubtful accounts is based on the type of collateral according to the BOT guideline. In 2006, the bank sets loans reserve at the rate 100% for the discrepancies between debts and net present value of estimated future cash flows from selling of collateral except for the normal and specially mentioned debts where reserve is set at the rates of 1% and 2% per annum, respectively. In 2005, the bank sets loans reserve for each class of debts at the rates identified in (Note 8 e). Allowance for doubtful accounts on hire-purchase loan is provided by based on the aging analysis for each class of debts according to the guidelines of the Bank of Thailand. For the year ended 2006, the bank calculated reserve for sub-standard and doubtful debts based on historical loss experience at the rate of 22.26% per annum. Allowance for doubtful accounts for securities business receivables has been determined on the basis in accordance with the requirements of the Securities and Exchange Commission’s notification dated 15 February 2001. The increase or decrease in allowance for doubtful accounts is recorded as expenses or decrease in expenses during the accounting period. Bad debts are written off during the year in which they are identified. Bad debts recovery is recorded by credit to bad debts and doubtful accounts expenses in the statements of income.

h) Troubled debt restructuring The bank accounts for troubled debt restructuring in accordance with guidelines approved by the Bank of Thailand. The bank records the assets or equities transferred to the bank for debt settlements at the lower of fair values of the assets, less estimated selling expenses, or the amount of investment in receivables (including non-accrued interest income at the restructuring date). In case that the debt restructuring involves modifications of terms of receivables, the fair value of investment in receivables after restructuring is based on the net present value of the expected future cash flows, using the Minimum Lending Rates (MLR) prevailing at the restructuring date. Losses arising from restructuring by waiver of principal or recorded accrued interest receivable, less recorded allowance, are recognised in the statement of income when incurred. Legal fees and other direct costs incurred to affect the debt restructuring are expensed when incurred.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) During the year, the bank changed the classification of assets received in satisfaction of troubled debts restructuring where the bank granted an option to debtors for repurchasing the assets which previously were recorded as loans to properties foreclosed according to the BOT guideline.

i) Properties foreclosed Properties foreclosed represent land and/or construction, leasehold, condominium and repossessed vehicles. The repossessed land and/or construction, leasehold and condominium are stated at the lower of the outstanding loan principal including accrued interest or fair value. The subsidiaries, which are mutual funds, stated the properties foreclosed at the fair value. Fair value calculated from the appraisal value by an external independent valuer or internal valuer (valuation every year) less estimated selling cost and discounted by the risk premium according to the holding period. The repossessed vehicles are stated at the lower of the outstanding loan principal including accrued interest and accrued value added tax or fair value. Fair value of the repossessed vehicles is based on the external appraised value less estimated discount according to risk that might incur of each repossessed vehicle.

j) Premises and equipment and depreciation Land is stated at historical cost. Buildings and equipment are stated at historical cost less accumulated depreciation. Depreciation is calculated on the straight-line basis to write off the cost of each asset, except for land which is considered to have an indefinite life, to its residual value over its estimated useful life as follows: Buildings Other fixed assets

10 - 20 years 5 years

Gains and losses on disposal of fixed assets determined by comparing proceeds with the carrying amount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the group. Major renovations are depreciated over the remaining useful life of the related asset.

k) Intangible assets k.1) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of 10 years.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) Expenditure which enhances or extends the performance computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software development costs are recognised as assets are amortised using the straight-line method over their estimated useful lives, not exceeding a period of 10 years. k.2) Leasehold right Expenditure on acquired leasehold right in building is capitalised and amortised using the straight-line method over their useful lives, generally between 1-9 years.

l)

Foreign currency transactions

Foreign currencies transactions are accounted for at the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities at the balance sheet date denominated in foreign currencies are translated into Baht using the reference rates of exchange of the Bank of Thailand ruling as of that date. Gains and losses on exchange resulting from the settlements and the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the statement of income.

m) Commercial papers sold Sales with recourse of commercial papers without bank’s or finance company’s acceptance or aval are recorded as liabilities under the caption of çLiabilities under commercial papers soldé. Sales with recourse of commercial papers with bank’s or finance company’s acceptance or aval are presented as offbalance sheet contingencies.

n) Related companies Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the bank, including holding companies, subsidiaries and fellow subsidiaries are related parties of the bank. Associates and individuals owning, directly or indirectly, an interest in the voting power of the bank that gives them significant influence over the enterprise, key management personnel, including directors and officers of the bank and close members of the family of these individuals and companies associated with these individuals also constitute related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) o) Accounting for lease Leases of premises or equipment which substantially transfer all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated to the principal and to the finance charges so as to achieve a constant rate on the finance balance outstanding. The outstanding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of income over the lease period so as to achieve a constant periodic rate of interest on the remaining balance of the liability for each period. The premises or equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases not transferring a significant portion of the risks and rewards of ownership to the lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. When an operating leases is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

p) Deferred income taxes The group does not recognise income taxes payable or receivable in future periods in respect of temporary differences arising from differences between the tax base of assets and liabilities and their carrying amounts in the financial statements.

q) Earnings per share Basic earnings per share amount are computed by dividing the net income (loss) for year by the weighted-average number of paid-up ordinary shares in issue during the year. The diluted earnings per share is therefore computed by dividing the net income for year adjusted by expense (after tax effect) saved from the conversion of dilutive potential ordinary shares, by the weighted-average number of ordinary shares (included potentially dilutive shares).

r) Provident fund The group operates a provident fund that is a defined contribution plan, the assets of which are held in a separate trust fund. The provident fund is funded by payments from employees and by the relevant group companies. Contributions to the provident fund are charged to the statement of income in the year to which they relate.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

3. Accounting Policies (cont’d) s) Post employment benefit The group provides for post employment benefits, payable to employees under Thai Labour Law. The amounts payable in the future depend on the salary and the maximum years of service of the respective employees. The liability arising as a result of such regulation is recorded in the present value of estimated future cash outflows using weighted-average interest rates of five-year government bond.

t) Financial risk management Financial assets carried on the balance sheet include cash, interbank and money market items, investment in securities and loans. Financial liabilities carried on the balance sheet include deposits, interbank and money market items, and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The group’s activities expose it to a variety of financial risks. The group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. Risk management is carried out by a treasury department and risk management department under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity. The group is also party to financial instruments that reduce exposure to fluctuations in interest rates. These instruments are interest rate swap agreements which are not recognised in the financial statements on inception. Interest rate swap agreements protect the group from movements in interest rates. Any differential to be paid or received on an interest rate swap agreement is recognised as a component of interest revenue or expense over the period of the agreement. Gains and losses on early termination of interest rate swaps or on repayment of the borrowing are taken to the statement of income. Disclosures about financial instruments to which the group is a party are provided in Note 30.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

81


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

4. Interbank and money market items - Domestic items (Assets) As at 31 December 2006 and 31 December 2005, interbank and money market items comprised of: 31 December 2006 On demand The Bank of Thailand and FIDF 452,702,526 Commercial Banks 1,000,662,483 Finance, Securities and Credit froncier 300,000,000 Total 1,753,365,009 Add: Accrued interest receivable – Less: Allowance for doubtful accounts (9,900,000) Total 1,743,465,009

Consolidated Term

Total

On demand

Company Term

Total

– 150,001,703

452,702,526 1,150,664,186

452,702,526 653,414,103

– 150,001,703

452,702,526 803,415,806

– 150,001,703

300,000,000 1,903,366,712

490,000,000 1,596,116,629

– 150,001,703

490,000,000 1,746,118,332

59,671

59,671

59,671

59,671

(1,500,000) 148,561,374

(11,400,000) 1,892,026,383

– (9,900,000) 1,586,216,629

(1,500,000) 148,561,374

(11,400,000) 1,734,778,003

31 December 2005 Consolidated Term

On demand The Bank of Thailand and FIDF 235,604,063 Commercial Banks 1,901,515,310 Total 2,137,119,373 Less: Allowance for doubtful accounts (13,000,000) Total 2,124,119,373

Company Term

Total

On demand

Total

– 202,704,037 202,704,037

235,604,063 2,104,219,347 2,339,823,410

235,114,436 1,531,361,026 1,766,475,462

– 200,001,659 200,001,659

235,114,436 1,731,362,685 1,966,477,121

(2,000,000) 200,704,037

(15,000,000) 2,324,823,410

(13,000,000) 1,753,475,462

(2,000,000) 198,001,659

(15,000,000) 1,951,477,121

As at 31 December 2006, the bank has fixed deposits at bank used for the issuance of guarantee at nil for consolidated and company financial statements (31 December 2005: Baht 1.59 million and nil, respectively).

5 Securities purchased under resale agreements

Government and Bank of Thailand’s bonds Total

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Consolidated 31 December 31 December 2006 2005 Baht Baht

Company 31 December 31 December 2006 2005 Baht Baht

1,420,000,000 1,420,000,000

1,420,000,000 1,420,000,000

1,480,000,000 1,480,000,000

1,480,000,000 1,480,000,000


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net 31 December 2006 Consolidated Cost/ Net book value Fair value Baht Baht Short-term investment Trading securities Equity securities Listed securities Unit trusts Less: Provision for change in value of investments Net equity securities Net trading securities Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Less: Provision for change in value of investments Total - net debt instruments Equity securities Listed securities Unit trusts Add (less): Provision for changes in value of investments Net equity securities Net available-for-sale securities Held to maturity securities Government and state enterprise securities Net short-term investment

Company Cost/ Net book value Fair value Baht Baht

171,299,834 100,000,000 271,299,834

160,835,652 100,000,000 260,835,652

– – –

– – –

(10,464,182) 260,835,652 260,835,652

– 260,835,652 260,835,652

– – –

– – –

46,000

41,269

46,000

41,269

99,972,728 100,018,728

99,972,728 100,013,997

– 46,000

– 41,269

(4,731) 100,013,997

– 100,013,997

(4,731) 41,269

– 41,269

1,026,757,792 50,170,896 1,076,928,688

953,009,354 76,574,678 1,029,584,032

870,965,386 50,100,000 921,065,386

864,550,391 76,503,047 941,053,438

(47,344,656) 1,029,584,032

– 1,029,584,032

19,988,052 941,053,438

– 941,053,438

1,129,598,029

1,129,598,029

941,094,707

941,094,707

522,629,353

522,629,353

1,913,063,034

1,463,724,060

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net (cont’d) 31 December 2006 Consolidated Cost/ Net book value Fair value Baht Baht Long-term investment Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total Less: Provision for changes in value of investments Net debt instruments

6,451,886

– 6,451,886

– –

– –

– –

(6,451,886) –

– –

– –

– –

Equity securities Listed securities Unit trusts Total Add: Provision for changes in value of investments Net equity securities

– – –

– – –

– – –

– – –

– –

– –

– –

– –

Net available-for-sale securities

Held to maturity securities Government and state enterprise securities General investment Equity securities Unit trusts Total general investment Net long-term investment Investment in subsidiaries Equity securities Unit trusts Total investment in subsidiaries Net investment in securities

84

Company Cost/ Net book value Fair value Baht Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

3,436,189,613

3,436,189,613

19,175,347 20,000 19,195,347

11,482,123 10,000 11,492,123

3,455,384,960

3,447,681,736

– – – 5,368,447,994

763,349,265 11,043,504,848 11,806,854,113 16,718,259,909


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net (cont’d) 31 December 2005 Consolidated Cost/ Net book value Fair value Baht Baht Short-term investment Trading securities Equity securities Listed securities Less: Provision for change in value of investments Net equity securities Net trading securities

Company Cost/ Net book value Fair value Baht Baht

41,942,123

39,202,100

(2,740,023) 39,202,100 39,202,100

– 39,202,100 39,202,100

– – –

– – –

874,841,194

874,841,194

104,856,402 979,697,596

104,856,402 979,697,596

– –

– –

1,083,871,621 100,295,896 1,184,167,517

951,509,661 126,297,761 1,077,807,422

Less: Provision for changes in value of investments Net equity securities

(106,360,095) 1,077,807,422

– 1,077,807,422

(38,396,422) 989,608,148

– 989,608,148

Net available-for-sale securities

2,057,505,018

2,057,505,018

989,608,148

989,608,148

Net short-term investment

2,096,707,118

Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total - net debt instruments Equity securities Listed securities Unit trusts

927,779,570 100,225,000 1,028,004,570

863,384,729 126,223,419 989,608,148

989,608,148

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

85


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net (cont’d) 31 December 2005 Consolidated Cost/ Net book value Fair value Baht Baht Long-term investment Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total Less: Provision for changes in value of investments Net debt instruments Equity securities Listed securities Unit trusts Total Add: Provision for changes in value of investments Net equity securities Net available-for-sale securities Held to maturity securities Government and state enterprise securities General investment Equity securities Unit trusts Total general investment Net long-term investment Investment in subsidiaries Equity securities Unit trusts Total investment in subsidiaries Net investment in securities

86

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Company Cost/ Net book value Fair value Baht Baht

6,497,886

36,662

46,000

36,662

30,215,665 36,713,551

30,992,434 31,029,096

– 46,000

– 36,662

(5,684,455) 31,029,096

– 31,029,096

(9,338) 36,662

– 36,662

31,639,883 10,035,000 41,674,883

36,611,400 10,035,000 46,646,400

– – –

– – –

4,971,517 46,646,400

– 46,646,400

– –

– –

77,675,496

77,675,496

36,662

36,662

1,504,507,221

1,504,507,221

26,406,298 10,000 26,416,298

12,232,125 10,000 12,242,125

1,608,599,015

1,516,786,008

– – – 3,705,306,133

789,793,732 9,997,107,303 10,786,901,035 13,293,295,191


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net (cont’d) Outstanding available-for-sale and held to maturity debt instruments can be analysed as follows: 31 December 2006 Consolidated Mature Mature within Mature within On demand within 1 year 2-5 years 2-5 years Baht Baht Baht Baht Available-for-sale debt instruments Corporate debt instruments Government and state enterprise securities Total Less: Provision for changes in value of investment Held to maturity debt instruments Government and state enterprise securities Net debt securities

6,451,886

46,000

6,497,886

– 6,451,886

99,972,728 100,018,728

– –

– –

99,972,728 106,470,614

(6,451,886) –

(4,731) 100,013,997

– –

– –

(6,456,617) 100,013,997

– –

522,629,353 622,643,350

Mature within 1 years Baht Available-for-sale debt instruments Corporate debt instruments Total Less: Provision for changes in value of investment

Held to maturity debt instruments Government and state enterprise securities Net debt securities

Total Baht

2,833,848,023 2,833,848,023

602,341,590 602,341,590

31 December 2006 Company Mature within Mature within 2-5 years 6-10 years Baht Baht

3,958,818,966 4,058,832,963

Total Baht

46,000 46,000

– –

– –

46,000 46,000

(4,731) 41,269

– –

– –

(4,731) 41,269

522,629,353 522,670,622

2,833,848,023 2,833,848,023

602,341,590 602,341,590

3,958,818,966 3,958,860,235

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

87


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities, net (cont’d)

On demand Baht Available-for-sale debt instruments Corporate debt instruments Government and state enterprise securities Total Add (less): Provision for changes in value of investment Held to maturity debt instruments Government and state enterprise securities Net debt securities

31 December 2005 Consolidated Mature within Mature within 1 years 2-5 years Baht Baht

Total Baht

6,451,886 – 6,451,886

874,841,194 104,856,402 979,697,596

46,000 30,215,665 30,261,665

881,339,080 135,072,067 1,016,411,147

(6,451,886) –

– 979,697,596

767,431 31,029,096

(5,684,455) 1,010,726,692

– –

– 979,697,596

1,504,507,221 1,535,536,317

1,504,507,221 2,515,233,913

31 December 2005 Company Mature within 2-5 years Total Baht Baht Available-for-sale debt instruments Corporate debt instruments Total Less: Provision for changes in value of investment Held to maturity debt instruments Government and state enterprise securities Net debt securities

46,000 46,000 (9,338) 36,662 1,504,507,221 1,504,543,883

46,000 46,000 (9,338) 36,662 1,504,507,221 1,504,543,883

The subsidiaries incorporated in the consolidated accounts are Kiatnakin Securities Company Limited, Asia Recovery Fund 1, 2 and 3, Thai Restructuring Fund and Asia Recovery Property Fund 1 and 3. As at 28 February 2006, the bank set up a subsidiary named Pathumwan Assets Management Company Limited to receive a transfer of the non-performing loans of the bank. However, the management considered that the transfer of such non-performing loans would not meet the business objective as expected due to the constraint of related laws and regulations. Therefore, the bank withdrew the investment. This subsidiary registered for dissolution with the Ministry of Commerce on 15 November 2006. In first quarter of 2006, the bank received the shares from conversion of debts to shares of CMIC Development Company Limited. The bank did not pay any cash for this investment. The bank recorded this investment as general investment at the cost of Baht 1.

88

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

6. Investment in securities (cont’d) The consolidated financial statements for the years then ended 31 December 2006 do not consolidate CMIC Development Company Limited which the bank holds 80.58% of common shares since the shares were received from conversion of debts to equity according to the debt restructuring agreement. The bank’s management intend to hold these shares for a short period of time. The purpose for this deal is in order to facilitate the debtor to continue its operation, and also solve the nonperforming loan problem. The bank intends to receive the repayment in the future, rather than control the debtor’s operations. In the unaudited financial statements as at 31 December 2006 of CMIC Development Company Limited, total assets was amounting to Baht 1,398.94 million and negative shareholders’ equity was amounting to Baht 153.62 million. As at 31 December 2006, the bank deposited government and state enterprise securities at Bank of Thailand, amounted to Baht 2,801 million (31 December 2005: Baht 982 million) for the guarantee of securities with repurchase agreement in Bank of Thailand market. Investment in securities where the bank holds 10% or more of the issued shares of the investees are as follows: 31 December 2006 Consolidated and Company Investment amount Principal at cost Percentage of activities Baht holding Other companies BTMU Leasing Co., Ltd. Attakorn Co., Ltd. CMIC Development Co., Ltd. Fund (which is not a legal juristic entity) Kiatnakin Fixed Income Fund Ayudthya Tuntawee Fund 5

Leasing Hire purchase Real estate

Investing in bonds and promissory Investing in debt and equity securities

3,085,200 – 1

10.00 10.00 80.58

10.33

50,000,000

83.57

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

89


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

31 December 2005 Consolidated and Company Investment amount Principal at cost Percentage of activities Baht holding Other companies Chiangmai Yarnyon 1993 Co., Ltd. BTMU Leasing Co., Ltd. Attakorn Co., Ltd. M.V. Property Estate Co., Ltd. Fund (which is not a legal juristic entity) Kiatnakin Fixed Income Fund Kiatnakin Bank K-Asset Equity Fund Ayudthya Tuntawee Fund 5

90

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Car trading Leasing Hire purchase Real estate

Investing in bonds and promissory Investing in debt and equity securities Investing in debt and equity securities

650,000 3,085,200 – 100,000

10.00 10.00 10.00 10.00

10.33

50,125,000

38.77

50,000,000

74.61


KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

91

Securities

Asia Recovery 1 Fund Unit trust* Asia Recovery 2 Fund Unit trust* Asia Recovery 3 Fund Unit trust* Thai Restructuring Fund Unit trust* Asia Recovery Property Fund 1 Unit trust** Asia Recovery Property Fund 3 Unit trust***

Kiatnakin Securities Co., Ltd.

Principal activities Ordinary shareholder Unit holder Unit holder Unit holder Unit holder Unit holder Unit holder

Relationship

The followings are details of the bank’ s subsidiaries.

6. Investment in securities, net (cont’d)

650,000,000 1,259,474,124 1,872,393,082 1,908,328,946 786,984,835 244,184,036 933,405,003

Paid-up capital/ outstanding capital Baht

649,999,930 1,300,337,966 1,961,941,249 2,014,395,044 778,863,948 255,966,954 941,000,000 7,902,505,091

Cost method Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

763,349,265 2,165,902,580 2,783,553,255 2,854,047,045 1,801,142,002 248,716,404 1,190,143,562 11,806,854,113

Equity method Baht

31 December 2006 Company

649,999,930 1,258,841,522 1,864,642,561 1,907,786,584 778,413,713 242,963,061 921,954,695 7,624,602,066

99.99 99.95 99.59 99.97 98.91 99.50 98.77

Investment proportion Amount at par Percentage Baht of holding

– – – – – – –

Dividend paid by subsidiaries Baht


92

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Securities Ordinary shareholder Unit holder Unit holder Unit holder Unit holder Unit holder Unit holder

Relationship

650,000,000 1,259,474,124 1,872,393,082 1,908,328,946 786,984,835 244,184,036 933,405,003

Paid-up capital/ outstanding capital Baht

* Investment in commercial loans auction from FRA. ** Investment in loans, which have properties as collateral or properties *** Investment in loans or properties

Asia Recovery 1 Fund Unit trust* Asia Recovery 2 Fund Unit trust* Asia Recovery 3 Fund Unit trust* Thai Restructuring Fund Unit trust* Asia Recovery Property Fund 1 Unit trust** Asia Recovery Property Fund 3 Unit trust***

Kiatnakin Securities Co., Ltd.

Principal activities

The followings are details of the bank’ s subsidiaries.

6. Investment in securities, net (cont’d)

649,999,930 1,300,337,966 1,961,941,249 2,014,395,044 778,863,948 255,966,954 941,000,000 7,902,505,091

Cost method Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

789,793,732 1,984,558,318 2,448,470,578 2,637,657,349 1,595,340,297 255,388,055 1,075,692,706 10,786,901,035

Equity method Baht

31 December 2005 Company

649,999,930 1,258,841,522 1,864,642,561 1,907,786,584 778,413,713 242,963,061 921,954,695 7,624,602,066

99.99 99.95 99.59 99.97 98.91 99.50 98.77

Investment proportion Amount at par Percentage Baht of holding

– – – – – – –

Dividend paid by subsidiaries Baht


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

7. Investment in loans, net The details of bidding receivables from the Financial Restructuring Authority (FRA), the Legal Execution Department (LED) and purchasing receivables are as follows: As of 31 December 2006

Purchase date

Number of customers

Outstanding balance per prior and renew agreements Baht

Outstanding balance Baht

Fair value Baht

431 260

2,998,345,018 979,230,985

753,442,176 118,417,259

598,428,595 130,182,522

1

44,810,160

35,226,196

10,788,000

703 1,871 3,266

103,539,946 16,899,520,076 21,025,446,185

8,028,447 4,309,255,619 5,224,369,697

– 4,272,008,588 5,011,407,705

2,541 5,807

10,873,669,984 31,899,116,169

2,519,954,454 7,744,324,151

4,070,203,668 9,081,611,373

Number of customers

Outstanding balance per prior and renew agreements Baht

Outstanding balance Baht

Fair value Baht

461 269

3,222,639,997 1,043,217,261

1,125,681,540 219,733,964

763,911,248 193,083,500

1

44,810,160

35,226,196

14,223,062

710 1,803 3,244

105,036,660 16,220,975,071 20,636,679,149

8,118,748 4,470,982,544 5,859,742,992

– 4,077,645,879 5,048,863,689

2,874 6,118

12,084,267,126 32,720,946,275

3,438,272,598 9,298,015,590

5,105,189,530 10,154,053,219

Kiatnakin Bank Public Company Limited Receivables auction from FRA 30 September 1999 15 December 1999 Receivables purchased January 2000 - December 2000 Investment in hire purchase loans transferred from RT-KK Receivables auction from LED Total Subsidiaries (unit trust)

As of 31 December 2005

Purchase date Kiatnakin Bank Public Company Limited Receivables auction from FRA 30 September 1999 15 December 1999 Receivables purchased January 2000 - December 2000 Investment in hire purchase loans transferred from RT-KK Receivables auction from LED Total Subsidiaries (unit trust)

During the year ended 31 December 2006, the impairment charge for investment in loans decreased by Baht 5,304,581 as a result of collection (2005: increase of Baht 206,453,073 was made as a result of the uncertainty in the abilities to repay these balances). KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

93


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable a) Classified by type of business Consolidated 31 December 31 December 2006 2005 Baht Baht

Company 31 December 31 December 2006 2005 Baht Baht

Banking business loans Loans Hire purchase receivables* Leasing receivables* Total banking business loans Add: Accrued interest receivable Less: Allowance for doubtful accounts Allowance for troubled debt restructuring Net banking business loans and accrued interest receivable

21,412,128,915 29,665,806,160 79,361,814 51,157,296,889 447,288,707

21,979,900,455 23,556,204,100 – 45,536,104,555 507,275,528

21,412,128,915 29,665,806,160 79,361,814 51,157,296,889 447,288,707

21,979,900,455 23,556,204,100 – 45,536,104,555 507,275,528

(3,187,308,225)

(3,596,173,079)

(3,187,308,225)

(3,596,173,079)

(148,674,501)

(235,491,532)

(148,674,501)

(235,491,532)

48,268,602,870

42,211,715,472

48,268,602,870

42,211,715,472

Cash accounts Margin accounts

396,012,904 305,096,123

305,815,098 280,276,410

17,958,090 –

17,958,090 –

Total securities business receivables Add: Accrued interest receivable Less: Allowance for doubtful accounts Net securities business receivables and accrued interest receivable

701,109,027 2,850,765

586,091,508 2,454,794

17,958,090 –

17,958,090 –

(47,112,994)

(52,255,694)

(17,595,046)

(17,662,819)

656,846,798

536,290,608

363,044

295,271

48,925,449,668

42,748,006,080

48,268,965,914

42,212,010,743

Securities business receivables

Net loans and accrued interest receivable

* Hire-purchase and Leasing receivables are shown net of unearned income in the consolidated and the company financial statements amount of Baht 5,213,145,303 and 15,440,068 respectively (31 December 2005: Baht 4,051,175,555 and nil, respectively).

94

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) b) Classified by maturity Consolidated 31 December 31 December 2006 2005 Baht Baht On demand or become due Less than one year Over one year Total loans and accrued interest receivables

Company 31 December 31 December 2006 2005 Baht Baht

1,574,199,675 2,983,154,130 47,751,191,583

2,439,642,535 6,418,364,863 37,773,918,987

1,572,138,459 2,325,580,938 47,724,824,289

2,436,513,338 5,881,898,708 37,742,926,127

52,308,545,388

46,631,926,385

51,622,543,686

46,061,338,173

c) Classified by currency and customer location 31 December 2006 Consolidated Domestic Baht Total

52,308,545,388 52,308,545,388

Total

52,308,545,388 52,308,545,388

Company Domestic 51,622,543,686 51,622,543,686

Total

51,622,543,686 51,622,543,686

31 December 2005 Consolidated Domestic Baht Total

46,631,926,385 46,631,926,385

Total

46,631,926,385 46,631,926,385

Company Domestic 46,061,338,173 46,061,338,173

Total

46,061,338,173 46,061,338,173

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

95


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification

Specially Normal debts mentioned debts Baht Baht Agriculture and mining Manufacturing and commerce Property development and construction Public utility and services Housing loans Hire purchase loans Leasing loan Others Total loans Accrued interest receivables

8,100,000

Accrued interest receivables

96

Possible loan loss Baht

Total Baht

7,409,838

10,796,158

26,305,996

1,074,224,036

15,905,257

115,749,433

99,252,303

454,148,395

1,759,279,424

9,647,652,641 729,453,394 120,980,825 24,755,600,460 79,361,814 1,601,536,124 38,016,909,294

2,514,604,844 19,789,971 16,651,701 3,636,333,335 – 45,441,111 6,248,726,219

2,173,795,488 56,064,392 766,903 871,022,964 – 60,971,159 3,278,370,339

1,220,660,721 81,232,689 3,427,395 354,098,676 – 81,151,315 1,847,232,937

341,943,150

101,199,115

85,255

1,567,228

5,344,724

450,139,472

31 December 2006 Company Sub-standard Doubtful debts debts Baht Baht

Possible loan loss Baht

Total Baht

Specially Normal debts mentioned debts Baht Baht Agriculture and mining Manufacturing and commerce Property development and construction Public utility and services Housing loans Hire purchase loans Leasing loan Others Total loans

31 December 2006 Consolidated Sub-standard Doubtful debts debts Baht Baht

8,100,000

1,439,969,029 16,996,682,723 94,477,838 981,018,284 25,397,732 167,224,556 48,750,725 29,665,806,160 – 79,361,814 393,627,250 2,182,726,959 2,467,167,127 51,858,405,916

7,409,838

10,796,158

26,305,996

1,074,224,036

15,905,257

115,749,433

99,252,303

454,148,395

1,759,279,424

9,647,652,641 729,453,394 120,980,825 24,755,600,460 79,361,814 946,677,376 37,362,050,546

2,514,604,844 19,789,971 16,651,701 3,636,333,335 – 45,441,111 6,248,726,219

2,173,795,488 56,064,392 766,903 871,022,964 – 60,971,159 3,278,370,339

1,220,660,721 81,232,689 3,427,395 354,098,676 – 52,859,126 1,818,940,748

340,318,145

101,199,115

85,255

341,468

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

1,439,969,029 16,996,682,723 94,477,838 981,018,284 25,397,732 167,224,556 48,750,725 29,665,806,160 – 79,361,814 393,627,250 1,499,576,022 2,467,167,127 51,175,254,979

5,344,724

447,288,707


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification (cont’d)

Specially Normal debts mentioned debts Baht Baht Agriculture and mining Manufacturing and commerce Property development and construction Public utility and services Housing loans Hire purchase loans Others Total loans Accrued interest receivables

22,253,776

Accrued interest receivables

Possible loan loss Baht

Total Baht

8,000,000

31,746,341

62,000,117

765,057,894

2,157,490,744

1,110,020,999

17,386,290

138,359,324

126,666,237

12,471,557,419 899,859,230 34,618,496 19,234,166,678 969,867,933 34,742,344,531

18,616,827 4,022,584 16,053,808 3,189,896,050 40,069,158 3,286,044,717

966,127,048 68,703,138 985,573 791,314,050 49,425,920 2,014,915,053

2,738,836,958 78,459,744 678,105 301,930,352 91,181,411 3,345,752,807

464,584,894

37,309,005

334,422

2,101,701

5,400,300

509,730,322

31 December 2005 Company Sub-standard Doubtful debts debts Baht Baht

Possible loan loss Baht

Total Baht

8,000,000

31,746,341

62,000,117

765,057,894

2,157,490,744

Specially Normal debts mentioned debts Baht Baht Agriculture and mining Manufacturing and commerce Property development and construction Public utility and services Housing loans Hire purchase loans Others Total loans

31 December 2005 Consolidated Sub-standard Doubtful debts debts Baht Baht

22,253,776

1,110,020,999

17,386,290

138,359,324

126,666,237

12,471,557,419 899,859,230 34,618,496 19,234,166,678 435,856,572 34,208,333,170

18,616,827 4,022,584 16,053,808 3,189,896,050 40,069,158 3,286,044,717

966,127,048 68,703,138 985,573 791,314,050 48,670,979 2,014,160,112

2,738,836,958 78,459,744 678,105 301,930,352 57,814,295 3,312,385,691

463,355,860

37,309,005

334,422

875,941

1,293,150,844 17,488,289,096 125,035,182 1,176,079,878 59,354,413 111,690,395 38,896,971 23,556,204,101 419,897,310 1,570,441,732 2,733,138,955 46,122,196,063

1,293,150,844 17,488,289,096 125,035,182 1,176,079,878 59,354,413 111,690,395 38,896,971 23,556,204,101 419,897,310 1,002,308,314 2,733,138,955 45,554,062,645

5,400,300

507,275,528

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

97


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) e) Classified by classification 31 December 2006 Consolidated

Debt classification

Loan outstanding and interest receivable Baht

Normal debts 37,373,744,454 Specially-mentioned debts 6,269,210,679 Sub-standard debts – Loans 2,407,431,115 – Hire purchase receivables 879,713,858 Doubtful debts – Loans 1,465,181,455 – Hire purchase receivables 358,699,763 Possible loan loss 2,502,580,149 Total 51,256,561,473 Additional allowance for some doubtful accounts Allowance for troubled debts restructuring Total

Allowance for doubtful account

Loan net of collateral Baht

% of allowance

Baht

27,070,230,865 3,728,406,009

1 2

270,702,309 74,568,120

743,390,957 879,713,858

100 22.26

743,390,957 195,824,304

662,675,653 358,699,763 1,112,649,186 34,555,766,291

100 22.26 100

662,675,653 79,846,567 1,112,649,186 3,139,657,096 94,764,123 148,674,501 3,383,095,720

31 December 2006 Company

Debt classification

Loan outstanding and interest receivable Baht

Normal debts 37,373,744,454 Specially-mentioned debts 6,269,210,679 Sub-standard debts – Loans 2,407,431,115 – Hire purchase receivables 879,713,858 Doubtful debts – Loans 1,465,181,455 – Hire purchase receivables 358,699,763 Possible loan loss 2,473,062,200 Total 51,227,043,524 Additional allowance for some doubtful accounts Allowance for troubled debts restructuring Total

98

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Allowance for doubtful account

Loan net of collateral Baht

% of allowance

Baht

27,070,230,865 3,728,406,009

1 2

270,702,309 74,568,120

743,390,957 879,713,858

100 22.26

743,390,957 195,824,304

662,675,653 358,699,763 1,083,131,238 34,526,248,343

100 22.26 100

662,675,653 79,846,567 1,083,131,238 3,110,139,148 94,764,123 148,674,501 3,353,577,772


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) e) Classified by classification (cont’d) 31 December 2005 Consolidated

Debt classification

Loan outstanding and interest receivable Baht

Normal debts 34,221,604,390 Specially-mentioned debts 3,302,935,643 Sub-standard debts 2,021,966,919 Doubtful debts 3,316,986,107 Possible loan loss 2,773,613,419 Total 45,637,106,478 Additional allowance for some doubtful accounts Allowance for troubled debts restructuring Total

Loan net of collateral Baht

Allowance for doubtful account % of allowance

Baht

1 2 20 50 100

211,566,058 64,969,015 206,200,670 304,802,138 1,199,529,552 1,987,067,433

21,156,605,805 3,248,450,754 1,031,003,351 609,604,276 1,199,529,552 27,245,193,738

1,661,361,340 235,491,532 3,883,920,305 31 December 2005 Company

Debt classification

Loan outstanding and interest receivable Baht

Normal debts 34,221,604,390 Specially-mentioned debts 3,302,935,643 Sub-standard debts 2,021,966,919 Doubtful debts 3,316,986,107 Possible loan loss 2,739,020,545 Total 45,602,513,604 Additional allowance for some doubtful accounts Allowance for troubled debts restructuring Total

Loan net of collateral Baht 21,156,605,805 3,248,450,754 1,031,003,351 609,604,276 1,164,936,677 27,210,600,863

Allowance for doubtful account % of allowance

Baht

1 2 20 50 100

211,566,058 64,969,015 206,200,670 304,802,138 1,164,936,677 1,952,474,558 1,661,361,340 235,491,532 3,849,327,430

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

99


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

8. Loans and accrued interest receivable (cont’d) f) Non-performing loans As at 31 December 2006 and 2005, the bank had the following non-performing loans, according to the BOT’ s notification dated 16 January 2003 in determining non-performing loans which consist of loans classified as substandard, doubtful, doubtful loss and loss under BOT’ s guideline. The amounts are as follows: Company 31 December 2006 31 December 2005 Baht Baht Non-performing loans % of Non-performing loans to total loans (included loans to financial institutions)

7,564,478,213

8,059,684,758

14.46

17.13

Loans and interest receivable from which recognition of income has been discontinued are as follows: Consolidated 31 December 2006 Interest Principal receivable Baht Baht Loans and bills receivables Securities business receivables Hire-purchase receivables Total loans from which recognition of income has been discontinued

31 December 2005 Interest Principal receivable Baht Baht

5,845,219,177 45,974,177 1,273,872,365

5,517,418 1,225,759 3,598

4,683,237,260 50,711,895 1,132,141,373

5,701,372 1,225,759 5,386

7,165,065,719

6,746,775

5,866,090,528

6,932,517

Company 31 December 2006 Interest Principal receivable Baht Baht Loans and bills receivables Securities business receivables Hire-purchase receivables Total loans from which recognition of income has been discontinued

100

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

31 December 2005 Interest Principal receivable Baht Baht

5,845,219,177 17,958,090 1,273,872,365

5,517,418 – 3,598

4,683,237,260 17,958,090 1,132,141,373

5,701,372 – 5,386

7,137,049,632

5,521,016

5,833,336,723

5,706,758


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

9. Allowance for doubtful accounts

Specially Normal debts mentioned debts Baht Baht At beginning of year 594,675,288 Add: Allowance for doubtful accounts (reversal) (100,574,812) Less: Bad debt written off – Allowance for doubtful accounts at end of year 494,100,476

Possible loan loss Baht

Total Baht

65,083,582

488,016,283

953,641,387

1,547,012,233

3,648,428,773

35,601,456 –

391,679,532 –

(315,628,418) –

437,849,513 (862,934,825)

448,927,271 (862,934,825)

100,685,038

879,695,815

638,012,969

1,121,926,921

3,234,421,219

31 December 2006 Company Sub-standard Doubtful debts debts Baht Baht

Possible loan loss Baht

Total Baht

Specially Normal debts mentioned debts Baht Baht At beginning of year 594,675,288 Add: Allowance for doubtful accounts (reversal) (100,574,812) Less: Bad debt written off – Allowance for doubtful accounts at end of year 494,100,476

31 December 2006 Consolidated Sub-standard Doubtful debts debts Baht Baht

65,083,582

488,016,283

953,641,387

1,512,419,358

3,613,835,898

35,601,456 –

391,679,532 –

(315,628,418) –

442,924,440 (862,934,825)

454,002,198 (862,934,825)

100,685,038

879,695,815

638,012,969

1,092,408,973

3,204,903,271

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

101


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

9. Allowance for doubtful accounts (cont’d)

Specially Normal debts mentioned debts Baht Baht At beginning of year Add: Allowance for doubtful accounts (reversal) Less: Bad debt written off Allowance for doubtful accounts at end of year

Possible loan loss Baht

Total Baht

507,190,093

72,137,517

769,534,931

479,360,069

1,670,070,413

3,498,293,023

87,485,195 –

(7,053,935) –

(281,518,648) –

474,281,318 –

346,801,846 (469,860,026)

619,995,776 (469,860,026)

594,675,288

65,083,582

488,016,283

953,641,387

1,547,012,233

3,648,428,773

31 December 2005 Company Sub-standard Doubtful debts debts Baht Baht

Possible loan loss Baht

Total Baht

Specially Normal debts mentioned debts Baht Baht At beginning of year Add: Allowance for doubtful accounts (reversal) Less: Bad debt written off Allowance for doubtful accounts at end of year

31 December 2005 Consolidated Sub-standard Doubtful debts debts Baht Baht

507,190,093

72,137,517

769,534,931

479,360,069

1,635,514,680

3,463,737,290

87,485,195 –

(7,053,935) –

(281,518,648) –

474,281,318 –

346,764,704 (469,860,026)

619,958,634 (469,860,026)

594,675,288

65,083,582

488,016,283

953,641,387

1,512,419,358

3,613,835,898

10. Allowance for troubled debt restructuring Consolidated and Company 31 December 2006 31 December 2005 Baht Baht At beginning of year Increase (decrease) during year At end of year

102

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

235,491,532 (86,817,031) 148,674,501

112,482,017 123,009,515 235,491,532


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

11. Properties foreclosed, net Consolidated 31 December 31 December 2006 2005 Baht Baht Properties foreclosed Add (less): Provision for diminution in value of properties foreclosed Net properties foreclosed

Company 31 December 31 December 2006 2005 Baht Baht

8,169,002,232

5,753,334,126

6,791,908,367

4,543,680,444

164,394,587 8,333,396,819

215,832,341 5,969,166,467

(1,101,535,526) 5,690,372,841

(805,106,084) 3,738,574,360

Properties foreclosed are acquired by assets transferred, by auction and by the repossession for the debt settlement.

Immovable assets Baht At beginning of year Additions Disposals At end of year Add (less): Provision for diminution in value of properties foreclosed Net properties foreclosed

5,515,779,220 2,716,249,876 (412,300,353) 7,819,728,743 284,403,893 8,104,132,636

Immovable assets Baht At beginning of year Additions Disposals At end of year Less: Provision for diminution in value of properties foreclosed Net properties foreclosed

31 December 2006 Consolidated Movable assets Baht 237,554,906 1,212,517,872 (1,100,799,289) 349,273,489 (120,009,306) 229,264,183 31 December 2006 Company Movable assets Baht

Total Baht 5,753,334,126 3,928,767,748 (1,513,099,642) 8,169,002,232 164,394,587 8,333,396,819

Total Baht

4,306,125,538 2,508,178,699 (371,669,359) 6,442,634,878

237,554,906 1,212,517,872 (1,100,799,289) 349,273,489

4,543,680,444 3,720,696,571 (1,472,468,648) 6,791,908,367

(981,526,220) 5,461,108,658

(120,009,306) 229,264,183

(1,101,535,526) 5,690,372,841

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

103


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

11. Properties foreclosed, net (cont’d)

Immovable assets Baht At beginning of year Additions Disposals At end of year Add (less): Provision for diminution in value of properties foreclosed Net properties foreclosed

Total Baht

4,704,215,808 1,243,354,089 (431,790,677) 5,515,779,220

249,487,351 980,922,836 (992,855,281) 237,554,906

4,953,703,159 2,224,276,925 (1,424,645,958) 5,753,334,126

284,948,047 5,800,727,267

(69,115,706) 168,439,200

215,832,341 5,969,166,467

Immovable assets Baht At beginning of year Additions Disposals At end of year Less: Provision for diminution in value of properties foreclosed Net properties foreclosed

31 December 2005 Consolidated Movable assets Baht

31 December 2005 Company Movable assets Baht

Total Baht

3,801,357,484 903,728,169 (398,960,115) 4,306,125,538

249,487,351 980,922,836 (992,855,281) 237,554,906

4,050,844,835 1,884,651,005 (1,391,815,396) 4,543,680,444

(735,990,378) 3,570,135,160

(69,115,706) 168,439,200

(805,106,084) 3,738,574,360

As stated in Note 3, the bank changed the accounting policy on classification of assets received in satisfaction of troubled debts restructuring where the Bank granted an option to debtors for repurchasing the assets by reclassifying those assets from loans to properties foreclosed amounting to Baht 721.89 million. The details of assets at fair value where the bank granted an option to debtors for repurchasing classified by outstanding term of contract are as follows: 31 December 2006 Baht Less than 2 months 2 - 12 months Over 12 months but less than 24 months Over 24 months but less than 36 months Over 36 months but less than 60 months

104

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

20,292,292 367,423,783 469,701,345 50,326,355 4,239,478 911,983,253


KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

105

73,526,677 – 73,526,677

73,526,677 11,159,600 17,600,000 – – (2,738,000) – 99,548,277

99,548,277 – 99,548,277

For the year ended 31 December 2006 Opening net book amount Additions Transfer of foreclosed assets to be bank assets Disposals Write off Transfer of bank assets to be foreclosed assets Depreciation charge Closing net book amount

As at 31 December 2006 Cost Less: Accumulated depreciation Net book amount

Land Baht

As at 31 December 2005 Cost Less: Accumulated depreciation Net book amount

12. Land, premises and equipment, net

Building Baht

54,053,334 (26,560,489) 27,492,845

27,168,043 3,392,426 – – – (750,017) (2,317,607) 27,492,845

51,522,908 (24,354,865) 27,168,043

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

495,651,613 (323,841,215) 171,810,398

133,042,635 87,278,912 – (966,660) (402,546) – (47,141,943) 171,810,398

422,371,975 (289,329,340) 133,042,635

338,484,400 (176,465,476) 162,018,924

131,524,289 109,841,554 – (103,284) (35,415,777) – (43,827,858) 162,018,924

277,542,370 (146,018,081) 131,524,289

Consolidated Office Furniture and equipment fixtures Baht Baht

132,466,983 (75,753,744) 56,713,239

64,214,552 19,515,699 – (4,719,387) – – (22,297,625) 56,713,239

129,478,016 (65,263,464) 64,214,552

Motor vehicle Baht

1,120,204,607 (602,620,924) 517,583,683

429,476,196 231,188,191 17,600,000 (5,789,331) (35,818,323) (3,488,017) (115,585,033) 517,583,683

954,441,946 (524,965,750) 429,476,196

Total Baht


106

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

73,526,677 – 73,526,677

73,526,677 11,159,600 17,600,000 – – (2,738,000) – 99,548,277

99,548,277 – 99,548,277

For the year ended 31 December 2006 Opening net book amount Additions Transfer of foreclosed assets to be bank assets Disposals Write off Transfer of bank assets to be foreclosed assets Depreciation charge Closing net book amount

As at 31 December 2006 Cost Less: Accumulated depreciation Net book amount

Land Baht

As at 31 December 2005 Cost Less: Accumulated depreciation Net book amount

12. Land, premises and equipment, net

48,071,398 (20,578,554) 27,492,844

27,168,043 3,392,426 – – – (750,017) (2,317,608) 27,492,844

45,540,972 (18,372,929) 27,168,043

Building Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

257,657,566 (131,564,852) 126,092,714

66,706,241 85,857,368 – (116,926) (144,466) – (26,209,503) 126,092,714

180,971,439 (114,265,198) 66,706,241

201,386,496 (82,558,050) 118,828,446

54,017,828 108,873,269 – (4) (20,019,090) – (24,043,557) 118,828,446

113,363,687 (59,345,859) 54,017,828

Company Office Furniture and equipment fixtures Baht Baht

98,257,583 (54,255,606) 44,001,977

41,923,809 19,515,699 – (1,909,593) – – (15,527,938) 44,001,977

89,685,268 (47,761,459) 41,923,809

Motor vehicle Baht

704,921,320 (288,957,062) 415,964,258

263,342,598 228,798,362 17,600,000 (2,026,523) (20,163,556) (3,488,017) (68,098,606) 415,964,258

503,088,043 (239,745,445) 263,342,598

Total Baht


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

13. Intangible assets, net Consolidated

Software Leasehold right Baht Baht

TFEX Membership License Baht

Total Baht

At 31 December 2005 Cost Less: Accumulated amortisation Net book value

118,221,875 (45,967,581) 72,254,294

6,072,790 (3,964,604) 2,108,186

– – –

124,294,665 (49,932,185) 74,362,480

For the year ended 31 December 2006 Opening net book value Addition Disposals Write off Amortisation charge Closing net book value

72,254,294 14,153,754 – (7,696) (10,572,287) 75,828,065

2,108,186 116,220,057 (70,725,080) – (5,182,091) 42,421,072

– 5,318,500 – – (399,033) 4,919,467

74,362,480 135,692,311 (70,725,080) (7,696) (16,153,411) 123,168,604

At 31 December 2006 Cost Less: Accumulated amortisation Net book value 31 December 2006

132,351,551 (56,523,486) 75,828,065

47,583,821 (5,162,749) 42,421,072

5,318,500 (399,033) 4,919,467

185,253,872 (62,085,268) 123,168,604

Company Software Leasehold right Baht Baht At 31 December 2005 Cost Less: Accumulated amortisation Net book value For the year ended 31 December 2006 Opening net book value Addition Disposals Amortisation charge Closing net book value At 31 December 2006 Cost Less: Accumulated amortisation Net book value 31 December 2006

Total Baht

97,595,878 (33,531,135) 64,064,743

795,789 (775,406) 20,383

98,391,667 (34,306,541) 64,085,126

64,064,743 10,448,918 – (7,348,797) 67,164,864

20,383 116,220,058 (70,725,080) (4,990,091) 40,525,270

64,085,126 126,668,976 (70,725,080) (12,338,888) 107,690,134

108,044,796 (40,879,932) 67,164,864

42,306,821 (1,781,551) 40,525,270

150,351,617 (42,661,483) 107,690,134

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

107


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

14. Other assets Consolidated 31 December 31 December 2006 2005 Baht Baht Interest and other income receivables Other income receivables Deferred expenses Prepaid output tax for hire purchase receivables Other receivables, net Refundable deposit Withholding tax Receivables from trading securities Receivables - subsidiary Receivables - Revenue Department Others Total other assets Underwriting fee expense on bond

Company 31 December 31 December 2006 2005 Baht Baht

52,818,363 2,023,564 2,259,169

22,258,981 7,491,477 5,399,337

50,849,649 1,027,527 2,259,169

20,359,540 7,458,904 5,399,337

44,541,830 81,047,995 81,770,771 10,512,889 263,453 – 39,271,690 145,136,615 459,646,339 2,794,296

37,410,681 9,568,523 93,083,966 8,400,437 208,073,955 – 8,695,996 65,011,661 465,395,014 3,394,194

44,541,830 78,288,679 72,839,313 5,979,244 2,582,138 373,104 39,271,690 100,676,062 398,688,405 2,974,296

37,410,681 2,288,016 83,417,331 5,618,391 31,199,675 374,823 8,695,996 31,443,079 233,665,773 3,394,194

Interest, other income receivable and other receivable as at 31 December 2006 are shown net of doubtful accounts of Baht 9,677,523 and 1,733,202 in the consolidated and the company financial statements, respectively (31 December 2005: Baht 122,904).

15. Deposits a) Classified by type Consolidated 31 December 31 December 2006 2005 Baht Baht Current accounts Saving deposits Term deposits – Less than 6 months – 6 months to one year – Over one year Promissory notes Certificates of deposit Bill of exchange Total deposits

108

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Company 31 December 31 December 2006 2005 Baht Baht

9,530,903 113,333,295

4,037,436 47,508,419

9,530,903 113,333,295

4,037,436 47,508,419

1,295,929,106 15,876,324,971 7,477,687,595 16,293,265,762 36,877,382 1,000,000,000 42,102,949,014

7,938,931,116 619,049,039 1,329,429,295 29,449,100,600 7,565,980 1,000,000,000 40,395,621,885

1,295,929,106 15,876,324,971 7,477,687,595 16,293,265,762 36,877,382 1,000,000,000 42,102,949,014

9,123,931,116 619,049,039 1,329,429,295 29,449,100,600 7,565,980 1,000,000,000 41,580,621,885


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

15. Deposits (cont’d) b) Classified by maturity Consolidated 31 December 31 December 2006 2005 Baht Baht Less than 6 months Less than one year Over one year Total deposits

19,516,588,938 9,604,812,153 12,981,547,923 42,102,949,014

16,584,275,883 5,739,759,514 18,071,586,488 40,395,621,885

Company 31 December 31 December 2006 2005 Baht Baht 19,516,588,938 9,604,812,153 12,981,547,923 42,102,949,014

17,769,275,883 5,739,759,514 18,071,586,488 41,580,621,885

c) Classified by currency and territory 31 December 2006 Domestic Thai Baht Total deposits

42,014,669,825 42,014,669,825

Consolidated Foreign 88,279,189 88,279,189

Total

Domestic

Company Foreign

42,102,949,014 42,102,949,014

42,014,669,825 42,014,669,825

88,279,189 88,279,189

42,102,949,014 42,102,949,014

Total

31 December 2005 Domestic Thai Baht Total deposits

40,312,065,293 40,312,065,293

Consolidated Foreign 83,556,592 83,556,592

Total

Domestic

Company Foreign

Total

40,395,621,885 40,395,621,885

41,497,065,293 41,497,065,293

83,556,592 83,556,592

41,580,621,885 41,580,621,885

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

109


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

16. Interbank and money market items - Domestic items (Liabilities) 31 December 2006 Consolidated On demand Term Commercial Banks Finance, Securities and Credit froncier Other financial institutions Total

1,203,797 25 – 1,203,822

– 203,149,050 2,252,730,000 2,455,879,050

Total

On demand

1,203,797

203,149,075 2,252,730,000 2,457,082,872

Company Term –

Total –

49,552 – 49,552

211,000,000 2,252,730,000 2,463,730,000

211,049,552 2,252,730,000 2,463,779,552

Total

31 December 2006 On demand Commercial Banks 53,042,189 Finance, Securities and Credit froncier 49,502 Other financial institutions – Total 53,091,691

110

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Consolidated Term

Total

On demand

Company Term

30,000,000

83,042,189

12,745,037

299,455,484 2,641,600,000 2,971,055,484

299,504,986 2,641,600,000 3,024,147,175

49,502 – 12,794,539

321,000,000 2,641,600,000 2,962,600,000

12,745,037 321,049,502 2,641,600,000 2,975,394,539


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

17. Borrowings Consolidated 31 December 31 December 2006 2005 Baht Baht

Company 31 December 31 December 2006 2005 Baht Baht

Short - term borrowings Bills of exchange Debentures Total short - term borrowings

100,000,000 4,934,200,000 5,034,200,000

– 1,500,000,000 1,500,000,000

4,000,000,000 4,934,200,000 8,934,200,000

– 1,500,000,000 1,500,000,000

Long - term borrowings Debentures Total long - term borrowings

7,500,000,000 7,500,000,000

4,935,000,000 4,935,000,000

7,500,000,000 7,500,000,000

4,935,000,000 4,935,000,000

12,534,200,000

6,435,000,000

16,434,200,000

6,435,000,000

Total borrowings

The details of unsecured and senior debentures are as follows: Consolidated 31 December 31 December 2006 2005 Baht Baht

Company 31 December 31 December 2006 2005 Baht Baht

At beginning of year Less: Redemption during year Add: Issuing during year

6,435,000,000 (1,500,000,000) 7,499,200,000

6,435,000,000 – –

6,435,000,000 (3,800,000,000) 9,799,200,000

6,435,000,000 – –

At end of year

12,434,200,000

6,435,000,000

12,434,200,000

6,435,000,000

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

111


112

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

KK079A KK073A KK087A KK085A KK095A KK1A27 KK1A37 KK1B37 KK1D37 KK1C37 KK1A67 KK1B67 KK1C67 KK1E37 KK1D67 KK1E67 KK1A17 KK1A77 KK08NA KK09NA

KK069A

4.40 4.00 2.40 6.10 6.25 5.39 5.35 5.35 5.35 5.35 5.345 5.38 5.315 5.25 5.315 5.315 5.13 5.25 5.72 5.84

per per per per per per per per per per per per per per per per per per per per

annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum

6.25 - 6 month fixed deposit interest rate per annum for years 2004 and 2005 and 4.15 per annum for years 2005 and 2006

Interest rate (percentage)

1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Par value (Baht)

17. Long-term borrowings (cont’d)

1,000 1,000,000 935,000 3,000,000 – – – – – – – – – – – – – – – – – 6,435,000

31 December 2005

Consolidated

1,500,000 – – – – – – – – – – – – – – – – – – – – 1,500,000

Redemption during year

1,500,000 – – – 1,400,000 600,000 584,000 220,000 130,000 506,200 108,000 350,000 100,000 250,000 210,000 130,000 123,000 188,000 100,000 1,580,000 920,000 7,499,200

Issuing during year

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

– 1,000,000 935,000 3,000,000 1,400,000 600,000 584,000 220,000 130,000 506,200 108,000 350,000 100,000 250,000 210,000 130,000 123,000 188,000 100,000 1,580,000 920,000 12,434,200

Unit : share 31 December 2006

2nd of March and September 2nd of March and September 16th of March and September 17th of January and July 29th of May and November 29th of May and November Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date 2nd of May and November 2nd of May and November

Term of interest payment

2 September 2006 2 September 2007 16 March 2007 17 July 2008 29 May 2008 29 May 2009 12 February 2007 1 March 2007 1 March 2007 5 March 2007 6 March 2007 5 June 2007 11 June 2007 22 June 2007 27 March 2007 22 June 2007 26 June 2007 31 January 2007 24 July 2007 2 November 2008 2 November 2009

Due for redemption


KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

113

KK079A KK073A KK087A KK085A KK095A KK1A76 KK1A27 KK1A37 KK1B37 KK1D37 KK1C37 KK1A67 KK1B67 KK1C67 KK1E37 KK1D67 KK1E67 KK1A17 KK1A77 KK08NA KK09NA

KK069A

per per per per per per per per per per per per per per per per per per per per per

annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum annum 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

1,000 1,000,000 935,000 3,000,000 – – – – – – – – – – – – – – – – – – 6,435,000

31 December 2005

Company

1,500,000 – – – – – 2,300,000 – – – – – – – – – – – – – – – 3,800,000

Redemption during year

1,500,000 – – – 1,400,000 600,000 2,300,000 584,000 220,000 130,000 506,200 108,000 350,000 100,000 250,000 210,000 130,000 123,000 188,000 100,000 1,580,000 920,000 9,799,200

Issuing during year

– 1,000,000 935,000 3,000,000 1,400,000 600,000 – 584,000 220,000 130,000 506,200 108,000 350,000 100,000 250,000 210,000 130,000 123,000 188,000 100,000 1,580,000 920,000 12,434,200

Unit : share 31 December 2006

2nd of March and September 2nd of March and September 16th of March and September 17th of January and July 29th of May and November 29th of May and November Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date Maturity date 2nd of May and November 2nd of May and November

Term of interest payment

2 September 2006 2 September 2007 16 March 2007 17 July 2008 29 May 2008 29 May 2009 26 July 2006 12 February 2007 1 March 2007 1 March 2007 5 March 2007 6 March 2007 5 June 2007 11 June 2007 22 June 2007 27 March 2007 22 June 2007 26 June 2007 31 January 2007 24 July 2007 2 November 2008 2 November 2009

Due for redemption

The bank entered into interest rate swap agreement for KK079A. The details of interest rate swap agreement have been disclosed in Note 30.

4.40 4.00 2.40 6.10 6.25 4.75 5.39 5.35 5.35 5.35 5.35 5.345 5.38 5.315 5.25 5.315 5.315 5.13 5.25 5.72 5.84

6.25 - 6 month fixed deposit interest rate per annum for years 2004 and 2005 and 4.15 per annum for years 2005 and 2006

Interest rate (percentage)

Par value (Baht)

17. Long-term borrowings (cont’d)

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

18. Other liabilities Consolidated 31 December 31 December 2006 2005 Baht Baht Stocks subscription payable Accrued bonus Accrued fee and other expenses Value added tax payable Up-front fee Income received in advance Others Total other liabilities

14,225,495 157,197,833 86,789,574 1,521,942 127,448,389 23,668,784 115,314,544 526,166,561

92,221,860 213,895,032 89,047,439 1,434,232 170,995,372 65,913,184 129,985,049 763,492,168

Company 31 December 31 December 2006 2005 Baht Baht 14,225,495 150,000,000 44,209,173 – 127,448,389 23,668,784 90,216,305 449,768,146

92,221,860 199,761,948 47,337,128 – 170,995,372 14,083,687 115,056,492 639,456,487

As at 31 December 2005, the bank estimated provision for contingent loss in off - balance sheet items amounting to Baht 63 million which were presented in other liabilities in accordance with the Bank of Thailand notification No. ThorPorThor. PhorNorSor (21) Wor. 2395/2548 dated 23 December 2005. During the year then ended 31 December 2006, the bank’s management reviewed this provision and concluded that there is an uncertainty to lose the economic benefit resources for these off-balance sheet items. As a result, the bank reversed the provision for the whole amount as a reduction in other liabilities and other expenses.

19. Share capital Ordinary shares

114

Consolidated 31 December 31 December 2006 2005 Baht Baht

Company 31 December 31 December 2006 2005 Baht Baht

Registered 715,460,030 ordinary shares of Baht 10 each (31 December 2005: 715,460,030 ordinary shares)

7,154,600,300

7,154,600,300

7,154,600,300

7,154,600,300

Issued and fully paid-up 514,748,416 ordinary shares of Baht 10 each (31 December 2005: 495,973,285 ordinary shares)

5,147,484,160

4,959,732,850

5,147,484,160

4,959,732,850

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

115

224,250 140,449,153

459,363 18,949,917 120,815,623

Unit

– 2.30 –

Price per unit (Baht)

31 December 2005

– 43,584,809

– 43,584,809 –

Amount (Baht)

– –

– – –

Cancel (Unit)

20,750 17,533,851

22,112 9,241,755 8,249,234

Exercise (Unit)

– 21,256,036

– 21,256,036 – 1.00000

1.29217 1.13362 1.00000

20,750 18,775,131

28,567 10,476,580 8,249,234

Decrease during the year Exercise rate to purchase Share capital ordinary share issued during Amount per 1 unit of year (Baht) warrant (Share)

Amount (Baht)

Unit

15.62

324,115 203,500 291,103,088 122,915,302

10.00 285,670 437,251 12.35 129,385,763 9,708,162 19.53 161,107,540 112,566,389

Exercise price (Baht)

– 2.30 –

Price per Unit (Baht)

31 December 2006

– 22,328,773

– 22,328,773 –

Amount (Baht)

Warrant KK#2 can be exercised on the 30th of every quarter ended starting from 30 December 1998 to 30 September 2008. Warrant KK#3 can be exercised on the 30th of every quarter ended starting from 31 December 1999 to 30 March 2009. Warrant KK#4 can be exercised on the 30th of every quarter ended starting from 30 March 2001 to 30 December 2010. ESOP warrant which offered to the management, to directors and employees of the bank and of its subsidiaries can be exercised on the 30th of every quarter ended starting from 31 December 2002 to 30 March 2011.

KK#2 KK#3 KK#4 ESOP Warrant

Warrants

19. Share capital (cont’d)

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

20. Capital funds The capital fund maintained by the bank under Section 4 of the Commercial Bank Act, B.E. 2505 are as follows: Company 31 December 31 December 2006 2005 Baht Baht Tier 1 capital Issued and paid-up capital Warrants Share premium Legal reserve General reserve Retained earnings net of appropriation Total tier 1 capital

5,147,484,160 22,328,773 2,604,587,600 680,536,971 380,000 7,558,258,563 16,013,576,067

Tier 2 capital Allowance for normal classification loans Unrealised gain (loss) on investment in available for sales equity securities Total tier 2 capital Total capital fund

282,102,309 8,994,623 291,096,932 16,304,672,999

4,959,732,850 43,584,809 2,479,979,786 558,736,906 380,000 6,349,379,581 14,391,793,932

226,566,058 (38,396,422) 188,169,636 14,579,963,568

Risk weighted assets per capital ratio maintained by the bank as the BOT requirement are as follows: Company 31 December 2006 31 December 2005 Minimum Minimum required required Bank ratio by BOT Bank ratio by BOT Tier 1 capital to risk weighted assets Capital funds to risk weighted assets

21.77% 22.17%

4.25% 8.50%

22.30% 22.59%

4.25% 8.50%

21. Legal reserve Under the Public Limited Company Act., B.E. 2535, the bank is required to set aside as a legal reserve at least 5 percent of its net profit after accumulated deficit brought forward (if any) until the reserve is not less than 10 percent of the registered share capital. The legal reserve is non-distributable.

116

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

22. Other income Consolidated 31 December 31 December 2006 2005 Baht Baht Penalty income Profit from sales fixed assets Profit from interest rate swap Other income Total other income

61,636,730 2,372,197 11,087,329 82,765,737 157,861,993

40,729,191 2,538,367 22,917,808 9,115,748 75,301,114

Company 31 December 31 December 2006 2005 Baht Baht 61,270,593 1,945,543 11,087,329 12,407,430 86,710,895

40,338,746 1,557,986 22,917,808 4,092,573 68,907,113

23. Other expenses Consolidated 31 December 31 December 2006 2005 Baht Baht Commission expense on hire-purchase contracts Foreclosed assets appraisal expenses Repossessed cars repair expenses Provision for off-balance sheet items (reversal) Bank organization expenses Other expenses Total other expenses

Company 31 December 31 December 2006 2005 Baht Baht

152,362,179 34,632,453 1,283,703

129,079,921 32,604,203 113,564

152,362,179 28,810,270 1,283,703

129,079,921 28,462,606 113,564

(63,187,776) 38,660,117 418,479,269 582,229,945

63,187,776 65,467,762 441,439,722 731,892,948

(63,187,776) 38,660,117 350,084,958 508,013,451

63,187,776 65,467,762 333,320,300 619,631,929

24. Income tax Company For the year then ended 31 December 2006 2005 Baht Baht Income before income tax Income not subject to tax or additional deductible expense Expenses not deductible for tax purposes Loss from liquidation of subsidiary Taxable Gain Corporate income tax Add: Adjustment income tax of last year due to changes in estimation Total income tax

2,318,829,813 (1,638,698,538) 332,331,946 – 1,012,463,221 288,738,966 (3,613,940) 285,125,026

2,711,434,703 (1,162,599,322) 243,725,292 (869,412,283) 923,148,390 261,944,517 13,488,878 275,433,395

The income tax in consolidated financial statements for the year ended 31 December 2006 and 2005 included the income tax of subsidiaries at nil.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

117


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

25. Earnings per share Consolidated and Company For the year then ended 31 December 2006 Income available Ordinary Per share Baht shares Baht Basic earnings per share Net profit available to ordinary shareholders Effect of assumed conversion Warrants Diluted earnings per share Net profit available to ordinary shareholders plus assumed conversions

2,033,704,787

511,026,268

49,599,896

2,033,704,787

560,626,164

3.98

3.63

Consolidated and Company For the year then ended 31 December 2005 Income available Ordinary Per share Baht shares Baht Basic earnings per share Net profit available to ordinary shareholders Effect of assumed conversion Warrants Diluted earnings per share Net profit available to ordinary shareholders plus assumed conversions

2,436,001,308

492,100,203

57,000,042

2,436,001,308

549,100,245

4.95

4.44

26. Long-term lease commitments The bank has operating lease commitments in respect of vehicles, office space, and computer software expense, payable from the balance sheet date as follows:

Car rental expense Baht Within one year Within two years Over three years

118

1,574,258 964,463 160,744 2,699,465

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

31 December 2006 Consolidated Office space Computer software expense expense Baht Baht 60,416,895 33,790,330 39,207,227 133,414,452

36,250,116 36,250,116 39,270,959 111,771,191

Total Baht 98,241,269 71,004,909 78,638,930 247,885,108


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

26. Long-term lease commitments (cont’d)

Car rental expense Baht Within one year Within two years Over three years

1,574,258 964,463 160,744 2,699,465

Car rental expense Baht Within one year Within two years Over three years

351,140 609,794 – 960,934

Car rental expense Baht Within one year Within two years Over three years

351,140 609,794 – 960,934

31 December 2006 Company Office space Computer software expense expense Baht Baht 33,985,825 18,313,479 37,476,400 89,775,704

Total Baht

36,250,116 36,250,116 39,270,959 111,771,191

71,810,199 55,528,058 76,908,103 204,246,360

31 December 2005 Consolidated Office space Computer software expense expense Baht Baht

Total Baht

68,482,173 63,819,642 29,928,155 162,229,970

36,660,117 36,250,116 75,521,075 148,431,308

105,493,430 100,679,552 105,449,230 311,622,212

31 December 2005 Company Office space Computer software expense expense Baht Baht

Total Baht

41,628,841 40,350,261 18,924,891 100,903,993

36,660,117 36,250,116 75,521,075 148,431,308

78,640,098 77,210,171 94,445,966 250,296,235

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

119


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

27. Contingent liabilities and other commitments Consolidated and Company 31 December 31 December 2006 2005 Baht Baht Aval - bills of exchange Guarantee on loans Guarantee - others Commitments on interest rate swap contract Unused overdraft credit facilities

129,750,000 – 901,773,803 1,000,000,000 444,244

19,876,000 500,000 925,838,256 1,000,000,000 –

28. Segment information Consolidated (Baht’million) For the year then ended 31 December 2006 Banking business Securities business Total Net interest and dividend income after bad debts and doubtful accounts Non-interest income Total income

3,470.76 758.77 4,229.53

26.35 316.04 342.39

3,497.11 1,074.81 4,571.92

Non interest expenses Income tax

(1,884.81) (285.12)

(365.37) –

(2,250.18) (285.12)

Total expenses Income before minority interests Less: Share in net income to minority interests Net income for period

(2,169.93) 2,059.60 (2.92) 2,056.68

(365.37) (22.98) – (22.98)

(2,535.30) 2,036.62 (2.92) 2,033.70

Consolidated (Baht’million) For the year then ended 31 December 2005 Banking business Securities business Total Net interest and dividend income after bad debts and doubtful accounts Non-interest income Total income Non-interest expenses Income tax Total expenses Income before minority interests Less: Share in net income to minority interests Net income for period

120

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

3,308.29 1,170.69 4,478.98 (1,750.01) (275.43) (2,029.44) 2,449.54 (2.52) 2,447.02

19.42 362.97 382.39 (393.41) – (393.41) (11.02) – (11.02)

3,327.71 1,533.66 4,861.37 (2,147.42) (275.43) (2,422.85) 2,438.52 (2.52) 2,436.00


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

28. Segment information (cont’d) Consolidated 31 December 2006 Banking business Securities business

(Baht’million) Total

Net investment in securities Net loans and accrued interest receivable Net investment in loans Net investment in properties Other assets Total assets

5,090.10 48,265.78 9,081.61 164.38 12,841.28 75,443.15

278.35 659.67 – – 382.05 1,320.07

5,368.45 48,925.45 9,081.61 164.38 13,223.33 76,763.22

Deposits Interbank and money market items Borrowings Other liabilities Total liabilities

42,102.95 2,265.88 12,534.20 1,793.18 58,696.21

– 191.20 – 371.47 562.67

42,102.95 2,457.08 12,534.20 2,164.65 59,258.88

Consolidated 31 December 2005 Banking business Securities business

(Baht’million) Total

Net investment in securities Net loans and accrued interest receivable Net investment in loans Net investment in properties Other assets Total assets

3,571.04 42,212.01 10,154.05 163.89 10,684.18 66,785.17

134.27 535.99 – – 595.39 1,265.65

3,705.31 42,748.00 10,154.05 163.89 11,279.57 68,050.82

Deposits Interbank and money market items Borrowings Other liabilities Total liabilities

40,395.62 2,953.85 6,435.00 1,579.03 51,363.50

– 70.30 – 408.44 478.74

40,395.62 3,024.15 6,435.00 1,987.47 51,842.24

The bank operates only in Thailand and no segment information by geographical area is presented accordingly.

29. Staff provident fund The bank paid to provident fund for the year then ended 31 December 2006 in the amount of Baht 8,506,883 (31 December 2005: Baht 7,278,370).

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

121


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments Risks relating to significant financial instruments held by the bank are summarised below:

Credit risk The group has policies in place to ensure that loans are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The group has policies that limit the amount of credit exposure to any client or financial institution. Concentration of credit risk relative to the bank’s loans and receivables summarised by type of industry is as follows: 31 December Consolidated Company Baht’ 000 Baht’ 000 Agriculture and mining Manufacturing and commerce Real estate and constructions Utilities and services Housing loans Hire purchase - automobile Leasing Others Total loans and receivables

26,306 1,759,279 16,996,683 981,018 167,225 29,665,806 79,362 2,182,727 51,858,406

26,306 1,759,279 16,996,683 981,018 167,225 29,665,806 79,362 1,499,576 51,175,255

December 2005 Consolidated Company Baht’ 000 Baht’ 000 62,000 2,157,491 17,488,289 1,176,080 111,690 23,556,204 – 1,570,442 46,122,196

62,000 2,157,491 17,488,289 1,176,080 111,690 23,556,204 – 1,002,309 45,554,063

Interest Rate Risk and Liquidity Risk The matching of the long-term source of funds and investment or long-term loans is the fundamental of the bank’s liquidity risk management. In addition, the management over liabilities with the proper maturity and low funding cost is also the bank’ s fundamental. It is unusual for the bank ever to be completely matched since business transacted is often of uncertain term and of different types. The bank has the committee to monitor and balance over interest rate risk and liquidity risk by having weekly meetings at an acceptable cost.

Interest rate risk Most of the bank’s assets are subject to fluctuations in interest rates in the market. Interests on loans and receivables are mainly based on fixed rates. Certain portions are based on floating rates, linked to, for examples, Minimum Lending Rate (MLR) plus or Minimum Overdraft Rate (MOR) plus.

122

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments (cont’d) 31 December Consolidated Company Baht’ 000 Baht’ 000 Loans and receivables with fixed interest rate Loans and receivables with floating interest rate Total loans and receivables

December 2005 Consolidated Company Baht’ 000 Baht’ 000

44,475,320

44,475,320

42,353,646

42,353,646

7,383,086 51,858,406

6,699,935 51,175,255

3,768,550 46,122,196

3,200,417 45,554,063

The average balances of significant performing financial assets and financial liabilities, including the average interest and dividend income are summarised as follows: Consolidated For the year ended 31 December 2006 Average Interest and outstanding dividend Average balances income rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposit and Interbank and money market items Borrowing

2,514,322 4,074,100 8,550,090 50,501,248 2,342,500 67,982,260

10,002 174,053 954,199 4,741,731 137,401 6,017,386

0.40 4.27 11.16 9.39 5.87 8.85

45,773,060 9,262,600 55,035,660

1,862,034 350,673 2,212,707

4.07 3.79 4.02

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

123


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments (cont’d) Company For the year ended 31 December 2006 Average Interest and outstanding dividend Average balances income rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposit and Interbank and money market items Borrowing

1,136,650 11,757,941 5,341,468 49,388,490 2,736,667 70,361,216

146 1,175,022 298,957 4,715,123 137,401 6,326,649

0.01 9.99 5.60 9.55 5.02 8.99

47,535,689 9,263,567 56,799,256

1,965,128 350,673 2,315,801

4.13 3.79 4.08

Consolidated For the year ended 31 December 2005 Average Interest and outstanding dividend Average balances income rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposit and Interbank and money market items Borrowing

124

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

1,213,068 2,725,155 9,776,023 44,341,203 1,880,000 59,935,449

1,590 126,806 1,083,858 4,304,344 72,339 5,588,937

0.13 4.65 11.09 9.71 3.85 9.32

41,244,780 6,435,000 47,679,780

1,294,124 211,692 1,505,816

3.14 3.29 3.16


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments (cont’d) Company For the year ended 31 December 2006 Average Interest and outstanding dividend Average balances income rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposit and Interbank and money market items Borrowing

630,423 11,859,908 6,461,792 42,932,780 2,336,667 64,221,570

66 1,271,522 344,034 4,297,982 72,339 5,985,943

0.01 10.72 5.32 10.01 3.10 9.32

42,218,967 6,435,000 48,653,967

1,333,021 211,692 1,544,713

3.16 3.29 3.17

Liquidity risk Significant assets and liabilities of the bank analysed by relevant maturity groupings are as follows:

On demand Significant assets Cash 66,805 Interbank and money market iterms 1,743,465 Securities purchased under resale agreements – Net investment in securities – Net investment in loans – Net investment in properties – Hire purchase receivables – Leasing receivables – Loans and bills receivable 50,548 Total financial assets 1,860,818 Significant liabilities Deposit Interbank and money market items Borrowing Total financial liabilities

123,217 1,204 – 124,421

Consolidated As at 31 December 2006 Within 1 year Over 1 year

(Baht’ 000) Total

– 148,561 1,420,000 1,913,063 947,393 – 20,141 – 1,377,638 5,826,796

– – – 3,455,385 8,134,218 164,376 29,645,665 79,362 20,685,052 62,164,058

66,805 1,892,026 1,420,000 5,368,448 9,081,611 164,376 29,665,806 79,362 22,113,238 69,851,672

28,999,104 1,082,579 3,099,200 33,180,883

12,980,628 1,373,300 9,435,000 23,788,928

42,102,949 2,457,083 12,534,200 57,094,232

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

125


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments (cont’d)

On demand Significant assets Cash 65,435 Interbank and money market items 1,586,217 Securities purchased under resale agreements – Net investment in securities – Net investment in loans – Hire purchase receivables – Leasing receivables – Loans and bills receivable 49,417 Total financial assets 1,701,069 Significant liabilities Deposit Interbank and money market items Borrowing Total financial liabilities

123,217 50 – 123,267

On demand Significant assets Cash 65,646 Interbank and money market items 2,124,119 Securities purchased under resale agreements – Net investment in securities – Net investment in loans – Net investment in properties – Hire purchase receivables – Loans and bills receivable 165,511 Total financial assets 2,355,276 Significant liabilities Deposits Interbank and money market items Borrowing Total financial liabilities

126

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

51,899 53,092 – 104,991

Company As at 31 December 2006 Within 1 year Over 1 year

(Baht’ 000) Total

– 148,561 1,420,000 1,463,724 – 20,141 – 722,915 3,775,341

– – – 15,254,536 5,011,408 29,645,665 79,362 20,657,755 70,648,726

65,435 1,734,778 1,420,000 16,718,260 5,011,408 29,665,806 79,362 21,430,087 76,125,136

28,999,104 1,090,430 6,999,200 37,088,734

12,980,628 1,373,300 9,435,000 23,788,928

42,102,949 2,463,780 16,434,200 61,000,929

Consolidated As at 31 December 2005 Within 1 year Over 1 year

(Baht’ 000) Total

– 200,704 1,480,000 2,096,707 737,983 – 10,077 2,386,643 6,912,114

– – – 1,608,599 9,416,070 163,895 23,546,127 20,013,838 54,748,529

65,646 2,324,823 1,480,000 3,705,306 10,154,053 163,895 23,556,204 22,565,992 64,015,919

30,302,703 583,455 – 30,886,158

10,041,020 2,387,600 6,435,000 18,863,620

40,395,622 3,024,147 6,435,000 49,854,769


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

30. Financial instruments (cont’d)

On demand

Company As at 31 December 2005 Within 1 year Over 1 year

Significant assets Cash 64,191 Interbank and money market items 1,753,475 Securities purchased under resale agreements – Net investment in securities – Net investment in loans – Hire purchase receivables – Loans and bills receivable 163,295 Total financial assets 1,980,961 Significant liabilities Deposits Interbank and money market items Borrowing Total financial liabilities

51,899 12,795 – 64,694

(Baht’ 000) Total

– 198,002 1,480,000 989,608 – 10,077 1,852,632 4,530,319

– – – 12,303,687 5,048,864 23,546,127 19,981,932 60,880,610

64,191 1,951,477 1,480,000 13,293,295 5,048,864 23,556,204 21,997,859 67,391,890

31,487,702 575,000 – 32,062,702

10,041,020 2,387,600 6,435,000 18,863,620

41,580,621 2,975,395 6,435,000 50,991,016

Fair values The carrying amounts of financial assets and financial liabilities approximate to their fair values.

Interest rate swaps The bank has entered into interest rate swap contracts to reduce interest rate risk for long-term bonds which has fixed interest rate. The bank has entered into interest rate swap contracts for KK079A bonds with fixed interest rate that entitle it to receive interest at floating rates on notional amounts and oblige it to pay interest at fixed rate on the same amounts. Under the interest rate swaps, the bank agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts. At 31 December 2006, the notional principal amounts is Baht 1,000 million, the fixed rate is 4.40% per annum and the floating rate is linked to MLR 4 bank average - 3.60% per annum. The interest rate swaps will be matured on 2 September 2007. The net fair value of the interest rate swap was

Favourable interest rate swap contract

31 December 2006 Baht

31 December 2005 Baht

1,823,028

20,553,639

The fair value of interest rate swap has been calculated using rate quoted by the banker to terminate the contract at the balance sheet date. KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

127


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

31. Troubled debts restructuring As at 31 December 2006, the bank has troubled debts restructuring classified by default period as follows: As at 31 December 2006 Consolidated and Company Allowance for Number of Principal balance doubtful account customer (Baht’million) (Baht’million) 0 - 1 month More than 1 month - 3 months More than 3 months - 6 months More than 6 months - 12 months More than 12 months Total

155 40 48 82 129 454

1,175.15 127.97 434.48 854.72 664.02 3,256.34

147.58 3.64 211.99 448.43 380.78 1,192.42

As at 31 December 2005 Consolidated and Company

0 - 1 month More than 1 month - 3 months More than 3 months - 6 months More than 6 months - 12 months More than 12 months Total

Number of customer

Principal balance (Baht’million)

Allowance for doubtful account (Baht’million)

223 21 66 55 115 480

1,973.74 62.98 193.87 722.39 638.80 3,591.78

289.50 4.75 22.04 200.22 392.92 909.43

During the year then ended 31 December 2006, the bank has completed the troubled debts restructuring and loss incurring with 7 debtors (31 December 2005: 7 debtors) who have the outstanding balance before restructuring amount of Baht 38.97 million (31 December 2005: 30.19 million). The bank has recognised a loss on a restructuring for the year then of Baht 9.89 million (year ended 31 December 2005: 7.55 million) in the statement of income under “Loss on troubled debt restructuring”.

128

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

31. Troubled debts restructuring (cont’d)

Restructuring conditions Modifications of payment terms Transfer of properties and/or transfer of equity and/or modifications of payment terms Total

Restructuring conditions Modifications of payment terms Transfer of properties and/or transfer of equity and/or modifications of payment terms Total (1)

Number of loans

Consolidated and Company 31 December 2006 Outstanding Outstanding balance balance Type of (1) (1) before TDR after TDR assets (Baht’million) (Baht’million) transferred

Fair value of assets (Baht’million)

6

26.97

2.66

1 7

12.00 38.97

– 2.66

Land

11.98

Consolidated and Company 31 December 2005 Outstanding Outstanding balance balance Type of (1) (1) after TDR assets before TDR (Baht’million) (Baht’million) transferred

Fair value of assets (Baht’million)

Number of loans

5

15.85

6.50

2 7

14.34 30.19

– 6.50

Land and buildings

13.44

Net book value (principal including accrued interest).

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

32. Information on quality of assets The quality of assets classified in accordance with the guidelines of the Securities and Exchange Commission as at 31 December 2006 are as follows:

a) Investment in securities The bank has investment in debt instruments in companies, which were ordered to discontinue their operations and defaulted their debts as follows: Consolidated and Company Baht’ million Type of investment Financial institutions whose operations have been close down Financial institutions whose operations have been close down Non-listed companies which have default on interest payment Non-listed companies which have default on interest payment

Numbers

Unsecured debenture Senior debenture Senior debenture Convertible debenture

Market Value

Cost

Provision

3

1

4

2

– –

– –

– –

The bank has recognised impairment loss on such debt instruments to the statement of income in the year when incurred.

b) Loans and accrued interest receivable The bank has given loans and accrued interest receivables to companies who face the financial difficulties and provided related allowance for doubtful accounts in the consolidated and the bank financial statements as follows: Consolidated and Company

Listed company which is under restructuring plan Company which is under default problem

130

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

Numbers

Total debts

Collateral

Baht’ million Allowance for doubtful accounts

4 124 128

328 4,668 4,996

66 5,857 5,923

207 1,277 1,484


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

33. Related parties transactions The following material transactions were carried out with related parties

a) Income

For the year then ended Fee and services income Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Brokerage/other income Kiatnakin Securities Co., Ltd. Interest, dividend income and gain (loss) on repurchasing of unit trust Kiatnakin Securities Co., Ltd. Pathumwan Assets Management Co., Ltd.

Company 31 December 31 December 2006 2005 Baht’ million Baht’ million 1.20 1.20 1.20 2.40 6.00

1.20 1.20 1.20 2.40 6.00

4.62

4.74

1.11 (0.39) 0.72

4.73 – 4.73

The consolidated financial statements for the year ended 31 December 2006 included the brokerage income received from Kiatnakin Bank Public Company Limited and the directors and management at the position of department head and above amounting to Baht 1.97 million and 1.01 million, respectively (2005: 2.43 million and 2.54 million).

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

33. Related parties transactions (cont’d) b) Expenses

For the year then ended

Company 31 December 31 December 2006 2005 Baht’ million Baht’ million

Interest and discounts on borrowing Kiatnakin Securities Co., Ltd. Pathumwan Assets Management Co., Ltd. Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3 Directors and management at the position of department head including their related person have control or significant influences Rental and services expenses The Erawan Group Pcl (formerly Amarin Plaza Co., Ltd.)(1) CMIC Development Co., Ltd.(2) Chotitanawan Co., Ltd.(3)

5.16 0.10 17.53 25.08 22.98 15.70 2.51 19.33

2.51 – 6.02 10.09 9.23 3.11 1.83 8.52

8.08 116.47

2.90 44.21

25.94 11.06 10.77 47.77

17.05 2.13 11.23 30.41

Relationship details: (1) Shares held by shareholders/directors including their related persons (2) Shares received from troubled debts restructuring (3) Major shareholder is Company’s director

c) Outstanding balances Company 31 December 31 December 2006 2005 Baht’ million Baht’ million Loans to financial institutions / Loan Kiatnakin Securities Co., Ltd. CMIC Development Co., Ltd. Accounts receivable/Other assets Kiatnakin Securities Co., Ltd. CMIC Development Co., Ltd.

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KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

190.00 563.33 753.33 2.69 78.96 81.65

– – – 21.04 – 21.04


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

33. Related parties transactions (cont’d) c) Outstanding balances (cont’d) Company Weighted Average Balance 31 December 31 December 31 December 31 December 2006 2005 2006 2005 Baht’ million Baht’ million Baht’ million Baht’ million Short term borrowings Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3

62.19 88.00 75.32 52.96 9.01 83.20 370.68

– – – – – – –

550.00 910.00 770.00 590.00 70.00 1,010.00 3,900.00

– – – – – – –

Company 31 December 31 December 2006 2005 Baht’ million Baht’ million Other liabilities/Accrued interest expenses Kiatnakin Securities Co., Ltd. Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property fund 1 Asia Recovery Property fund 3

4.39 1.22 2.01 1.70 1.31 0.15 2.23 13.01

0.37 0.28 0.42 0.40 – – – 1.47

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

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KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

33. Related parties transactions (cont’d) Company Weighted Average Balance 31 December 31 December 31 December 31 December 2006 2005 2006 2005 Baht’ million Baht’ million Baht’ million Baht’ million Deposits Kiatnakin Securities Co., Ltd. Pathumwan Assets Management Co., Ltd. Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3 Director and management at the position of department head including their related person have control or significant influences

122.27 24.20 344.6 491.66 457.9 303.13 47.88 347.14

174.29 – 271.72 458.43 425.10 138.36 68.02 400.03

7.90 – – – – – – –

21.54 – 305.00 455.00 425.00 – – –

211.76 2,350.54

142.80 2,078.75

165.51 173.41

139.91 1,346.45

c) Outstanding balances (cont’d) As at 31 December 2006, close members of directors are co-guarantors for loans amounted to Baht 46.6 million (31 December 2005: Baht 54.4 million). The related company which shares received from troubled debts restructuring had borrowed money amounted to Baht 63 million from shareholders/directors including their related person.

d) Pricing policies Transactions between the bank and related parties have been priced as follows:  Fee and services income, which the funds paid to the bank is calculated at the rate specified in service agreement.  Income under commitment agreement under securities business receivables is calculated based on outstanding balance which the bank could not claim from securities business receivables.  Other income is based on actual cost incurred.  Interest income is based on market price.  Dividend income is received at the rate declared by the fund.  Gain on repurchasing of unit trust is calculated from net asset value of unit trust at the repurchased date deducted by the carrying value.  Brokerage commission is charged at the same rate given to third parties  Interest and discounts on borrowing are based on market price  Rental and service income are based rate identified in rental and services contracts

134

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2006 AND 2005

34. Benefits paid to directors and executives The bank has no special benefits given to the directors and executives beyond the general benefits made as usual such as directors remuneration, executives salary and bonus (if any) included ESOP warrants as disclosed in Note 19. Monetary remunerations paid to directors are as follow: Consolidated 2006 2005 Baht Baht Monetary directors’ remunerations

8,159,125

7,215,000

Company 2006 Baht

2005 Baht

7,199,125

5,010,000

35. Dividend At the 2006 ordinary shareholders’ meeting on 18 April 2006, the shareholders resolved that dividends be paid from the operating results for the period from 1 July 2005 - 31 December 2005 at Baht 1.3 per share. Total dividends of Baht 654,456,957 was paid on 28 April 2006. An amount of Baht 121,800,065 was approved as legal reserve in the financial statements of the bank. At the Board of Director’s Meeting no. 4/2549 held on 27 July 2006, the board resolved that the interim dividends be paid from the operating results for the period from 1 January - 30 June 2006 at Bath 1.00 per share. Total dividend Baht 513,201,089 was paid on 25 August 2006.

36. The application of Thai Accounting Standards no. 44 (amendment 2006) The bank will apply Thai Accounting Standard no.44 (amendment 2006) - Consolidated and separate financial statements in accounting period beginning on 1 January 2007. This amendment requires for investment in subsidiaries to be accounted for at cost (previously equity method) in the separate financial statements. Under the cost basis, income from the investment will be rendered when dividends are declared.

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

135


BRANCH OFFICES KIATNAKIN BANK PUBLIC COMPANY LIMITED 1. Head Office 500 Amarin Tower, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0 2680 3333 Fax. 0 2256 9933

136

9. Chiang Mai Office 33 Chiang Mai-Lampang Road, Tambon Chang Phueak, Amphur Muang, Chiang Mai 50300 Tel. 0 5321 8711-3, 0 5340 9620-4 Fax. 0 5340 9625

2. Asoke Office 209/1 CMIC Tower B, 27th Floor, Sukhumvit 21 (Asoke), Klong Toey Nua, Wattana, Bangkok 10110 Tel. 0 2625 5000 Fax. 0 2664 1454

10. Chiang Rai Office 56/5-6 Moo 13, Paholyothin Road, Tambon Robvieng, Amphur Muang, Chiang Rai 57000 Tel. 0 5371 9427-32 Fax. 0 5371 9434

3. Chachoengsao Office 508, 510 Chachoengsao-Bang Pakong Road, Tambon Na Muang, Amphur Muang, Chachoengsao 24000 Tel. 0 3851 6611 Fax. 0 3851 6106

11. Nakhon Ratchasima Office 192/1-4 Jomsurangyart Road, Tambon Nai Mueang, Amphur Muang, Nakhon Ratchasima 30000 Tel. 0 4426 0401-8 Fax. 0 4426 0409

4. Chonburi Office 7/41 Moo 4 Sukhumvit Road, Tambon Huaykapi, Amphur Muang, Chonburi 20130 Tel. 0 3838 4946-9 Fax. 0 3838 4950

12. Khon Kaen Office 9/2 Prachasamosorn Road, Tambon Nai Muang, Amphur Muang, Khon Kaen 40000 Tel. 0 4333 7725-32 Fax. 0 4333 7734

5. Rayong Office 375/4-5 Sukhumvit Road, Tambon Noenphra, Amphur Muang, Rayong 21000 Tel. 0 3880 8090-4 Fax. 0 3880 8095

13. Udonthani Office 119/7-8 Moo 14, Soi Ban Kao Jan, Tambon Mark-kang, Amphur Muang, Udonthani 41000 Tel. 0 4222 4270-4 Fax. 0 4222 4275

6. Chanthaburi Office 29/1-2, 29/3, 29/4 Moo 7, Tambon Chanthanimit Amphur Muang, Chanthaburi 22000 Tel. 0 3934 3616 Fax. 0 3934 3615

14. Ubonratchathani Office 466 Suriyat Road, Tambon Nai Muang, Amphur Muang, Ubonratchathani 34000 Tel. 0 4520 9260 Fax. 0 4520 9258

7. Phitsanulok Office 286/10 Pichaisongkram Road, Tambon Nai Muang, Amphur Muang, Phitsanulok 65000 Tel. 0 5521 1683-6, 0 5521 1773-4 Fax. 0 5521 1687

15. Ratchburi Office 286/25-26 Srisuriyawong Road, Tambon Na Muang, Amphur Muang, Ratchburi 70000 Tel. 0 3231 0382-9 Fax. 0 3231 0391

8. Nakhonsawan Office 795/8 Moo 10, Tambon Nakhonsawantok, Amphur Muang, Nakhonsawan 60000 Tel. 0 5622 0973-6 Fax. 0 5622 0977

16. Chumphon Office 67/4, 67/5 Krom Luang Chumphon Road, Tambon Tha Taphao, Amphur Muang, Chumphon 86000 Tel. 0 7757 0508 Fax. 0 7757 0509

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006


17. Suratthani Office 22/144-145-146 Rath-Uthit Road, Tambon Talat, Amphur Muang, Suratthani 84000 Tel. 0 7721 7405, 0 7720 5454-5 Fax. 0 7721 7408

19. Haad Yai Office, Songkhla 24, 24/1 Suvarnawong Road, Tambon Haad Yai, Amphur Haad Yai, Songkhla 90110 Tel. 0 7434 6262 Fax. 0 7434 6260

18. Nakhonsithammarat Office 6/144-5 Phatthanakan Khukhwang Road, Tambon Nai Muang, Amphur Muang, Nakhonsithammarat 80000 Tel. 0 7535 8531-6 Fax. 0 7535 8538

20. Phuket Office 101/2 Bangkok Road, Tambon Talat Nua, Amphur Muang, Phuket 83000 Tel. 0 7622 3464, 0 7622 3234 Fax. 0 7622 3550

BRANCH OFFICES KIATNAKIN SECURITIES COMPANY LIMITED Provinces 1. Chachoengsao Office 508, 510 Chachoengsao-Bang Pakong Road, Tambon Na Muang, Amphur Muang, Chachoengsao 24000 Tel. 0 3851 7133, 0 3851 6032 Fax. 0 3851 1213 Email : chachengsao@kks.co.th

5. Khon Kaen Office 9/2 Prachasamosorn Road, Tambon Nai Muang, Amphur Muang, Khon Kaen 40000 Tel. 0 4333 7700-24 Fax. 0 4333 7721 Email : khonkaen@kks.co.th

2. Samutsakorn Office 1400/33 Ekkachai Road, Tambon Mahachai, Amphur Muang, Samutsakorn 74000 Tel. 0 3442 7123-5 Fax. 0 3442 3565 Email : smutsakorn@kks.co.th

6. Chanthaburi Office 29/1-2, 29/3, 29/4 Moo 7, Tambon Chanthanimit, Amphur Muang, Chanthaburi 22000 Tel. 0 3930 3309 Fax. 0 3930 3453 Email : chantaburi@kks.co.th

3. Chiang Mai Office 33 Chiang Mai-Lampang Super Highway, Tambon Chang Phueak, Amphur Muang, Chiang Mai 50300 Tel. 0 5322 0753-60 Fax. 0 5322 0763 Email : chiangmai@kks.co.th 4. Phitsanulok Office 83/9 3rd Top Land Arcade Departmentstore, Boromtrailoknat Road, Tambon Nai Muang, Amphur Muang, Phitsanulok 65000 Tel. 0 5523 5000-6 Fax. 0 5523 5006 Email : phitsanulok@kks.co.th

7. Chonburi Office 7/18 Moo 4, Tambon Huaykapi, Amphur Muang, Chonburi 20130 Tel. 0 3838 4931-43 Fax. 0 3838 4794 Email : chonburi@kks.co.th 8. Si Racha Office 86/4-5 4th Floor, Sukhumvit Road, Tambon Si Racha, Chonburi 20110 Tel. 0 3832 8345-54 Fax. 0 3832 8354 Email : sriracha@kks.co.th

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

137


9. Rayong Office 125/1 Jantaudom Road, (Rayong-Baan Khai), Tambon Choeng Noen, Amphur Muang, Rayong 21000 Tel. 0 3861 7476-90 Fax. 0 3861 7490 Email : rayong@kks.co.th

10. Haad Yai Office, Songkhla 200 Nipat - Uthit Road, Tambon Haad Yai, Amphur Haad Yai, Songkhla 90110 Tel. 0 7435 4470-9 Fax. 0 7423 9515 Email : haadyai@kks.co.th

BRANCH OFFICES KIATNAKIN SECURITIES COMPANY LIMITED Bangkok 1. Head Office 500 Amarin Tower, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0 2680 2222 Fax. 0 2680 2233 Email : esupport@kks.co.th

5. New Petchburi Office 1550 New Petchburi Road, Makkasan, Ratchathewee, Bangkok 10400 Tel. 0 2207 0552-54 Fax. 0 2207 0801 Email : newpechburi@kks.co.th

2. Asoke Office 159 Sukhumvit 21 (Asoke) Road, Klong Toey Nua, Wattana, Bangkok 10110 Tel. 0 2204 1270-84 Fax. 0 2661 6329 Email : asoke@kks.co.th

6. Ratchadaphisek Office 202 Le Concorde 11st Floor, Room No. 1101, Ratchadaphisek Road, Huay Khwang, Bangkok 10320 Tel. 0 2694 1788 Fax. 0 2694 1799 Email : rajchada@kks.co.th

3. Ngamwongwan Office 11st Floor, Office Building, (The Mall Ngamwongwan) 30/39-50 Ngamwongwan Road, Bangkhen, Amphur Muang, Nonthaburi 11000 Tel. 0 2550 0353-80 Fax. 0 2550 0354 Email : ngamwongwan@kks.co.th 4. Bangna Office 11st Floor, Central City Tower, 1093/56-57 Bangna-Trad Road, Bangna, Prakanong, Bangkok 10260 Tel. 0 2745 6458-66 Fax. 0 2745 6467 Email : bangna@kks.co.th

138

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2006

7. Ratchaprasong Office 971, 973 President Tower, 6th Floor, Room No. 6 C, 6 D, Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Tel. 0 2656 0293 Fax. 0 2656 0289 Email : ratchaprasong@kks.co.th 8. Ladprao Office 1693 Room No. 503/1, 507/1, 508/2, Phaholyothin Road, Ladyao, Chatuchak, Bangkok 10900 Tel. 0 2937 1240-54 Fax. 0 2937 1254 Email : lardprao@kks.co.th


List of Information required by the Office of the Securities and Exchange Commission Page 1. General Information 1.1 The company

8

1.2 Juristic entity in which the company holds 10% or more of the total registered shares

9

1.3 Other References

8

2. Financial Highlights

4

3. Nature of Business 3.1 Business Operations

11

3.2 Revenue Structure

12

3.3 Significant changes in the previous year

13

4. Risk Factors

17

5. Shareholding and Management Structure 5.1 Shareholders

21

5.2 Management

23

 Management Structure

23

 Director and Management Selection Process

27

 Management Remuneration

29

 Business Administration

23

 Company Policy and Disclosure

37

 Internal Control

38

5.3 Dividend Policies

39

6. Related Party Transactions

40

7. Management Discussion and Analysis

42

8. Financial Statement 8.1 Financial Statement 8.2 Auditor没s Remuneration

61-135 30

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AMARIN PRINTING AND PUBLISHING PUBLIC COMPANY LIMITED 65/16 Chaiyaphruk Road, Taling Chan, Bangkok 10170 Tel. 0 2422-9000 Fax. 0 2433-2742, 0 2434-1385 E-Mail : info@amarin.co.th Homepage : http://www.amarin.co.th


KK : Annual Report 2006