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02 Financial Highlights 14 Message from the Board of Directors 16 Board of Director 18 Management Discussion and Analysis 29 Nature of Business Operations 48 Risk Management and Risk Factors 60 Corporate Social Responsibility (CSR) Activities 65 Responsibilities of the Board of Directors for Financial Report 66 Report of the Audit Committee 68 Independent Auditor’s Report 69 Financial Statements and Note to Financial Statements 196 Corporate Governance 216 Report of the Nomination and Remuneration Committee 217 Supervision and Management Structures 218 Board of Directors and Management Team 236 General Information Investment of TBANK in Other Companies TBANK’s References Other References Structure of Major Shareholders Dividend Payment Policy Companies in Thanachart Group Branches of TBANK 258 Summary of Specified Items per Form 56-2 in 2012 Annual Report


Six Strategic Intents for the Business Operation in 2013

1. We intend to provide our customers with a superior experience by offering the best service and a total financial solution to their unique needs. 2. We intend to increase our productivity and customer satisfaction through strategic investments in our people, leadership, systems and processes. 3. We intend to be the dominant market leader for Hire Purchase Business, Used, and CYC segments. 4. We intend to grow deposit base in order to maintain and improve liquidity. 5. We intend to grow our loan market share in targeted segments. 6. We intend to increase the fee-based income proportion to be on par with industry average.

Vision of Thanachart Group

To provide fully integrated financial services catered towards our targeted customers’ complete financial needs by offering the highest quality of products and services.


Financial highlights As at and for the year ended December 31

As at and for the year ended December 31

Consolidated

Separate financial statements

2012

2011

2010

2009

2008

2012

2011

2010

2009

2008

49,653 25,535 24,118 11,861 35,979 22,341 2,980 8,221

44,052 19,636 24,416 9,465 33,881 20,747 2,504 7,671

34,781 11,566 23,216 8,695 31,911 16,062 2,149 8,777

21,470 6,736 14,734 17,571 32,305 23,346 3,107 4,056

20,688 9,398 11,290 9,983 21,990 14,818 3,968 1,870

46,331 25,371 20,959 10,902 31,861 19,908 4,680 6,804

29,386 14,797 14,589 6,454 21,042 12,953 1,422 6,668

21,397 7,375 14,022 3,322 17,344 8,053 1,280 5,719

Basic earnings per share (THB) Return on average assets (ROAA) (percent) Return on average equity (ROAE) (percent) Interest spread(4) (Percent) Cost to income ratio net insurance (5)   premium income (Percent) Statement of financial position (THB Million)

1.49 0.89 10.56 2.48 62.10

1.39 0.89 10.61 2.92 61.24

1.92 1.23 15.52 3.33 50.33

2.19 1.06 17.01 3.73 56.51

1.08 0.56 8.79 3.17 60.09

1.23 0.77 9.48 2.58 62.48

1.21 1.13 9.42 2.99 61.56

1.25 1.31 10.70 3.63 46.43

1.91 0.96 15.20 3.66 51.64

0.75 0.41 6.22 3.14 55.98

754,063 1,016,088 776,521 933,091 82,163

635,220 886,060 690,336 810,526 74,848

606,851 873,203 707,605 800,809 72,183

285,515 432,970 356,496 405,098 27,811

276,142 378,347 331,313 357,006 21,278

723,023 951,007 769,677 874,501 76,507

616,713 878,053 729,121 807,169 70,884

326,549 482,063 374,883 415,327 66,737

282,577 413,878 357,664 387,523 26,355

272,925 368,272 333,120 347,002 21,270

Operating results (THB Million)

Interest income Interest expenses Net interest income Non-interest income Total income(1) Non-interest expenses Bad debt and doubtful accounts(2) Net income(3) Operating performance

Loans Total assets Deposits and borrowings Total liabilities Shareholders’ equity(6)

Remark: Financial Statement Appearance in accordance with the notification of the BOT Re: the Preparation and Announcement of Financial Statements of Financial Institutions dated 28 December 2010 or Sor Nor Sor 11/2010 resulted in change various items. However, the Bank and its subsidiaries have revised the financial statement for the year 2011 (excepting Y2010) for analysis and comparison

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Annual Report 2012 Thanachart Bank Public Company Limited

20,934 19,897 6,791 9,429 14,143 10,468 2,053 1,638 16,196 12,754 8,363 7,140 2,830 3,548 3,547 1,304

1. Interest income excludes dividend income 2. Interest expense includes contribution fee to Deposit Protection Agency 3. Non-interest income includes fee paid related to income and insurance/life insruance expenses 4. Non-interest expense excludes fee paid related to income, insurance/life insurance expense and contribution fee to Deposit Protection Agency 5. Financial ratios are calculated on disclosure financial statement


As at and for the year ended December 31

Consolidated

Separate financial statements

2012

2011

2010

2009

2008

2012

2011

2010

2009

2008

Loans to deposits and   borrowings ratio (Percent) NPL-gross to total loans (Percent) NPL-net to total loans (Percent) (7) Coverage ratio (Percent) Total allowance to BOT regulation (Percent) Non-performing loans (NPL) (THB Million) Capital measures

97.11

92.02

85.76

80.09

83.35

93.94

84.58

87.11

79.01

81.93

4.10 1.96 74.21 123.93 32,501

5.58 2.64 69.75 104.27 37,677

5.60 2.48 71.22 108.05 36,859

2.57 2.37 0.58 0.58 96.41 94.99 111.66 112.75 8,675 7,466

2.63 1.35 76.92 103.12 20,036

2.74 1.45 71.53 103.12 17,989

2.26 0.57 97.66 105.32 7,648

2.49 0.59 92.33 102.85 8,359

2.30 0.60 88.81 101.55 7,167

Asset quality

Tier I capital ratio (Percent) Total capital ratio (Percent) Risk weighted assets (THB Million)

8.49 9.28 11.71 8.65 8.02 13.99 13.72 14.75 14.10 11.18 724,801 664,103 609,277 273,366 252,634 Common share information Common shares outstanding (Million shares) • Average-basic • End of period Book value (THB) Dividends per share (THB) Other information

Employees Branches Exchange booth(8)

5,514 5,514 4,563 1,854 1,735 5,514 5,514 5,514 5,514 1,935 1,735 5,514 14.90 13.58 13.09 14.38 12.26 13.88

5,514 5,514 12.86 0.35

4,563 5,514 12.10 0.40

1,854 1,935 13.62 0.56

1,735 1,735 12.26 0.56

14,152 676 79

7,871 256 89

7,470 256 92

7,534 213 76

Annual Report 2012 Thanachart Bank Public Company Limited

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15,765 16,298 16,846 9,368 9,630

Definition and Formula (1) Total income = Net interest income + Non-interest income (2) Including loss on debt restructuring (3) Excluding minority interest/non-controlling interest (4) Interest spread = Yield - Cost of fund Yield = Interest income/Average earning assets Earning assets = Interbank and money market from interest bearing + net investment + loans Cost of fund = Interest expenses/Average paying liabilities Paying liabilities = Total deposits + interbank and money market from interest bearing + total borrowings

13,642 630 55

(5) Cost to income ratio = Non-interest expenses/Total income (6) Excluding minority interest/non-controlling interest (7) Total allowance/NPL

(8) Stand alone exchange booth


Message from the Board of Directors

(Mr. Banterng Tantivit) Chairman of the Board of Directors

Dear Shareholders, In the past year, the global economy remained fragile and was impacted by the Eurozone recession and

the slowdown of the economies of China and Japan.

This inevitably resulted in the subdued economic growth of Asian countries. Fortunately, the expansionary monetary policy and a series of economic stimulus packages adopted by developed countries led to substantial progress towards resolving the Eurozone crisis. This, along with the mitigated concern over the US budgetary ‘Fiscal Cliff’, has served to shore up consumer and business confidence as well as stimulate a gradual recovery of developed countries’ economies. On the domestic economic front, the Thai economy proved to be resilient in overcoming the global economic headwinds, underpinned by improving private and public consumption and investment. Particularly, the economy benefited from the strong growth resulting from the rebuilding efforts following the devastating floods, along with various Government stimulus measures, including the first-time car buyer program, the first-time house buyer program, the higher minimum wage policy, the reduction of corporate income taxes, and etc. Amid the pressing challenges of the economic environment and technological evolution, regulatory changes took place in 2012 such as the imposition of a 0.47 percent surcharge on the deposit base to be paid to the Financial Institutions Development Fund (‘FIDF’) and the Deposit Protection Agency (‘DPA’). This along with the increased reserves required impacted the commercial banks and the expected application of this surcharge to the Special Financial Institutions (‘SFIs’) along with the increased focus by the SFIs on their original development mandates and increased vigilance regarding credit risk should bring stability to the sector and generate the level playing field required to support a strong private banking industry. Despite all these challenges, the banking industry still generated robust private sector loan growth supported by the strong expansion in the deposit base, albeit at higher costs due to the competitive environment and

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Annual Report 2012 Thanachart Bank Public Company Limited

(Mr. Suphadej Poonpipat) Chairman of the Executive Committee

pricing advantages of the SFIs. Notably, we saw a surge in household loans, especially in the latter half of 2012, which was attributable to auto hire purchase loans, bolstered by the first-time car buyer program. Likewise, commercial loans achieved a high growth rate in response to increasing investment for rebuilding facilities and equipment following the devastating floods and for overall business expansion. Of note, the overall banking industry benefited from an extension of deposit protection coverage at THB 50 million until 2015. For Thanachart Bank in 2012, we focused on infrastructure and leadership development and operational process improvement under our Strengthening for Growth strategy to improve our customer service and accommodate future growth after completion of the integration project with Siam City Bank (‘SCIB’) in the previous year. With the support of global best practices from our strategic shareholder,

The Bank of Nova Scotia (‘Scotiabank’, Canada’s most international bank and recently named “Global Bank of the Year” by The Banker magazine), we have made strong progress towards our strategic goals and remain on track to deliver enhanced customer service at a lower cost through

a more efficient platform with the ongoing national rollout of

a Sales & Service program, the implementation of credit scoring and a new loan origination and account management system and the reengineering and optimization of all Customer Contact Centres and Collections. We continue to improve efficiencies across our business lines with end-to-end reengineering efforts underway in Corporate, SME and Hire Purchase businesses and optimizing our delivery channels. While delivering on these strategic priorities, we remained focused on servicing our client needs and through these efforts, we posted a satisfactory performance in 2012. We grew our total assets to over THB 1 trillion, propelled by growth of 18.71 percent in loans. The auto hire purchase loan portfolio grew by 38.89 percent, thanks to the strong growth in the sector boosted by the first-time car buyer program.

We have maintained our #1 market share position and expect this positive momentum will continue to through the first half of


(Mr. Somjate Moosirilert) Chief Executive Officer and President

2013. In addition, we generated strong growth in credit cards and unsecured loans supported by strong product offers which attracted new clients to the bank and supported our goal of meeting all of our customer needs through our Universal Banking initiative. Moreover, we succeeded in expanding our deposit base in support of future business growth and we maintained our strong capital position in full compliance with the Basel III Guidelines. With respect to NPL levels, through prudent risk management, strong collection efforts and

the restructuring/repayment of legacy SCIB accounts, we made good progress in managing our problem loan accounts, reducing NPLs to 4.10 percent of total loans from 5.58 percent in 2011. As a result of these efforts and initiatives, we reported a consolidated net profit of THB 8,435.4 million in 2012, up 9.81 percent from 2011. In 2013, we will continue to progress on our strategic priorities and deliver key infrastructure and system improvement projects throughout the year. Supporting these initiatives will be an integrated branch training program focusing on building our capabilities in customer service, product and credit knowledge and interactive selling skills.

With our streamlined processes, enhanced systems and staff knowledge, we are well positioned to take advantage of

the strong market opportunities in the Thai banking sector.

In this regard, we expect loan growth of over 10 percent in 2013 with an increasingly more diversified loan portfolio focusing on high-yield products such as credit cards, personal loans and SME banking. We are committed to defending our market-leading position in auto loans, while expanding loans for used cars and Cash Your Car to enhance overall yield. Simultaneously, we will grow our deposit customer base at an appropriate cost level to support the growth and enhance interest spread. Furthermore, we will increasingly offer other financial products to better meet all of our customers’ needs while boosting fee income from cross-sell. These many initiatives will allow us to fully realize the synergies from the SCIB acquisition, generating strong cost savings and productivity improvements.

(Mr. Brendan King) Vice Chairman of the Executive Committee and Deputy Chief Executive Officer Another exciting opportunity in the year ahead is our partnership with the Prudential Group, a U.K. based, global leading life assurance business. In November 2012 we announced the sale of our life insurance subsidiary to Prudential along with an agreement to enter into an exclusive partnership to jointly develop our bancassurance business. The closing of the sale will take place after receiving approval from the Office of Insurance Commission (‘OIC’). It is expected that the Commission will be able to give a definitive answer by April 2013. The capital gain from this sale will further strengthen the Bank’s capital base. By partnering with such a global industry leader, we will be able to offer our customers market leading, innovative life assurance and investment products supported by strong advertising and staff training programs. This initiative will lift our competitive edge in the life assurance business and will be another channel to increase our fee income. We expect to see a challenging economic and business environment for the banking industry in 2013, arising from both the enforcement of the Basel III Guidelines by the Bank of Thailand which takes effect on January 1, 2013 and due to the continuing strong competition in the industry. Despite an anticipation of a substantial loan growth in the overall industry, interest spread is expected to remain under pressure due to intense competition for both loans and deposits. Therefore, it is crucial for us to remain focused on key priorities of serving our customers while enhancing our operating model and productivity through ongoing investment in technology, staff training and leadership. We will continue to emphasize an efficiency of asset and liability management to increase yield and cross-sell while prudently managing risks and controlling costs across all business units. The Board of Directors realizes that our success over the last several years is attributable not only to the full dedication and commitment of all our staff, but also due to the enduring support from customers, partners, and shareholders. With our tireless efforts and under the guidance of our “Strengthening for Growth” strategy, the Board is confident that Thanachart Bank is poised to succeed in the years ahead.

Annual Report 2012 Thanachart Bank Public Company Limited

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Annual Report 2012 Thanachart Bank Public Company Limited


Annual Report 2012 Thanachart Bank Public Company Limited

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Management Discussion and Analysis Major Events

January 2012 • Income tax rate change for the year 2012 from 30 percent to 23 percent. • Effective 1 January 2012, TBANK has adjusted the provision for individual hire purchase to set the provision using

the collective approach method, which classifies groups of receivable having similar credit risk characteristics and considers historical loss experience of loans which is calculated based on the probability of default and a percentage of the loss given default. March 2012 • SCIB Public Company Limited paid the equity return to TBANK at THB 14.5 per share, totaling THB 30,629 million. TBANK booked the amount as of decrease in the investment in the aforementioned company; therefore, the investment cost decreased from THB 32,542 million to THB 1,913 million. July 2012 • On 20 July 2012, the Bank issued 8,497,000 units of registered subordinated, unsecured debentures, with a par-value of THB 1,000 each, accounted for THB 8,497 million. The debentures will mature in 2022 and bear a fixed interest rate of 4.7 percent per annum and the interest will be paid on a quarterly basis. TBANK has a call option to early redeem these debentures at

the par-value if the specified conditions are met. The whole debentures meet the criteria to be counted as the Tire II capital. October 2012 • On 19 October 2012, TBANK issued 4,018,500 units of registered subordinated, unsecured debentures, with a par-value of THB 1,000 each, accounted for THB 4,018.5 million. The debentures will mature in 2022 and bear a fixed interest rate of

4.7 percent per annum, and the interest will be paid on a quarterly basis. TBANK has a call option to early redeem these debentures at the par-value if the specified conditions are met. A part of these debentures, amounting to THB 2,275.9 million, was approved

by the Bank of Thailand (BOT) to be counted as TBANK’s Tier II capital in 2012. The remaining debentures, amounting to

THB 1,742.5 million was approved by the BOT to be counted as the TBANK’s Tier II capital effective 1 January 2013. • Thanachart Life Assurance Public Company Limited (TLIFE) issued additional common shares of 278.5 million at

the par-value of THB 10 each. TBANK exercised its right to purchase the entire new shares issued. As a result, TBANK’s investment in TLIFE increased from THB 936 million to THB 3,721 million. November 2012 • On 5 November 2012, TBANK signed the Share Purchase Agreement with Prudential Life Assurance (Thailand) Public Company Limited to sell all the common shares of TLIFE held by TBANK. Both parties agreed to offer life assurance products and services through TBANK’s branches nationwide with conditions as disclosed in the Note to financial statements under item 9; Investments in subsidiary and associated companies.

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Annual Report 2012 Thanachart Bank Public Company Limited


Consolidated Financial Statements of TBANK and Its Subsidiaries Subsidiary companies directly held by TBANK

SCIB Public Company Limited (formerly known as “Siam City Bank Public Company Limited”) Thanachart Securities Public Company Limited Thanachart Insurance Public Company Limited Thanachart Life Assurance Public Company Limited Thanachart Fund Management Company Limited Thanachart Broker Company Limited Thanachart Group Leasing Company Limited Thanachart Management and Services Company Limited Thanachart Legal and Appraisal Company Limited Thanachart Training and Development Company Limited TS Asset Management Company Limited Siam City Life Assurance Public Company Limited SCIB Service Company Limited Ratchthani Leasing Public Company Limited Subsidiary companies indirectly held by TBANK

National Leasing Company Limited Operating Results Overview (Comparing consolidated financial statements of the year 2011 and 2012) Consolidated Income Statement

Interest income Interest expenses Net interest income Net fee and service income Other operating income(1) Other operating expenses(2) Income (loss) before impairment loss of loans and debt securities Impairment loss of loans and debt securities Income (loss) before income tax Income tax Net Profit   Attributable to the Bank   Attributable to non-controlling interests Earnings per share (Baht) Weighted average number of ordinary shares (million shares)

(Unit: THB Million) 2012

2011

49,653 25,535 24,118 4,212 7,649 22,341 13,638 2,980 10,658 2,223 8,435 8,221 214 1.49 5,513.66

44,052 19,636 24,416 3,711 5,754 20,747 13,134 2,504 10,630 2,948 7,682 7,671 11 1.39 5,513.66

Change from 2011 Increase/ (Decrease)

5,601 5,899 (298) 501 1,895 1,594 504 476 28 (725) 753 550 203

Percent

12.71 30.04 (1.22) 13.50 32.93 7.68 3.84 19.01 0.26 (24.59) 9.80 7.17 1,845.45

Notes: (1) Net non-life insurance/life assurance underwriting expenses (2) Exclude non-life insurance/life assurance underwriting expense

Annual Report 2012 Thanachart Bank Public Company Limited

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In 2012, TBANK and its subsidiaries had consolidated net profit of THB 8,435 million, net profit attributable to TBANK of THB 8,221 million, an increase of THB 550 million or 7.17 percent from the previous year due to the following main factors: • Loan growth of 18.71 percent from the end of 2011. In particular, hire purchase loan grew by 38.89 percent from the end of last year. The growth was supported by the excise tax return policy of the Government and the slowdown in automobile manufacturing in the last quarter of 2011 due to flood crisis. In addition, improvements in credit review process and IT system allowed greater effectiveness and efficiency in supporting the Government’s aforementioned policy and increasing business volume, enabling TBANK to maintain market leader position in hire purchase. Hire purchase loan outstanding totaled to THB 396,519 million with 19 percent penetration rate in the year 2012. At the same time, the used car hire purchase and cash your car loan also experienced high growth. • Total deposits and borrowings growth of 12.48 percent from the end of 2011. Total deposits increased THB 262,332 million or 60.16 percent. This was a result of funding restructuring and new acquisition in ultra saving, short term fixed deposits, 4-month, 5-month, 6-month and 11-month fixed deposits. During the year, TBANK has strategized its product offering with suitable interest rate in response to an increase in policy interest rate and business competition. As a result, deposits were acquired more from retail customers while maintaining relationship with high networth customers. • Interest spread was at 2.48 percent, decreased from the end of last year which was at 2.92 percent. Yield on earning assets increased in line with policy interest rate increase to 5.81 percent, compared to 5.55 percent last year. In addition, the cost of fund increased as well from 2.63 percent in the previous year to 3.33 percent, which was

a result of uptrend market rate and high competition in deposit products for liquidity management to support loan growth. • Non-performing loans management Bad debts to total loan was at 0.40 percent which was similar to the previous year according to the management of NPLs and the change of provisioning set-up method by hire purchase contracts to collective approach method which was effective since the 1st quarter of 2012. The NPLs of TBANK and its subsidiaries as of 31 December 2012 was THB 32,501 million, decreased from

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Annual Report 2012 Thanachart Bank Public Company Limited

THB 37,677 million at the end of last year, due to the debt management ability of TS AMC, which is a subsidiary of TBANK. As a result, the NPL ratio decreased from 5.58 percent at the end of 2011 to 4.10 percent at the end of 2012. • Growth of non-interest income was contributed by net non-life insurance/life assurance underwriting income, banking fee, brokerage fee and gain on property foreclosed.

In 2012, Non-interest income ratio was 32.97 percent,

an increase from 27.93 percent in the previous year. Noninterest income to average assets ratio-illustrating an improvement of non-interest income with lessened impact from interest spread-increased from 1.09 percent to 1.28 percent • Operating expense control and management was done under cost control policy. As a result, non-variable cost decreased while variable cost increased following growing business volume. Cost to income ratio in 2012 was 62.10 percent, compared to 61.24 percent last year. Operating expense to average asset was 2.41 percent which was similar to that of last year. • Corporate income tax of TBANK and its subsidiaries amounted to THB 2,223 million in 2012. Tax rate accounted for 20.86 percent, a decrease from 27.73 percent last year. • Capital adequacy of TBANK is strong with total capital of THB 101,417 million, of which THB 61,546 million was Tier 1 and THB 39,871 million was Tier 2. BIS ratio was 13.99 percent, an increase from 13.72 percent in last year. This was partly due to THB 12,516 million of subordinate debenture which was issued to support capital adequacy under Basel III regulation and the profit from the first 6-month 2012 operating results. Risk weighted assets increased 9.14 percent mainly from loan growth. Net Interest Income

In 2012, TBANK and its subsidiaries’ net interest income amounted to THB 24,118 million, a decrease of 298 THB million or 1.23 percent compared to last year. This was mainly a result from cost of fund pressure. Interest income was THB 49,653 million, an increase of THB 5,601 million or 12.71 percent. Interest expense was THB 25,535 million, an increase of THB 5,899 million or 30.04 percent. Consequently, interest spread in 2012 was 2.48 percent, a decrease from 2.92 percent last year.


Non-interest Income

Non-interest income, including net fees and service income, net insurance underwriting income and other operating income, was THB 11,861 million, an increase of THB 2,396 million or 25.32 percent from last year. The details are as follows: • Net fees and service income TBANK and its subsidiaries had THB 4,121 million in net fees and service income, an increase of THB 501 million or 13.49 percent. This was a result of larger customer base and greater variety of financial products. Fees and service income was

THB 5,700 million, an increase of THB 690 million or 13.77 percent, while fees and service expense was THB 1,488 million,

an increase of THB 189 million or 14.58 percent. • Other operating income Other operating income includes gains on trading and foreign exchange transactions, gains on investments, share of profit from investment accounted for under equity method, dividend income, securities brokerage fees, insurance underwriting income and other income. In 2012, other operating income (net insurance underwriting expense) was THB 7,649 million, an increase of

THB 1,895 million or 32.93 percent. This was mainly due to net insurance underwriting income which increased THB 1,747 million. On the other hand, dividend income and gains on investments decreased THB 260 million or THB 264 million respectively. Operating Expense

TBANK and its subsidiaries incurred THB 22,341 million in operating expense, an increase of THB 1,594 million or 7.68 percent. This was mainly due to personnel expense and sale promotion expense. Cost to income ratio in 2012 was 62.10 percent, an increase from 61.24 percent. This was partly due to the impact from interest spread. Impairment Loss on Loans and Debt Securities

In 2012, impairment loss on loans and debt securities expense of TBANK and its subsidiaries amounted to THB 2,980 million, an increase of THB 476 million. Provision to loan was 0.40 percent similar to last year. Coverage ratio was 74.21 percent and reserve to required reserve was 123.93 percent.

Financial Position of TBANK and Its Subsidiaries

(Unit: THB Million) Consolidated Balance Sheet

Assets Cash Interbank and money market items-net Investments-net Net loans to customers and accrued interest receivables Property foreclosed-net Land, premises and equipment-net Goodwill Other assets Total assets

December 31, December 31, 2012 2011

15,181 71,963 146,106 731,010 6,461 8,292 15,750 21,325 1,016,088

16,006 63,201 148,345 609,903 6,762 8,759 15,750 17,334 886,060

Change from 2011 Increase/ (Decrease)

Percent

(825) 8,762 (2,239) 121,107 (301) (467) 0 3,991

(5.15) 13.86 (1.51) 19.86 (4.45) (5.33) 0.00 23.02

130,028

14.67

Annual Report 2012 Thanachart Bank Public Company Limited

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As of 31 December 2012, TBANK and its subsidiaries had THB 1,016,088 million in total assets, an increase of THB 130,028 million or 14.67 percent from the end of 2011. This was mainly due to an increase in net loans and accrued interest receivables which were THB 121,107 million or 19.86 percent. Portion of corporate and SME loans to retail loans was 67 : 33.

(Unit: THB Million)

Consolidated Balance Sheet

Liabilities and equity Deposits Interbank and money market items-net Liability payable on demand Debt issued and borrowings Provisions Insurance contract liabilities Other liabilities Total liabilities Equity attributable to the Bank Non-controlling interest of the subsidiaries Total liabilities and equity

December 31, December 31, 2012 2011

698,372 87,777 4,989 78,149 2,976 39,632 21,196 933,091 82,163 834 1,016,088

436,040 60,151 2,131 254,297 2,824 36,154 18,930 810,527 74,848 685 886,060

Change from 2011 Increase/ (Decrease)

262,332 27,626 2,858 (176,148) 152 3,478 2,266

Percent

60.16 45.93 134.12 (69.27) 5.38 9.62 11.97

122,564 15.12 7,315 9.77 149 21.75 130,028 14.67

As of December 31, 2012, TBANK and its subsidiaries’ total liabilities were THB 933.091 million, an increase of THB 122,564 million or 15.12 percent. This was mainly due to the following: • Total deposits were THB 698,372 million, an increase of THB 262,332 million or 60.16 percent from the end of 2011.

This was mainly due to an increase in fixed deposit. On the other hand, debt issued and borrowings decreased THB 176,148 million or 69.27 percent from the end of 2011. This was a result of funding restructure and deposit acquisition through deposits products, such as ultra saving, short term fixed deposits, 4-month, 5-month, 6-month and 11-month fixed deposits. Funding was also sourced from short-term debentures and subordinated debentures (during the year, THB 12,516 million of 10-year subordinated debentures were issued at a rate of 4.70 percent). Deposits were acquired from retail customers while the relationships with high net worth customers remain strong. Total deposits and borrowings relied less on bills of exchange. Bills of exchange were THB 4,930 million,

a decrease from THB 218,506 million at the end of last year. • Interbank and money market items were THB 87,777 million, an increase of THB 27,626 million or 45.93 percent, a result of TBANK’s liquidity management. As of December 31, 2012, Shareholders’ equity of TBANK and its subsidiaries was THB 82,613 million, an increase of

THB 7,135 million or 9.77 percent from the end of 2011. The increase was mainly due to the net profit in 2012 performance.

There was a dividend payout from 2011 performance at 0.35 baht per share, totaling to THB 1,930 million.

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Annual Report 2012 Thanachart Bank Public Company Limited


Asset Quality Asset quality is analyzed from consolidated financial statements. 1. Net Loans to Customers and Accrued Interest Receivables

As of December 31, 2012, TBANK and its subsidiaries had THB 732,509 million in loans and receivables classified by BOT regulation, an increase of THB 112,161 million or 18.08 percent. During 2012, TBANK and its subsidiaries entered into various debt restructuring contracts in total 15,266 accounts, with a THB 17,371 million outstanding before restructuring. By the end of 2012, TBANK and its subsidiaries has restructured a total of 54,854 accounts from a total of 1,722,431 accounts. Debt restructured accounts had THB 33,661 million in principal and interest outstanding. Loan Diversification

At the end of 2012, hire purchase loan portion was 52.63 percent followed by 11.78 percent loans for manufacturing and commerce, 10.96 percent mortgage loans, 8.39 percent loans for utilities and service, 6.81 percent loans for real estate and construction and 9.44 percent other loans. Loans Classified by Business Type in 2012 11.78% Manufacturing and Commerce 9.44% Others

6.81% Real Estate and Construction

Loans Classified by Business Type in 2011 12.90% Manufacturing and Commerce 13.67% Others

8.39% Infrastructure and Service 52.63% Hire Purchase

10.96% Housing

7.55% Real Estate and Construction 9.20% Infrastructure and Service

45.08% Hire Purchase

11.59% Housing

2. Loans Classified by BOT Regulation

As of December 31, 2012, TBANK and its subsidiaries had THB 732,509 million in loans and receivables classified by BOT regulation, an increase of THB 112,181 million or 18.08 percent from last year. As of December 31, 2012, total provision was THB 22,346 million and THB 499 million for additional allowance for possible uncollectable debts. In total, allowance for bad debts and doubtful accounts was THB 22,845 million. Allowance for bad debts to doubtful accounts to loans and accrued receivables ratio was 3.12 percent.

Annual Report 2012 Thanachart Bank Public Company Limited

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Loans and Receivables Classified by BOT Regulation (Unit: THB Million) Loans and accrued interest receivables

Debt balance(1)

December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011

Normal 671,590 542,456 Special mention 28,554 40,447 Substandard 5,273 7,031 Doubtful 4,529 11,763 Doubtful of loss 22,563 18,631 Total 732,509 620,328 Additional allowance for possible uncollectability debts Total allowance for doubtful accounts Ratio of total allowance for doubtful accounts to total loans and interest receivables (percent) Note:

Allowance for doubtful accounts

4,834 1,475 3,535 2,393 10,109 22,346 499 22,845 3.12

3,970 722 3,870 7,507 8,348 24,417 383 24,800 4.00

(1) The debt balance/book value of the normal and special mention accounts did not include the accrued interest receivables

3. Non-performing Loans

As of December 31, 2012, TBANK and its subsidiaries’ non-performing loans were THB 32,501 million, a decrease of THB 5,176 million from the end of 2011. This was mainly due to the expertise and capability in debt correction of TS AMC, a subsidiary of TBANK. NPL ratio was 4.10 percent. Non-performing Loans

(Unit: THB Million)

Non-performing loans (NPLs) NPLs to total loans (percent) NPL-net (under the BOT’s regulation) NPL-net (percent)

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Annual Report 2012 Thanachart Bank Public Company Limited

December 31, 2012

December 31, 2011

32,501 4.10 15,539 1.96

37,677 5.58 17,787 2.64


NPLs Clasified by Business Type 10.44% Others 11.46% Service

Classified NPLs 16.29% Substandard

16.09% Hire Purchase Loans 13.53% Housing Loans

36.94% Manufacturing and Commerce

11.54% Real Estate and Construction

14.01% Doubtful 69.70% Doubtful of Loss

4. Investment in Securities

In 2012, TBANK and its subsidiaries had THB 144,706 million in securities investment. The main portion was 57.16 percent investment in government and state enterprise securities, followed by 26.32 percent bank securities. After revaluation and impairment adjustment, net investment in 2012 was THB 146,106 million, a decrease from THB 148,345 million in 2011. The details of securities investments in 2012 are as follows: Securities Investment Classified by Types of Securities Table

(Unit: THB Million) Type of investment

Debt securities Government and state enterprises securities • Trading • Available-for-sale • Held-to-maturity Private debt securities • Trading • Available-for-sale • Held-to-maturity Foreign debt securities • Trading • Available-for-sale • Held-to-maturity Equity securities Listed securities • Trading • Available-for-sale Investment in receivables • Held-to-maturity Other investment Total debt securities Add (less): Allowance for change in value Allowance for impairment Total investment-net

December 31, 2012

5,745 55,220 21,756 5,683 29,669 2,731 620 11,485 0 16 7,062 5 4,714 144,706 1,456 (56) 146,106

Percent

3.97 38.16 15.03 3.93 20.50 1.89 0.43 7.94 0.00 0.01 4.88 0.00 3.26 100.00

December 31, 2011

10,508 40,877 26,876 4,770 18,389 6,592 642 25,516 1,500 34 7,483 12 4,549 147,748 641 (44)

Percent

7.11 27.67 18.19 3.23 12.45 4.46 0.43 17.27 1.02 0.02 5.06 0.01 3.08 100.00

148,345

Annual Report 2012 Thanachart Bank Public Company Limited

25


Liquidity

At the end of 2012, TBANK and its subsidiaries had THB 180,836 million net cash from operating activities, THB 3,611 million cash inflow from investment activities, and THB 185,271 million cash outflow from financing activities. Cash flow of TBANK and its subsidiaries was a net decrease of THB 824 million. At the end of 2012, TBANK had THB 15,181 million in cash and cash equivalents, mainly comprised of the following: • Cash flows from operating activities were a result of an increase of deposits in the amount of THB 262,339 million and

a decrease of loans in the amount of THB 130,721 million. • Cash flows from investing activities were a result of cash received from interest in the amount of THB 4,828 million and cash received from dividend in the amount of THB 494 million. Cash paid for purchase of investments increased by THB 1,108 million and cash paid for purchase of equipment was THB 675 million. • Cash flows from financing activities were a result of THB 731,239 million cash paid for debts issued and borrowings while cash received from debts issued and borrowings was THB 555,071 million. (Unit: THB Million)

Major changes items

Net cash flows from (used in) financing activities Net cash flows from (used in) investing activities Net cash flows from (used in) operating activities Net increase (decrease) in cash Cash at beginning of the year Cash at end of the year

2012

2011

(185,271) 3,611 180,836

69,447 9,973 (78,713)

(824) 16,006

708 15,298

15,181

16,006

Relationship between Sources and Uses of Funds In 2012, TBANK and its subsidiaries sourced funds from deposits and borrowings in the amount of THB 698,372 million and THB 78,149 million respectively; and used THB 754,063 million for loans and THB 144,076 million for investments. Comparing the maturities of sources and uses of fund as of December 31, 2012, the sources of fund were 56.87 percent from deposits with maturity less than 1 year and 31.94 percent were deposit at call. On the other hand, the uses of funds were 53.22 percent for loans with maturity more than 1 year and 26.74 percent loans with maturity less than 1 year. The mismatch between the sources and used of funds is a norm in commercial bank and financial institution industry. General behavior of deposit customers, deposits is renewed upon maturity. Furthermore, TBANK has a policy to acquire suitable fund in corresponds to the use of fund through financial instrument. An efficient risk management will trigger a warning of any impact to the sources and uses of funds in advance. The key sources and uses of funds with maturity breakdown as of December 31, 2012 are as follows:

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Annual Report 2012 Thanachart Bank Public Company Limited


Type

Sources of Fund   Deposits   Borrowing Total Uses of fund   Loans(1)   Investment Total uses of fund

At call

Less than 1 year

Over 1 year

Unspecified

Total

THB Million Percent THB Million Percent THB Million Percent THB Million Percent THB Million Percent

248,014 31.94 441,579 56.87 8,779 1.13 46 0.01 20,865 2.69 50,108 6.45 248,060 31.95 462,444 59.55 58,887 7.58 35,386 3.94 240,308 26.74 478,369 53.22 0 0.00 48,072 5.35 86,067 9.58 35,386 3.94 288,380 32.09 564,436 62.80

0 7,130 7,130 0 10,567 10,567

0.00 0.92 0.92 0.00 1.18 1.18

698,372 89.94 78,149 10.06 776,521 100.00 754,063 83.90 144,706 16.10 898,769 100.00

Note: (1) Loan at call includes stop-accrued loans

Capital Adequacy

As of December 31, 2012, TBANK had THB 101,417 million, of which THB 61,546 million was Tier 1 and THB 39,871 million was Tier 2. BIS ratio was 13.99 percent, an increase from 13.72 percent last year. Tier 1 capital was 8.49 percent, a decrease from 9.28 percent in 2011. Tier 2 capital was 5.50 percent, an increase from 4.44 percent in 2011. This was partly due to THB 12,516 million of subordinate debenture which was issued to support capital adequacy under Basel III regulation and the profit from the first 6-month 2012 operating results. Risk weighted assets increased 9.14 percent mainly from loan growth. BIS ratio is well over the BOT minimum regulated ratio of 8.50 percent. The details of capital adequacy are as follows: Capital Adequacy Ratio

December 31, 2012

Tier I Total capital funds

December 31, 2011

THB Million

Percent

THB Million

Percent

61,546 101,417

8.49 13.99

61,638 91,093

9.28 13.72

Annual Report 2012 Thanachart Bank Public Company Limited

27


Thanachart Securities Public Company Limited Average daily trading volume of TNS in 2012 was

THB 2,711 million, and increase from THB 2,267 million from the previous year, with a market share of 4.82 percent. Trading volume was composed of 66.36 percent retail clients, 13.68 percent institutional clients, and 19.96 percent foreign clients. Net profit for the year ended December 31, 2012 was THB 458 million, an increase of THB 165 million or 56.14 percent from the previous year. Total income was THB 1,645 million, an increase of 11.37 percent. Of which, THB 1,222 million was from brokerage fees; THB 152 million was from fees and service income and THB 138 million from interest income on margin loans. Interest expenses, fees and service expenses, and operating expenses were THB 1,075 million, and increase from the previous year, in line with growing business volume and increase in income. As of December 31, 2012, TNS’s net liquid capital ratio was at 60.70 percent, higher than the regulated minimum of 7.00 percent set by Securities and Exchange Commissions (SEC). Thanachart Fund Management Company Limited As at the end of 2012, TFUND had THB 119,691 million of asset under management, an increase of THB 24,998 million or 26.40 percent from the end of 2011. Composition of asset under management was 83.62 percent mutual fund, 8.29 percent provident fund, and 8.09 percent private fund. As for the performance in 2012, TFUND had net profit of THB 141 million, an increase of THB 52 million or 58.90 percent from the previous year. Thanachart Insurance Public Company Limited TNI had net profit of THB 616 million in the year 2012, an increase of THB 180 million or 41.28 percent from the previous year. The key contributing factors were the growth in direct premium in all channels and the focus on profitable products while loss incurred and operating expenses were managed efficiently. Thanachart Life Assurance Public Company Limited For the 12-month period, ended 31 December 2012, TLIFE had net profit of THB 1,715 million, an increase of THB 945 million or 122.81 percent from the previous year.

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Annual Report 2012 Thanachart Bank Public Company Limited

Underwriting income grew from hire purchase customer base at the amount of THB 1,151 million or 66.16 percent, and ordinary life insurance product of THB 1,887 million or 43.79 percent. As a result, net underwriting income increased from the previous year by THB 2,863 million or 40.49 percent. Underwriting expenses increased by THB 2,636 million or 40.71 percent from the previous year. As a result, underwriting profit increased by THB 227 million or 38.03 percent from the previous year. Gains on investment increased by THB 874 million or 99.67 percent, due to the profit from the sale of investment. TS Asset Management Company Limited In the year 2012, TS AMC focused on debt restructuring, in alignment with the policy and business plan of Thanachart Group. As of December 31, 2012, TS AMC’s total assets were THB 10,070 million. For the performance of the year 2012, TS AMC had net profit of THB 1,718 million, an increased of THB 1,624 million from the previous year. This was the result of NPL management and continued debt restructuring. Income from debt restructuring and gains on properties foreclosed and other assets were THB 2,501 million and THB 192 million respectively while operating expenses were THB 177 million. Ratchthani Leasing Public Company Limited As of the end of 2012, THANI’s total assets were THB 19,209 million, an increase of THB 6,855 million or 55.49 percent from the end of 2011. This was due to continuous growth in hire purchase customers especially the truck hire purchase. Hire purchase loans amounted to THB 18,659 million, an increase of THB 6,607 million or 54.82 percent. This accounted for 97.13 percent of total assets. Total liabilities and shareholders’ equity were THB 16,705 million and THB 2,504 million respectively. Net profit of 2012 was THB 489 million, an increase of THB 284 million or 138.86 percent from the previous year. Total income was THB 1,583 million, an increase of THB 462 million or 41.24 percent, due to continuous growth of hire purchase loans especially truck hire purchase. Finance cost were THB 673 million, an increase of THB 134 million or 24.81 percent, mainly due to an increase in additional borrowings that have lower cost of fund to support business growth which resulted in a decrease in cost of fund. Bad debts and doubtful debts were THB 81 million, a decrease of THB 45 million or 35.57 percent, due to the impact from flooding in Bangkok and its vicinities in the last quarter of the previous year.


Nature of Business Operations An Overview of the Business Operation

Upon a successful integration with the SCIB and the entire business transfer of all of the SCIB’s assets on October 1, 2011, TBANK’s business structure, having TCAP as a parent company, consists of two groups: 1) financial group and 2) Supporting group. It was presently a fully integrated financial conglomerate serving customers with a full range of financial services primarily available through TBANK branch network and TBANK service outlets, and it is strongly committed to good corporate governance principles. The details of the business operations of each subsidiary company are as follows: Financial Group 1. Thanachart Capital Public Company Limited (TCAP) operates as the holding company being a parent company of Thanachart Financial Conglomerate. 2. Thanachart Bank Public Company Limited (TBANK) operates commercial banking business and other businesses permitted by the BOT, such as life and non-life insurance broker, a provider of services relating to unit trust and securities such as securities brokerage, proprietary trading, unit trust underwriting, mutual fund trustee service, provident fund custodian service, debt instrument underwriting and trading, securities registrar, and gold derivative trading. 3. Thanachart Securities Public Company Limited (TNS) was permitted by the Ministry of Finance and the Office of

the Securities and Exchange Commission of Thailand (SEC) to operate the following activities: 3.1 TNS was granted a Full-Service License to operate securities businesses and related businesses such as securities brokerage (domestically and internationally), securities underwriting, investment advisory service, securities borrowing and lending, financial advisory service, unit trust underwriting and repurchasing, and securities registrar. 3.2 TNS was granted a Derivative Business Sor 1 License to engage in a full range of derivative businesses and related businesses such as derivative brokerage and proprietary trading. 4. Thanachart Fund Management Company Limited (TFUND), which is a joint venture between TBANK (holding

75 percent of the total shares) and the Government Saving Bank (holding 25 percent shares), operates a full range of investment management services in mutual fund management business, private fund and provident fund management business, and investment advisory business. 5. Thanachart Insurance Public Company Limited (TNI) operates a non-life insurance business and a disaster insurance business such as fire insurances, automobile insurances, marine and transportation insurances miscellaneous insurance, and investment business. 6. Thanachart Life Assurance Public Company Limited (TLIFE) operates a life insurance business and a health insurance business individual life insurances, such as individual endowment and annuity, group life insurance, such as group life insurances for corporation and organization, and credit life insurances including hire purchase loan, mortgage, SME loan, and credit card. 7. Siam City Life Assurance Public Company Limited (SCILIFE) operates life insurance business by offering products through TBANK’s branch network. Its customer segment is mainly TBANK’s lending customers and deposit customers. 8. Thanachart Group Leasing Company Limited (TGL) operates a hire purchase business of all automobile types. 9. Ratchthani Leasing Public Company Limited (THANI) operates a hire purchase business and financial lease business focusing on the segment of private used cars and commercial cars such as pick-ups, taxis, tractors, and trucks. 10. NFS Asset Management Company Limited (NFS AMC) operates an asset management business by buying or receiving transfers of NPLs and NPAs from financial institutions in the Thanachart Group. 11. MAX Asset Management Company Limited (MAX AMC) operates and asset management business by buying or receiving transfers of NPLs and NPAs from other financial institutions. 12. TS Asset Management Company Limited (TS AMC) operates and asset management business by buying or receiving transfers of NPLs and NPAs from SCIB and TBANK.

Annual Report 2012 Thanachart Bank Public Company Limited

29


Supporting Business Group 1. Thanachart Management and Services Company Limited (TMS) provides services to the Group’s service staff. 2. Thanachart Broker Company Limited (TBROKE) pursues Thanachart Group’s hire purchase customers to insure their automobiles. TBROKE is also an automobile insurance broker of TNI. 3. Thanachart Training and Development Company Limited (TTD) organizes training activities for employees of member companies of Thanachart Group. 4. Thanachart Legal and Appraisal Company Limited (TLA) provides legal advisory services, contracts, litigation, legal enforcement, and appraisal of collateral. Presently, all of its assets and employees have already been transferred to TBANK. TLA’s capital was paid-up and the Company exited from being a subsidiary of the Thanachart’s financial group on 9 November 2012. 5. SCIB Services Company Limited (SCIB Services) provides general services to TBANK and companies in the Group,

such as janitor, security, delivery, car rental, car drivers, and outsourcing service.

Chart of Shareholding Structure of Thanachart Group

As of December 31, 2012

Thanachart Capital Public Company Limited

Scotia Netherlands Holding B.V.

Commercial Banking Business

Asset Management Business

48.99% 50.96%

Thanachart Bank Public Company Limited

100.00%

NFS Asset Management Company Limited

83.44%

MAX Asset Management Company Limited

Financial Business

Supporting Business 100.00% Thanachart Securities Public Company Limited

Securities Business

75.00% Thanachart Fund Management Company Limited

100.00% Thanachart Management and Services Company Limited

100.00% Thanachart Insurance Public Company Limited

100.00%

100.00% Thanachart Life Assurance Public Company Limited

Insurance Business

Thanachart Broker Company Limited

100.00% Siam City Life Assurance Public Company Limited

100.00% TS Asset Management Company Limited

Asset Management Business 100.00%

Thanachart Group Leasing Company Limited

Leasing Business

Thanachart Training and Development Company Limited

100.00% National Leasing Company Limited

100.00% SCIB Services Company Limited

65.18% Ratchthani Leasing Public Company Limited

Note: The above shareholdings include shares held by the related parties.

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100.00%

Annual Report 2012 Thanachart Bank Public Company Limited


Policy on Division of Operational Functions among Member Companies of Thanachart Group

Being a parent company of Thanachart Financial Conglomerate with a controlling interest (i.e. owning more than fifty percent of issued and paid-up capital), TCAP has adopted the following policies and approaches in managing the member companies of the Group as follows: Business policies

TCAP and TBANK are responsible for establishing annual key business policies of Thanachart Group. Each subsidiary is required to formulate business plans and budgets for 3 - 5 years and submit them to the parent company for consideration, in order to ensure that they are in alignment with the established key business policies. The business plans and budgets are also subject to evaluation and review regularly. The objective is to ensure that the business plans and budgets are in line with the changing business conditions. Supervision of subsidiaries

The directors and high-ranking executives of TCAP and TBANK are assigned to be the members of the Board of Directors of the subsidiaries. The arrangement not only enables TCAP and TBANK to assist the subsidiaries in establishing their policies and in determining their future direction, but also ensures the close supervision of the subsidiaries’ business operations. Importantly, the Chief Executive Officers of

the subsidiaries are required to present a monthly performance report to the Executive Committee and the matters in the Executive Committee Meeting are than reported to the Board of Directors of TBANK. Centralizing of support services

It is a policy of the Thanachart Group to centralize specific functions of the support services into one company which, then, is responsible for providing such services to all other member companies of the Group. The purpose is to maximize benefits within the existing resources including expertise of operations staff and various information technologies, and to reduce staffing costs. The centralized support services available now within Thanachart Group included information technology, human resource, systems and internal regulatory development, internal audit, operation control, business control, electronic services, administration and procurement, legal and appraisal services, as well as retail debt collections and collections brokerage.

Internal control, audit, and corporate governance of parent company and subsidiaries

Thanachart Group places strong emphasis on internal control. The Group adheres to the principle of adequate and appropriate internal control by establishing procedures for business conducts, provision of services, and operations.

The Group also separates the duties and responsibilities of each unit to allow internal examination of each other, based on a check and balance system. In addition, it puts in writing

the announcements as well as order mandates, rules and regulations’ covering key business areas and operations,

and this information was also disclosed to all staff in such

a way that they can always study them to gain a full understanding. A central unit at TBANK is responsible for preparing and proposing the announcements, order mandates rules and regulations of all member companies of the Group. As regard to the internal audit, the internal audit group is responsible for auditing the business operations of all member companies of the Group, ensuring that they comply with the regulations and the established work systems. The internal audit group also assesses an adequacy and effectiveness of an internal control system in operations to ensure the use of resources and properties and prevention or reduction of errors, damages in order in propose corrective measures for improvement. In addition, the Thanachart Group has established the Compliance Unit responsible for closely monitoring changes of laws, notifications, and orders related to the Group’s business affairs and operations and disseminating the information to the staff. The Compliance Unit is also responsible for ensuring that the conduct of business affairs of the member companies of the Group is in compliance with the legal requirements. Moreover, the Audit Committee of each member company of the Group is responsible for governing, controlling, and auditing their respective business operations. The Audit Committee is also allowed to carry out its duties and give its opinions in an independent manner of the management of each company. The purpose is to ensure that internal control and audit systems are effective and that the financial statements are properly reviewed. As regard to the corporate governance, the Board of Directors of TCAP and the companies in the Group place

a strong emphasis on the good corporate governance both at the level of the Board of Directors and the level of various Committees. Independent directors are appointed to the Board of Directors and the Committees to provide effective checks and balances on the powers of executive directors.

Annual Report 2012 Thanachart Bank Public Company Limited

31


The established scope of responsibilities of the Board of Directors and the Committees are also in line with the principles of good corporate governance. In addition, the Board of Directors of the TCAP and the subsidiaries have established the corporate governance policy and the code of conduct which the directors, executives, and staff of the member companies of Thanachart Group are required to adhere to. Focus is given to integrity, transparency, and avoidance of any conflict of interest. Risk management

TCAP ensured that the member companies of

the Group analyze and assess various risks of their business operations and that the risks are properly managed in line with the guidelines given by the authorities. In addition, TCAP conducts an analysis of the key risks faced by the member companies of the Group which may need direct financial or management policy of the Thanachart Financial Conglomerate is in line with the guidelines given by the BOT.

Business Policy and Strategies of Thanachart Group

In 2012, Thanachart Group has determined its strategic direction to become a fully integrated financial services group capable of offering a full range of quality products and services that cater to the financial needs of the customers in an efficient manner. To achieve this goal, Thanachart Group has set up its vision “Becoming a fully integrated financial services group; aiming at creating an excellence in our services and product development, so as to satisfy our customers’ financial needs, with the cooperation and unity of all the members of the Group.” Such vision was developed from three major fundamentals which are providing fully integrated financial services (Universal Banking) with TBANK being the main services offering; focusing on satisfying of our customers’ different needs (Customer Centric); and cooperating from all departments wholeheartedly to provide excellent service to customers (Synergy). The endeavor and accomplishment from the three major fundamentals not only allowed Thanachart Group to be a fully integrated financial services group with highly successful in competition, but also is a key to drive Thanachart Group to become one the Thailand’s leading banks over the next three to five years.

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Annual Report 2012 Thanachart Bank Public Company Limited

From our goal to become a fully integrated financial services group, Thanachart Group aims to become leading bank in the commercial banking industry in Thailand and possess an appropriate asset size for business competition to provide varieties of alternatives to customers. Moreover, synergy of Customer Experience Management and Sale and Service Model system from Scotiabank enables Thanachart Group to offer a superior experience by providing the best services to fully satisfy financial needs of our customers. Besides, Thanachart Group also puts an emphasis on diversification of income sources in order to balancing interest income and fee-based income. These aims have been communicated to all of our staff. In 2013, the Thanachart Group has set Six Strategic Intents as follows: 1. We intend to provide our customers with a superior experience by offering the best service and a total financial solution to their unique needs. 2. We intend to increase our productivity and customer satisfaction through strategic investments in our people, leadership, systems and processes. 3. We intend to be the dominant market leader for Hire Purchase Business, Used, and CYC segments. 4. We intend to grow deposit base in order in maintain and improve liquidity. 5. We intend to grow our loan market share in targeted segments. 6. We intend to increase the fee-based income proportion to be on par with industry average. The above six Strategic Intents were communicated to all staffs at all levels so that they all shared a mutual objectives consistent with visions and strategic objectives of the Thanachart Group. In order that the strategies were in alignment, efficiently evaluated and able to manage the organization systematically, Thanachart Group has developed a plan namely “CEO’s Six-Point Agenda” which served as

a tool to enhance the set target to be efficient and systematic success.


Income Structures of TBANK and its subsidiaries Income structures of TBANK and its subsidiaries based on the consolidated financial statements as of December 31, 2012, 2011, and 2010 are as follows: A table of income structures of TBANK and its subsidiaries

As of December 31 2012 2011 2010 THB Percent THB Percent THB Percent Million Million Million

Interest Income   Interbank and money market items   Investment for trading   Investment for debts securities   Loans   Hire Purchase and Financial Leases Total Interest Income Interest Expenses Net Interest Income Non-interest Income   Net Fees and Service Income   Gains on Trading and Foreign Exchange Transactions   Gains on Investments   Shares of Profit from Investments in Associated Companies   Accounted for under Equity Method   Insurance Premium/Life Insurance Premium Income-Net   Dividend Income   Other Income Total Non-interest Income Net Operating Income

1,054 82 3,653 14,760 15,232 34,781 11,566 23,215 3,496 570 314 207 2,353 461 1,295 8,696 31,911

3.30 0.26 11.45 46.25 47.73 108.99 36.24 72.75 10.95 1.79 0.98 0.65 7.37 1.45 4.06 27.25 100.00

Annual Report 2012 Thanachart Bank Public Company Limited

33

2,347 480 4,468 21,202 21,156 49,653 25,535 24,118 4,212 664 448 143 3,875 447 2,073 11,861 35,979

6.52 1.33 12.42 58.93 58.80 138.00 70.97 67.03 11.71 1.85 1.24 0.40 10.77 1.24 5.76 32.97 100.00

1,899 78 4,290 20,774 17,011 44,052 19,636 24,416 3,711 891 712 156 2,128 708 1,159 9,465 33,881

5.60 0.23 12.66 61.32 50.21 130.02 57.95 72.07 10.95 2.63 2.10 0.46 6.28 2.09 3.42 27.93 100.00


Business Operations of Each Business Group Commercial Banking Business

Characteristics of Products and Services TBANK operated its businesses in compliance with the Financial Institutions Business Act and other relevant notifications issued by the Bank of Thailand (BOT). It acted as a non-life and life insurance brokerage agent, an advisor and investment unit distributor for mutual funds, trustee services for mutual funds, custodian services for private funds, securities brokerage, securities trading, debt instrument trading, securities registrar, and a selling agent for gold derivatives. As of December 31, 2012, TBANK had a total of 629 branches (excluding Tonson branch, the Headquarter), 2,061 ATMs (Automatic Teller Machines), 45 CDMs (Cash Deposit Machine), 3 Recycling Machines, 122 PUMs (Passbook Update Machine) and 55 foreign exchange booths (29 in-branches, and 26 stand-alone) Group of Products and Services

TBANK improves and develops products to better serve various needs of our customers. Its four main products and services were as follows: Products and Services

Characteristics

Group 1 Deposit products are offered to customer, Deposit Products both individuals and corporate. There are four major types of deposit products which are saving deposit, fixed deposit, current deposit, and foreign currency deposit.

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Annual Report 2012 Thanachart Bank Public Company Limited

Competitive Strategies

Under an intense competition in deposit mobilization, particularly among government banks and large commercial banks, the TBANK continues to focus on expanding its small and medium-sized customer base through a series of converged banking products. In 2012, the TBANK constantly launches new products that offer suitable returns in line with interest rate movements in the system, viz. Smile Payroll deposit accounts for retail and medium-sized customers, to which salaries can be transferred via the TBANK, and short-term fixed deposits of 7 days, 14 days, 1 month and 2 months, in order to offer more savings alternatives to individual and corporate customers. Various special fixed-deposit products, with the terms ranging from 4 or 5 months to 11 or 15 months were also launched to meet the demand of market. To provide customers with increased flexibility in managing their savings and optimal benefits, the TBANK has introduced a fixed deposit product called Fixed Super Grow Up, which is different from general fixed deposit products in that customers may withdraw money before the maturity while the returns remain high. All of these products are welcome by customers.


Products and Services

Group 2 Lending Products

Characteristics

1. Corporate Loans are used to meet capital requirements or enhance financial liquidity of businesses. Customers can choose a variety of corporate loan services. 1.1 Corporate Banking Group To meet the demand of large scale businesses, the TBANK has developed many types of products and services, including, inter alia, several forms of loans such as flexible loan, project finance and trade finance, financial advisory service, debt and capital market services such as issuance of debentures for the purposes of funds mobilization and listing on the Stock Exchange of Thailand, as well as risk management tools, particularly those for exchange rate risk such as forward contract, foreign currency swap. The TBANK also provides cash management facility to these customers through a range of products that meet their individual requirements. 1.2 SME Group such as SME-S loan, which are products for small and medium-sized enterprises with the maximum limit of Baht 10 million. These products include, inter alia, Top Up facilities which are special loan limits to meet working capital requirements of overdraft customers, letter of guarantee products for enterprise or individual customers wishing to obtain a guarantee limit to secure their performance in favor of public or private entities, etc. 2. Automobile SMEs, TBANK offers this product to car related entrepreneurs who have short-term financial needs with the proceeds of the loans to be used as their working capital or for enhancing their liquidity position as well as those who have long-term financial needs with the proceeds of the loans to be used for business expansion or reducing funding cost for example fleet and financial lease.

Competitive Strategies

In 2012, the TBANK categorizes its customers into groups to allow understanding of their needs and efficiently offer the products that meet their requirements. Emphasis is placed on continual establishment of good relationships with large scale businesses and offering of a full range of financial products that answer their individual needs, as well as expansion of business to SME group to meet their demand for financial support from banks. To serve SME customers whose credit requirement does not exceed the maximum limit of Baht 10 million, the TBANK has launched the “SME-S loan� product in respect of which emphasis is placed on speedy approval process (turnaround time). The TBANK concentrates on providing loan services to its long lasting business partners in automobile hire purchase sector. Database has been used to develop the tools for considering and screening credit extension and ensuring appropriate risk control (credit scoring). Emphasis is also placed on development of products and processes that suit the respective groups of customers and their credit access channels, for example, customers via automobile manufacturers, new and used automobile customers via automobile hire purchase businesses, or used automobile business operators via automobile auction companies. For the fleet finance and financial lease sector, the TBANK focuses on providing services through its long-lasting high potential and financially sound customers, as well as developing information system to expand the capabilities of its sale channels countrywide.

Annual Report 2012 Thanachart Bank Public Company Limited

35


Products and Services

Characteristics

3. Trade Finance, TBANK provides a full range of trade finance products and services including Import Letter of Credit (L/C), Trust Receipt, Collection Agency of D/P and D/A for oversea buyers, Packing Credit, Export Bills Purchased/ Discounted, Export Bills for Collection, Letter of Guarantee, Stand-by L/C, and Oversea Money Transfer. 4. Automobile Hire Purchase Loans, TBANK gives hire purchase loans for new and used cars. The TBANK also offers sale and lease back services under the product named “Cash Your Car”. This product is in response to hire purchase customers who need cash, with a selling point of higher credit line than a personal loan, lower interest rate and longer period of installment payment than a personal loan. Customers are able to choose the period of payment and installment plan at the most suitable for them. 5. Secured Personal Loan, consists of: home loans under the brand of “TBANK Home Loan”, multi-purposed loans named “Cash Your Home” and “Home Plus”

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Annual Report 2012 Thanachart Bank Public Company Limited

Competitive Strategies

The main factors that promote trade finance services to customers are accuracy in services, convenience, competitive interest rate and fees. The TBANK took into consideration the customers’ needs and the promotion of business transactions as the main concerns. For the corporate clients, the TBANK has the target to expand customer base to large scale businesses and SMEs. The TBANK provides trade finance credit limit, liquidity supports, and specialist advices on trade finance documents for customers. TBANK also develops trade finance products and services to cater to customer needs. The global business alliance network is useful for fast and convenience service which provides customers’ satisfactory on the TBANK’s products and services. TBANK’s hire purchase loan services are provided across the country through car dealers and TBANK’s branches. In setting the policy to offer a price, the TBANK considers external factors such as a competition in the market and internal factors such as cost of fund and loan risk. In addition, TBANK places an emphasis on sales promotion activities with car dealers in each region, aiming to offer hire purchase loan conditions that meet the need of regional dealers and customers the most, as well as establishing relationships with the automobile hire purchase business and promote the image of a leading loan provider of automobile hire purchase. TBANK increases distribution channels, providing customer’s convenience by offering the “Cash Your Car” product through TBANK branches. TBANK places emphasis on efficient service delivery and fully integrated products that fulfill to all customer needs. As well, marketing promotion, which is in line with the situation and competitive condition, is highlighted. The Retail Banking Department is responsible for developing products, terms and conditions, as well as interest rates charged. The target customers consist of: customers who needed home loans, customers who needed personal loans with houses as collateral, and hire purchase customers with good repayment records. The main distribution channel is personal sales and marketing teams that are responsible for the sales target set in the business plan. Moreover, branches are channels to advertised personal loans or new products to the customers.


Products and Services

Characteristics

6. Unsecured Personal Loan, TBANK provides many types of unsecured personal loans. To be accessible and responsive to cover a wide range of customer needs, therefore, the purpose of loans may or may not be specified. TBANK’s personal loans are serves under the product names as follows: - T-Loan is a multi-purpose loan providing for general customers. The repayments are arranged in equal installment monthly and specified time. - Wish-List Loan is an additional credit line of loan provided to TBANK’s hire purchase customers who have good repayment record. - Special for Staffs Loan, TBANK provides this loan specifically to customers whose companies have a campaign with TBANK. - Scholar Loan is a loan for payment of tuition or any expenses for obtaining a master’s or doctorate degree. - Pension Secured Loan, this is a special multi-purpose loan for government employees who receive monthly pension payment from the Comptroller General’s Department. - Flash Card is a product that provides cardholders with enhanced flexibility as it serves as a source of a revolving credit. Flash Card places an emphasis on fast and convenience service which enables the cardholders to withdraw cash from ATMs worldwide. Flash Card also allows the cardholders to pay the minimum amount in each collection period. - Credit Card, this product provides the line of credit to purchase products/services as cash or allows cardholders to withdraw cash. TBANK, collaborates with VISA and MasterCard to provide credit card in multiple types suitable to customers’ qualifications and needs under the following names: - Thanachart Drive Card: for customers who needs a credit card with cash back for every payment made at any gas stations. - Thanachart Platinum Card: for customers who are looking for exclusive services and privilege benefits in a view of luxury and convenience.

Competitive Strategies

Products under unsecured personal loans defined competitive strategies on product development, marketing campaign, distribution channel, and appropriate services to serve target customers’ needs. Thus TBANK provides a variety of products for customers to choose appropriately by life stage

and life style. These products have been designed in such a way that are easily understandable and practical for every day needs. Main competitive strategies of each product; 1. Personal Loan provides a variety of product to carter to customer needs in each group that fit their purposes. 2. Revolving Card provides cardholders with a credit line to spend for any purposes. Customers can withdraw cash within a credit line as per their needs at ATM worldwide. 3. Credit Card emphasizes on everyday needs of cardholders with simplified and practical use of the card. Cardholders receive benefits as per their needs for every purchase.

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Products and Services

Group 3 Electronic Products and Services

Group 4 Other Products

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Characteristics

TBANK offers electronic products and services that enable customers to make financial transactions at a better efficient manner. These services include fund transfer, Automatic Transfer Service (ATS), online settlement for financial transactions through the Bank of Thailand’s Automatic High-volume Transaction Network (BAHTNET), automatic money transfers between banks (Bulk Payment System), Bill payment service for goods and services and a debit card. To meet the customer needs, the TBANK has also developed the service system through

the internet, which are as follows: - Thanachart i-Net service - Thanachart SMS Alert service - Cash Back Debit Card 1. Foreign Exchange Service, TBANK’s services include foreign exchange services in forms of: bank notes and traveler’s cheques, money changers, forward foreign exchange for international business transaction, inward and outward foreign currency transfers for goods and services, transfer for personal accounts, account opening for Foreign Currency Deposit (FCD), etc. 2. Securities Business Support Services consist of; Custodian, Trustee, Fund Supervisor, Bondholder Representative and Registrar and Paying Agent

Annual Report 2012 Thanachart Bank Public Company Limited

Competitive Strategies

The strategy focuses on cross-selling and upselling via bank branches to both small and large scale companies. For individual customers who need convenient transaction and safety for money transfer, TBANK initiates the promotion campaign aiming at easy accessibility and services. The money can be received on the same day of a transfer. Branches have been available in shopping centers or nearby office areas for customers’ convenience. TBANK offers services as follows: 1. Internet Banking Services, this service was for both individual and juristic person to facilitate customers. For example, account balance information, internal and interbank fund transfer, including the bill payment service. 2. Financial Transaction Notification via SMS service, this 24-hour service notified all transactions i.e. deposit, withdrawn and money transfer via SMS to the customers’ mobile phone number registered with the TBANK. 3. An exclusive cash back debit card, the value of this service was that customers receive cash back directly into their accounts for every spending. The EMV technology provided and ultimate security to protect a card from data stealing. TBANK has expanded its branch network and currency exchange booths to serve all business sectors and tourists nationwide. TBANK also adjusts exchange rates by benchmarking with the movements of the world’s currency market. As a result, its customers receive real time rates and fair prices. To fully offer all range of services to meet customer needs, the TBANK’s custodian and trustee services offer supplementary products that enhance financial and investment management flexibilities to investment funds, such as cash management products. The TBANK has made use of its business network and good relationship with customers to expand the debentureholder representative, securities registrar and payment agent services.


Influential Factors of Constraints on Business Operation

According to 2012 economic outlook, the global economic growth continued to slowdown from 2011,

for instance, the public debt crisis or “Fiscal Cliff” in the United States, the public debt crisis in Eurozone and the deflation condition in Japan. Although the global economy showed positive signs of gradual recovery in the third and fourth quarters of 2012 mainly resulted from solution measures,

the chronical structural problem could not be solved in a short time. As aforesaid reasons, the global economic growth gradually moved to Asian region which was expected to become a strong and growing economy, especially,

the economic integration of the region under the Asean Economic Community (AEC), of which Thailand is a member country. Regarding Thai economic growth last year, though Thailand encountered the contracting economy from the flood in the fourth quarter of 2011, the growth was driven from

the domestic demand which was higher than expected,

the private consumption supported by the government stimulus measures continuing to expand, recovered export, and

the business sector investments replaced and restored damages caused by the flood in 2011. The aforesaid situations made Thai economy grow at 6.4 percent in 2012. Due to the uncertainty and volatility of the global economy, TBANK planned to closely monitor and review

the industry landscape including the political risk and

the impact of loosing policy for stimulating economy from

the dominant countries, for example, the policy interest rate reduction, the usage of Quantitative Easing (QE) measure,

the usage of Outright Monetary Transaction (OMT) from European Central Bank (ECB). The aforesaid risk factors had

a direct impact on the money supply in the market, the liquidity system, THB/US Dollar volatility and the policy interest rate adjustment of the BOT. In terms of the continuous tracking in the progress of business opportunities, for instance, measures to support AEC that the government and the BOT encourage and relax rules and regulations for stimulating the foreign investment and

the “Financial Sector Master Plan Phase II” (implemented during 2010 - 2014), those measures support the cost reduction, the enhancement of competition and financial accessibility, and the enhancement of financial basic infrastructure in order to build strengths of financial institutions. Meanwhile, the BOT, as the regulator, has proposed the “Capital Account Liberalization Master Plan” (master plan) in order to support Thai companies and depositors to increase

the business efficiency, diverse more risks of investments, create environments that support more balanced capital flows, and enhance financial markets development. Presently, the BOT relaxed rules on outward portfolio investment, including (1) allowing companies listed on the Stock Exchange of Thailand to directly invest in securities and derivatives products abroad (2) allowing Thai investors to invest in foreign currency denominated bond issued and offered in Thailand and

(3) allowing certain institutional investors to unwind foreign exchange hedging freely and also relaxed allowing individual investors to invest in securities abroad through securities companies or private funds without BOT approval and easing regulations to facilitate investment in foreign securities through ASEAN Linkage. Moreover, the BOT proposed “The Payment Systems Roadmap 2012-2016” consisting of six key projects, including the promotion and development of electronic payments project, the promotion of payment systems access project, the preparation for the AEC project, the payment systems risk reduction project, the enhancement of safe ATM usage project and the consumer protection and financial literacy project, in order to increase an efficiency and reduce risks in the payment system, and protect consumers and enhance their financial literacy. Competition and market outlook At the end of 2012, the total number of registered commercial banks in the industry was 31, of which 16 were domestically registered banks, and 15 were foreign bank’s branches.The over all performance Thai commercial banks has good financial results that were encouraged by loans’ growth. Loans expanded at 13.7 percent from the previous year which was continuously expanded by 2 digits for the third year consecutively. Moreover, loans expanded a triple higher than usual because of continuous corporate loans expansion, recovering business after flood and supporting domestic demand expansion, and retail loans expansion; housing loans, credit card loans and other loans, especially hire purchase loans resulted from the recovery of auto-producing companies, more production for fulfilling remaining demand in the previous period and increasing demand from the first-car tax rebate scheme. Therefore, the outstanding amount of loans in the commercial banking industry stood at THB 11,277,738 million, of which THB 10,152,702 million or 90.02 percent of total loans were at domestically registered banks and THB 1,125,036 million or 9.98 percent of total loans were at foreign bank’s branches. In terms of deposits of the commercial banking industry, the total amount was THB 10,219,904 million.

From the total deposits of industry, of which THB 9,540,114 million or 93.35 percent of total deposits came from domestic

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banks and THB 679,790 million or 6.65 percent of total deposits came from foreign bank’s branches. The total deposits of the commercial banking industry increased 27.90 percent from 2011 mainly from urgently raised deposits and risk prevention, caused by the global economic crisis. For the economic outlook for 2013, the overall global economy is likely to remain unstable; however, key economic data recently reflected steady improvements in economic stability. Thailand’s trading partners’ economies are expected to gradually recover in 2013. The US economy recovery

as well as the growth in China and emerging economies will drive the global economy, particularly in the second half of

the year. However, the economy of the Euro area and Japan is likely to weaken. According to the economic forecasts from domestic and international research and financial institutions, economic indicators show an improvement. In 2013, Thai economy is expected to grow at 4.5 to 5.5 percent from

the previous year. Domestic demand will continue to serve as the main driver of growth in 2013, with private consumption fueled by momentum from the first-car tax return scheme and a reduction in personal income tax in the 2013 tax year. Moreover, private investment is likely to robustly expand according to an increase in investments to accommodate strong domestic demand and ongoing reconstruction in some industries. Meanwhile, the export sector is expected to gradually recover before resuming its role as an engine of

the economic growth in the second half of 2013, which helps to sustain the growth after the effects from government stimulus measures taper off. An inflation pressure is expected to remain stable as last year in line with world crude oil price; therefore, inflation rate of 2013 was expected at 2.5 to 3.5 percent in base case. Nevertheless, there are both external and internal concern factors which TBANK should closely monitor. Externally concerned factors namely, permanent recovery of the United States economy, Euro public debt crisis, China economy slowdown, Senkaku islands dispute etc. For internally concerned factors namely, an increase of minimum wage

THB 300 scheme, the political uncertainty, the capital flow volatility and an accelerating in household debt which may result in an increase in non-performing loans (NPLs). The competition of Thai commercial banks is continuing under the expansion of non-financial institutions, and specialized financial institutions including an increase in deposit and loans, the provision of financial services of nonfinancial institutions namely, 7-11, Pay at Post etc.,

the provision of good payment and financial services, insurance product selling and life assurance product.

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Annual Report 2012 Thanachart Bank Public Company Limited

Therefore, in 2013, commercial banks attempt to reinforce theirs potentials for creating their competitive advantages by developing sales and service under the concept of ‘Customer Centricity’ emphasizing the complete financial services (Universal Banking) for serving financial services to specific customer segments (Customer Segmentation), increasing more distribution channels to cover potential customers nationwide such as increasing of branches in department stores, ATM booths, Electronic corners (ATM + CDM + UDP), including the restructuring of branches to more effectively serve customers enhancing the Fee Based Income and increase efficiency of many services towards targeted customers, for instance, the development of Internet Banking and Mobile Banking including the improvement of quality and business service in Trade Finance and Cash Management businesses. Additionally, building the Strategic Alliances with other businesses to expand the network and extending business potentials will also allow the commercial banks to better serve their targeted customer including the development of bundling product and Cross-selling within the bank’s own business group such as the Bancassurance in the non-life insurance and life assurance businesses. Moreover, the commercial banks place a strong emphasis on creating a corporate image through advertising media, public relations, and an establishment of

a greater corporate social responsibility (CSR). In addition to

a competition in interest rate, the development of non-price strategy would substantially help commercial banks to differentiate their competitive positioning leading to competitive advantages in the future. The company’s size compared to competitors In 2012, TBANK had the numbers of branches for

a total of 630 branches and THB 1,016,088 million in its total assets, increasing by THB 130,028 million from the previous year or 14.67 percent. The Bank‘s ROAA was at 0.89 percent, ROAE was at 10.56 percent, total loans were THB 754,063 million, increasing by THB 118,843 million from the previous year or 18.70 percent. In addition, the Bank had 2,061 ATM booths. Moreover, to complete financial services (Universal Banking), TBANK reached an agreement to sell Thanachart Life Assurance Public Company Limited to Prudential Group, which is the group of leading financial business in the United Kingdom, in order to propose new life assurance products to meet banking customers’ demand nationwide. With Prudential Group expertise, new and diversified life assurance products will be developed, including knowledge and ability of TBANK’s officers to offer and recommend life assurance products to customers more efficiently.


Products of Securities Business and Fund Management Business

Securities Business is provided to customers through Thanachart Securities Public Company Limited (TNS). The company was granted a full license to operate a full range of securities businesses including securities brokerage (inside and outside Thailand), securities underwriting, investment advisory service, securities borrowing and lending service, financial advisory service, mutual fund management, private fund management, venture capital management, securities registrar, and derivatives business Sor 1. Also, the company is engaged in other related businesses that supported the securities business. As for Fund Management Business, this service is provided through Thanachart Fund Management Company Limited (TFUND) who operates mutual funds, private funds, provident fund management businesses and investment advisory businesses. Securities Business

Thanachart Securities Public Company Limited

Products and Services

TNS operates two key areas of business, brokerage business and investment banking and advisory business. As of December 31, 2012, the company had a total of 34 branches and offered the following services: 1. Brokerage Business covers brokerage services which includes a service of securities dealing, securities trading, and giving investment advices to investors whether individual, retail, institutional, local or foreign, to make decision on their investment. 2. The Company had operated as a broker in selling offshore securities. This service had been provided since 2009. In addition, the Company had planned to provide opportunities to individual and juristic investors, in providing an alternative investment options as well as efficiently allocating the risks. The Company provides this brokerage service through DMA (Direct Market Access), allowing to purchase securities from all over the world such as of the following: Asia: Australia, Hong Kong, Singapore, Malaysia, Japan, Philippines, Indonesia, South Korea, Taiwan and China America: United States of America, Canada

Europe: Netherlands, Belgium, Portugal, France, German, England, Italy, Denmark, Finland, Sweden, Norway, Spain, Switzerland, Poland and Austria 3. Derivative Business covers trading services for future contracts and derivatives. 4. Securities Borrowing and Lending (SBL) covers services of borrowing or lending securities for customers who has a desire to borrow or lend securities. 5. Investment Advisory covers services of seeking or issuing new financial products, whether local or foreign, in order to satisfy the customers’ needs. This also includes providing customers with investment planning and investment diversification by prioritizing customer’s suitability and investment objectives for each customer. Such investment covers various types of instruments. 6. Investment Unit Dealer covers services of sale support and provides fund facts and related information on mutual funds of various asset management companies that TNS represents. 7. Financial Advisory and Securities Underwriting Services cover financial advisory business, underwriting service of debt and equity securities both as a role of lead underwriter, co-underwriter, and dealer. 8. Securities Registrar covers three types of services, namely, a securities issuance registrar, securities holder registrar and a registrar for the Employee Stock Option Program (ESOP). Competition and market outlook

1. In 2012, the Thai stock market is still continuously making profits and it is one of the top 3 stop market that have the best high return in the world. Although, at the beginning of the year 2012, the investors concern about the declining

the world’s economic but at the second half of the quarter 3 and quarter 4, the US Dollar currency does not depreciate as the investors around the world concern. The unemployment rate gradually decreases. In 2012, trading volume reached

THB 15.83 trillion, the highest volume since 1975. Retail client transactions captured the highest volume at 55 percent of

the market while foreign clients’ transactions returned to a net buys value of THB 76,896.93 million. In terms of mobilization of the number of initial public offering (IPO) in 2012, there were

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a total of 18 new IPOs (8 companies in SET and 10 companies in MAI). In 2012, the SET index closed at 1,391.93 points, 366.61 points higher than 2011, an increase of 35 percent highest statistic in 19 years since 1994 (Closed at 1,360 points) whereas the average selling price per day is at

THB 32,304 million. TNS developed new financial products such as the SBL products for trading of foreign securities (offshore securities), so that investors can diversify the risks of investing in a full range of securities. TNS’s total trading value in 2012 was THB 664,304.72 million, accounted for 4.82 percent market share, ranked number 7 out of 32 companies in the industry. 2. Currently, there are a total of 41 members in

the Thailand Future Exchange (TFEX), of which 40 are general securities companies and the limited license member that has the reference with the metal for 1 contract In 2012, total trading volume was 10,457,928 contracts, or a daily average of 43,823 contracts, an increase of 6.5 percent from a daily average of 41,145 contracts in 2012. As of December 30, 2012, there were 238,981 outright contracts, an increase of 323.3 percent from 2011. The key contributing factor was the popularity of 37.6 percent from SET50 index Futures trading, 33.9 percent from Gold Futures trading, 20.2 percent Single Stock Futures trading, and 6.3 percent USD Futures trading. TNS trading volume accounted for 2.39 percent market share, ranking number 18 out of all members in TFEX. In 2012, there were 80,893 TFEX trading accounts, an increase of 28.6 percent from 62,883 accounts in 2011.

The proportions of the most active investors were domestic individual investors which accounted for 53.4 percent of the market. Foreign investors who accounted for 7.7 percent and domestic institutional investors accounted for 38.9 percent. 3. Currently, an investment advisory service is being offered only by the top-rank securities companies and the large commercial banks which try to offer customers with complete and more integrated financial services. The current major customers focus their priority on the allocation of investment and diversification of financial products to get a better return on investment and to be more efficient in financial management. This business sector, therefore, became more popular among financial Institutions who tried to enhance their service potential in the future. Beside domestic competitors, there is competition from foreign private banks, which focus on offering investment alternatives in various types of instruments in order to create

a satisfactory return to major customers in Thailand.

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Annual Report 2012 Thanachart Bank Public Company Limited

4. In financial advisory and securities underwriting services, competition was aggressive, especially in mergers & acquisitions, IPOs and fund raising. Though competition focuses on price, the key competitive factor, thus, remains on service quality, expertise on providing a customer with relevant advice and solutions to a problem, having a wide network,

as well as product innovation, which can create value-added and greater benefits to customers of TNS. Fund Management Business Thanachart Fund Management Company Limited Products and Service

TFUND puts importance and emphasis on a great range of retail mutual funds marketing strategies, in order to fully cover all needs of investors in every group and level.

The company utilizes many types of distribution channels for sales, such as TBANK’s branches and other investment unit distributors licensed by SEC. The TFUND’s staffs were legally qualified and were strictly required to adhere to related laws and regulations. For greater convenience, TBANK, acting

as investment unit distributor, has been supporting sale and repurchasing of investment units offered by TFUND as well as other investment management companies it represents through electronic channels. Competition and Market Outlook

As of December 30, 2012, there were a total of 23 fund management companies, with total assets under management of THB 2,265,390.71 million (excluding Vayupak Fund, Foreign Funds, Property Fund for Resolving Financial Institution Problem and Property and Loan Fund), an increase of 29.39 percent from 2011. During 2012, there were 860 newly issued funds, accounting for THB 1,405,146.91 million of net assets. Among the newly issued funds, 683 were domestic and foreign investment funds fixed-income funds investing in debt securities with maturity not exceeding 1 year, which accounted for THB 1,315, 882.17 million of net assets or 93.65 percent of total net assets of the newly issued funds during 2012. Newly issued funds by the TFUND in 2012, 90.37 percent were debt securities with maturity not exceeding 1 year, in accordance to the industry average.


As of December 30, 2012, TFUND had THB 119,691.04 million assets under management from which retail mutual funds accounted for THB 100,082.77 million, private funds accounted for THB 9,688.53 million, and provident funds accounted for THB 9,920.74 million.

Insurance Business

The Insurance business of Thanachart Group could be divided into two key areas, namely non-life insurance operated by Thanachart Insurance Public Company Limited (TNI), which offers all types of non-life insurance services, and life insurance operated by Thanachart Life Assurance Public Company Limited (TLIFE) and SCIB Life Assurance Public Company Limited (SCILIFE), which offers life insurance services to institutional, corporate and individual customers. Non-Life Insurance Business Thanachart Insurance Public Company Limited

Products and Services

TNI offers all types of insurance services e.g. fire, automobile, marine, and miscellaneous. In addition,

the company also operates investment businesses. Competition and Market Outlook

In 2012, non-life insurance business in Thailand experienced a growth in direct premium income compared to 2011. For the 10-month period of 2012, the growth rate was at 27.5 percent which was an increasing rate as compared to the same period of 2011 which had a growth rate of 14.5 percent, primarily due to the effect of Thailand’s strong economic situation and positive factor from the Government’s project in supporting people to purchase their first cars. This generated

a highly increase of Motor Insurance premium compared with the previous year. As for the non-life insurance market structure in 2012, automobile insurance received the highest share of the market with a total share of 60 percent, followed by miscellaneous insurance with 33 percent, fire and marine & transportation insurance with 5 and 2 percent, respectively.

As for the non-life insurance market structure in 2012, automobile insurance received the highest share of the market with a total share of 60 percent, followed by miscellaneous insurance with 33 percent, fire and marine & transportation insurance with 5 and 2 percent, respectively. TNI focuses on a standard of products, service quality, productivity, efficiency and honesty, as well as development of new products in order to offer new policies which are more coherent with economic and social conditions and responsive to customer needs, by taking into consideration a fair premium rate to customers. Furthermore, the company constantly adjusts its progressive competitive strategy to be coherent with ever-changing conditions, by ways of increasing sales channels, expanding the customer base, and maintaining

the existing customer base. As much as 95 percent of all customers are those with a policy claim limit not exceeding THB 5 million. The customers mostly select automobile and fire insurance and these customers mainly are the TBANK’s lending customers as well as customers from the company’s marketing campaigns. This service is only offered to domestic customers.

The customer groups with a policy claim limit of THB 5 million are mostly comprised of institutional customers, private enterprises that possess branch network, both in commerce and industrial sectors. A major portion of this customer group choose miscellaneous and fire insurances. As aforementioned, it can be concluded that TNI has never relied on any customer group that accounted for more than 30 percent of TNI’s total revenue. The non-life insurance industry status according to

the 2013 direct premium forecast by Thai Reinsurance Public Company Limited, the Thai economy is expected to continue growing after 2012; therefore, the non-life insurance premium will grow approximately at 15.7 percent. The total direct premium will be at THB 199,088 million. The miscellaneous insurance premium will have the highest growth at 19.5 percent, followed by motor insurance with approximately 15.0 percent growth. The marine insurance and fire insurance will grow at approximately 5.6 percent and 5.0 percent respectively.

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Life Insurance Business

Thanachart Life Assurance Public Company Limited

Products and Services

Life insurance business provides coverage in terms of life and health to customers in order to help customers themselves and their family in financial planning. TLIFE offers life insurance and saving, which can be divided into two key categories, individual and group insurance. The license to operate the life insurance business was granted by the Office of Insurance Commission (OIC) on 22 October 1997. Competition and Market Outlook

Currently, the life insurance industry in Thailand consists of 24 companies and one bank, which is the Government Savings Bank, with Agent, Bancassurance, Direct Marketing, and other special channels as their main distribution channels. TLIFE operates its business with a multi-distribution channel strategy, in order to satisfy various needs of

the customers by offering products and services suitable for each customer group. The company has utilized various channels, such as, the bancassurance channel, corporate network channels, insurance brokers, cooperatives, and other agents. TLIFE is customer centric, developing new products and offering services suited to the needs of customers and appropriate marketing channels. As TLIFE was a part of

the Thanachart Group, the company’s customers included savings deposit customers, automobile hire purchase customers, mortgage loan customers, SME loan customers,

as well as customers from other corporate, co-operatives and companies through other distribution channels. In the 11-month period of 2012, the life insurance industry captured a total market share of THB 343,474 million representing an increase of 17.98 percent. The main market sector comprises of individual and group insurance as follows: Individual insurance received a total premium of THB 288,290 million which accounted for 83.93 percent of the market and a 17.39 percent increase, due to new product innovations which were more coherent with the economic

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Annual Report 2012 Thanachart Bank Public Company Limited

trends, interest rates, target customers, distribution channels, while at the same time, there are sales promotions and knowledge and skill development for sales staff in each distribution channel. For this individual insurance, TLIFE ranks No.11 in terms of direct premium with the total premium of THB 3,994 million. Group insurance received a total premium of THB 42,058 million which accounted for 12.24 percent of the market, representing a 27.50 percent growth. The main source of premiums, 56.78 percent, came from Group Mortgage, which this year had positive factor from the First Car Project of the Government, resulting in the need of new cars by consumers. As a result, in the 11-month period of 2012, mortgage insurance experienced a growth at 34.36 percent with direct premium of THB 23,882 million. TLIFE, during the aforementioned period, had total group insurance direct premium of THB 3,193 million or 7.59 percent market share and ranked No.5 of group insurance business. Considering only Group Mortgage insurance, the Company ranked no.4 with the direct premium of 2,753 million. Currently, the Company has launched the following products divided into 2 main groups as below: The Individual Life Insurance Product has a variety of products such as saving products and annuity products.

The products with the highest sales figures are as follow: Speedy Saving 10/2, it is a short-term savings product with premiums due for only 2 years, yet providing

10 years of life insurance coverage and a cash back policy

at the end of the first year at the rate of 3 percent, and

the second to tenth year that the rate of 6 percent, and on maturity date at the end of the tenth year at a lump sum rate

of 200 percent, equivalent to a total cash return benefit of

257 percent. Big Bonus 12/6, it is 12 years life insurance with premiums due for only 6 years with cash back policy for

the first to fourth year at the rate of 8 percent, the fifth to eighth year at 10 percent, the ninth to twelfth year at the rate of

12 percent, and on maturity at the end of the twelfth year at

a lump sum of 660 percent, equivalent to total cash return benefit of 780 percent.


Thanachart Annuity 85/60 (Tax Deductible Benefit) has premium payments until 59 years of age and coverage period until 85 years of age. While providing an annual benefit of 12 percent annuity between 60 to 85 years of age, totaling 312 percent cash benefits with guaranteed annuity over

20 years. For this plan, insurance premiums can be used for an income tax shield up to a maximum of THB 300,000 per year. Thanachart Annuity 90/5 (Tax Deductible Benefit) is a new life insurance product with a coverage period until

90 years of age and a short period of premium payments of only 5 years with an annuity benefit of 12 percent between

60 to 90 years of age, totaling 372 percent cash benefits.

For this plan, insurance premiums can be used for an income tax shield up to a maximum of THB 300,000 per year. Group Insurance provides appropriate products to each distribution channel, comprising of Thanachart Smile Car Plus+ and Thanachart Smile Car Extra which cover all liabilities of car loans through car hire purchase, Thanachart Smile Home and Thanachart Smile Home Plus which cover all liabilities of home loans through mortgage loan, Thanachart Smile SME which covers liabilities of SME loans for enterprises through SME loans, Thanachart Smile Card which covers all liabilities of Credit Card loans. Moreover, the company also provides group insurance for cooperatives, other companies and organizations. The growth of life insurance business in 2013 is likely to continue, although it may not be as high as it is in 2012 due to the end of the government’s first car and first home projects that are supporting factors. The first car project should continue to stimulate the business until the first quarter of 2013, during which reserved cars under the first car project will be delivered. There is no serious negative economic factor that affects life insurance business. Although the EU economy is not likely to recover in a near future, the US and Chinese economies tend to enjoy a better prospect in 2013. This foreign economic factor will stimulate continual growth of domestic economy. Although the nationwide minimum wage rate of Baht 300 causes a concern, it should help stimulate consumer spending and be positive to life insurance business both directly, in that more consumers can afford life insurance or personal accident insurance, and indirectly, in that it will enjoy benefits from credit and credit card insurance businesses. There are neither positive factor that directly supports, nor major risk factor that

adversely affect, life insurance business in 2013. With a full support of the banks that are counterparties of life insurance company via the Bancassurance channel, which currently serves as a major distribution channel, life insurance business will be able to maintain another year of continual growth. Siam City Life Assurance Public Company Limited

Products and Services

SCILIFE is an affiliate of the TBANK that provides

the services of individual and group life assurance. These life assurance products serve as a means for savings and provide life and health protection for individuals, institutional customers and organizations in general. Individual life assurance products The Company offers a variety of savings products, limited-term products and lifetime products as described below. SCI Life 20/10M: This product provides a coverage period of 20 years, while its premium payment period is

10 years, with a refund of 3 percent of the initial insured sum at the end of the 1st to the 19th year, and 150 percent of the initial insured sum at the end of the 20th year. The total amount of refund throughout the agreement term is 207 percent of the initial insured sum. Healthy Max: This product provides a coverage period of 5 years, while its premium payment period is 5 years, and covers all kinds of death, whether due to illness or accident, as well as inpatient medical expenses in the case of illness or accident. The maximum coverage in the case of death is Baht 100,000, and in the case of medical expenses is Baht 200,000 per incident. Smile Life A90/10: This product provides a coverage period of 90 years, while its premium payment period is

10 years. The coverage amount in the case of death is

100 percent of the initial insured sum. A bonus for punctual payment of insurance premiums at the rate of 0.25 percent of the initial insured sum is paid from the 2nd years to the 10th years. A refund of 100 percent is made at the age of 90 years. Optional products, such as hospital benefit (HB) and death and critical illness (CI) riders, can be additionally purchased.

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Group life assurance products The Company offers both the life insurance products and life cum health insurance products. Smile Group Employee Benefit This product provides protection both during and outside working hours, with

the options of life insurance only and life cum health insurance. No health examination is required, and a single premium rate is used for all genders and ages. Competition and Market Outlook

Target Customers SCILIFE’s life assurance marketing strategy focuses

on both individual and group customers. Health product marketing is aimed at middle to upper income customers,

while comprehensive product marketing is aimed at group customers, especially the enterprises with employees between 10 - 50 persons, using bancassurance channel. Distribution Channels SCILIFE operates its businesses under a multiple sales channel strategy in order to meet all financial needs and coverage requirements of its target customers. Its sales channels include bancassurance, telesales and brokers. SCILIFE has adjusted its 2013 business strategies to add the channels, especially telemarketing and brokers, for reaching its target customers. To maintain its existing customer base, customers will be provided with more facilities and convenience, such as additional premium payment channels. Assets Management Business TS Asset Management Company Limited

Products and Services

Assets Management Business operates by TS AMC Company Limited (TS AMC) which was established on March 3, 2011. The license to operate the assets management business was granted by the BOT and under the Emergency Decree on the Asset Management Corporation B.E. 2543

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Annual Report 2012 Thanachart Bank Public Company Limited

(1998), the asset management company Registration

No. 001/2011 dated April 12, 2011. It received the transfer of non-performing assets from SCIB and TBANK, including both non-performing loans and non-performing assets, in order to conduct debt restructuring with the debtors, hence, allow them to repay the debts at their real capacity and turning

non-performing assets back to becoming the performing ones. Competition and Market Outlook TS AMC operates its business with a primary objective to manage and restructure the non-performing assets received from SCIB and TBANK. To manage, divest, or sell those

non-performing assets (NPAs) to third parties who are interested in real estate market, TS AMC hires a professional advisory in assets sales to determine the selling price and manage the assets in such a way that creates the highest value. It also appoints a professional asset selling agent to develop value-added asset packages as well as collaborates with the related group of companies to expand sales channels, such as brokers or auction agents as well as cross selling and through website of TNS and the other channels to reach

the target customers as much as possible. Leasing Business

Products and Services

Ratchthani Leasing Public Company Limited (THANI) operates in hire purchase business and financial leasing. THANI focuses on the market segment of new cars and used cars for commercial use or large trucks, used private cars and special vehicles such as cranes trucks, excavators, taxis and big bikes, in which it has experiences in. Aside from providing the aforementioned leasing, THANI also provides after sales services such as the renewal of the motor-vehicle tax and insurance policy renewal.

This also includes taking the vehicle for checkup for renewing the motor-vehicle tax. Not only would this be a convenience to the customers, it also generates income to the Company

as well. In addition, this approach benefits the Company as it would insures the customer’s vehicle and prevent losses to

the Company.


Competition and Market Outlook

In the past 2 - 3 years, the used car market segment was considered as a new business, in which had caught

the interests of many respected financial institutions in expanding its current market shares. The competition of this market had increased upon the decrease in interest rates and down payments. However, the used car hire purchase and special vehicles requires experiences and expertise in operating the business, in which the operation is different compared to the new vehicle hire purchase. The Company

had been operating in the hire purchase business since

its establishment and including the company staffs with

vast experiences in the used vehicle market for personal, commercial use and special vehicles. From the aforementioned, the Company was able retain and expand its business accordingly to its budget. Products and Services Management Sources of fund

The source of TBANK’s and its subsidiaries’ fund comprises of issued and paid-up capital, whereby in 2012, was in the amount of THB 55,137 million, in which the statutory reserve and retained earnings were included. Another two key sources of fund were: 1. Deposits as at the end of 2012 were in the amount of THB 698,372 million. 2. B orrowings which were in the amount of THB 78,149 million, of which THB 7,130 million were hybrid tier 1, THB 40,516 million were subordinated debentures, THB 11,072 million were debentures, THB 13,235 million were short-term debentures, THB 4,930 million were bill of exchange, and THB 1,266 million were others.

Funding or lending to related parties

At the end of 2012, TBANK extended loans to subsidiaries and related companies in Thanachart Group

as follows: 1. Thanachart Group Leasing Company Limited (TGL) (subsidiary of TBANK) TBANK extended loans to TGL for hire purchase business for all types of automobile, in line with the business policy of Thanachart Group. In 2012, there was no loan outstanding balance, while the loan outstanding balance was THB 353 million in 2011. 2. National Leasing Company Limited (subsidiary of TGL) TBANK extended loans to National Leasing for property hire purchase business as well as property leasing.

In 2012, there was no loan outstanding balance, while the loan outstanding balance was THB 22 million in 2011. 3. Ratchthani Leasing Public Company Limited (THANI) (subsidiary of TBANK) TBANK extended loans to Ratchthani Leasing for hire purchase business for all types of automobile, in line with the business policy of Thanachart Group. In 2012, there was no loan outstanding balance, while the loan outstanding balance was THB 7,867 million in 2011. 4. TS Asset Management Company Limited (TS AMC) (subsidiary of TBANK) TBANK extended loans to TS AMC for nonperforming asset management business, in line with

the business policy of Thanachart Group. In 2012, loan outstanding balance was THB 6,060 million, decreased from THB 9,822 million at the end of 2011 The aforementioned loan outstanding balance of Thanachart Group totaled THB 6,060 million, accounted

for 0.80 percent of total loans at the end of 2012. All lending and borrowing activities were transacted under the permission of the BOT.”

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Risk Management and Risk Factors An overview of the Risk Management

Even the world economy has slowed down as a result of the recession in the United States (US) and the EU Debt Crisis, which were risk factors that had an impact on export industry of Thailand and caused the slowdown in 2012, the Thai economy could expand well from consumption and investment of private sectors. This was the result of the economic stimulus measure of

the Government, especially the first car tax refund that people exercised their right more than forecasted. In addition, the confidence of entrepreneur drove overall Thai economy in the second half of 2012 to expand better than expectation. In 2013, the Greece Public Debts solution has progressed and the US Fiscal cliff problem has become clearer; therefore,

the overall world economic has recovered gradually and this will be a positive factor for the recovery of the export industry in driving Thai economy. However, the economic recovery among countries with core industries is still fragile. The economic situation of Japan has weakened and the conflict between Japan and China tends to be longer. In addition, an infrastructure investment of the Government may be delayed and this would be the risk factors for 2013 business and need to be monitored closely. TBANK and Thanachart Group have realized the importance of risk management. The Bank has an Internal Capital Adequacy Assessment Process (ICCAP) to support risk other than credit risk, market risk and risk in compliance with Pillar 2 of Basel II framework, in accordance with the Bank of Thailand (BOT) guidelines, which will make TBANK manage funds more efficiently. The Board of Directors and executives of TBANK closely govern, monitor and develop the risk management system regularly to be sure that the measures are appropriate to and prompt on the ever-changing internal and external risk factors. To support

the risk management system, TBANK strategically establishes a structure of the organization to support the operation under

the direction and supervision of the various committees, as follow:

The Board and Committees at the Policy Level; TBANK’s Board of Directors and the Executive Committee has a role in policy determination and establishes guidelines for an efficient enterprise-wide risk management by taking into consideration the impact of risks on TBANK’s operational goal and financial position that has to be in line with its normal operation. Risk Management Committee plays a role in establishing strategic plans and developing the risk management procedure,

as well as considering appropriate risk management policies and guidelines which will be proposed to the Executive Committee

and the Bank’s Board of Directors for consideration and approval. Audit Committee has a role in determining the supervisory guidelines for the operation to comply with measures of related authorities as well as assessing the effectiveness and competency of the risk management process and internal control system. The Committees at the Operation Level; Asset and Liability Management Committee plays a role in supervising the structure of the Bank’s assets and liabilities to be appropriate for characteristics of the business and in line with the Bank’s risk management policy.

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Annual Report 2012 Thanachart Bank Public Company Limited


Investment Portfolio Committee plays a role in supervising investment in financial instruments of TBANK to be in line with the Bank’s market risk management policy. Credit Committee plays a role in supervising the credit lending and other credit-related transactions to be in line with

the Bank’s credit risk management policy. IT Security Management Committee plays a role in establishing policies regarding the IT Security System, proposing preventive measures against risks arising from information and technology system, as well as monitoring, supervising and controlling the operation of the IT Security System in accordance with the proposed plan. Audit Division has a key role in (i) reviewing internal control system, risk management system, the conduct and disclosure of financial information, the operation, the report and supervisory procedures to govern practices in accordance with policies, work plans, rules and regulations of TBANK and its subsidiaries, official rules and regulations of relevant regulators and good corporate governance principle, and (ii) providing consult with other divisions for the sake of development and proper internal control of TBANK’s and subsidiaries’ system.

TBANK’s Risk Management Structure

As of December 31, 2012 Board of Directors Audit Committee

Risk Management Committee

Chief Risk Officer

Executive Committee

Chief Audit Compliance

Risk Policy and Capital Markets Credit Risk Management 1

Chief Executive Officer and President Asset and Liability Management Committee

Credit Risk Management 2 Investment Portfolio Committee Risk Control

Deputy Chief Executive Officer Office of Executive Committee Chairman and CEO

Credit Committee IT Security Management Committee

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• The conduct of business affairs is under a system of check and balance with the Middle office, comprising of

the Risk Control Department and the Back Office, being separated from the Front Office. • TBANK would put in writing all the established policies and guidelines regarding the risk management that specifies responsibilities of related unit as the operational guidelines for the employees. Moreover, the Bank has established a four-step guideline for risk management comprising of; 1) identification of the characteristics of risk

as well as risk factors, 2) development of appropriate tools and models for risk measurement, 3) the control of risks within acceptable limits and 4) the close monitoring of risk status in order to properly manage any possible risks in a timely manner. • The difference in size and risk ratios determined for each exposure allowed TBANK to be able to perceive

the degree of severity from the possible risks. These risk variables could also be used as a ceiling or the acceptable risk level as well as to provide warning signals before severe losses occur. The aforementioned risk management systems are developed based on prudent principles and will be reviewed regularly to suit prevailing situations. The systems are designed to be transparent, explicit examinable and to take into consideration the interests of shareholders, customers and staff of the Bank.

Key Risk Categories

1. Credit Risk Credit risk arises from a situation in which the debtors or counterparties fail to repay or fulfill their agreed obligations. This might be contributed by the fact that the debtor’s financial position is under distress due to volatilities of economic conditions that pose adverse impact on businesses or the debtors’ mismanagement, which as a result, may adversely affect TBANK and the subsidiaries’ earnings and capital. The credit risk may arise from ordinary financial transactions such as credit lending, financial obligations in the form of avals or guarantees, other transactions related to credit lending, as well as investment in debt instruments issued by state agencies or state enterprises with neither guarantee from government nor the BOT and private debt instruments such as debentures.

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Annual Report 2012 Thanachart Bank Public Company Limited

Under its credit risk management policies and guidelines, TBANK has successfully established a credit culture. To start with, the credit risk of the borrowers, counterparties or issuers of debt instruments will be independently assessed by the model developed specifically to each type of borrowers or counterparties by the Credit Analysis Unit. At this juncture, authorized Credit Committee would then consider and determine the level of credit risk of borrowers or counterparties, appropriate credit lines and investment budget, as well as terms and conditions on loans or other obligations.

The Committee also controls the overall risk status by appropriately diversifying credit risk into various business sectors and groups of customers within the established risk ceilings. In addition, the Committee closely monitors the quality of loans to ensure proper and vigilant management by emphasizing on business capability and repayment ability under the supervision of an independent risk control unit.

Apart from the aforementioned units, there is also an Internal Audit Division to verify that the credit transactions are in compliance with the BOT’s guidelines. To ensure optimal returns under acceptable risk, TBANK has employed measuring tool called RAROC (Risk Adjusted Return on Capital) to reflect the appropriate level of capital. Moreover, the Bank also performed stress tests to estimate any damage that may occur during the crisis. Under this condition, the borrower’s ability to repay could erode or they could fail to make a repayment under terms and conditions stated in the hypothesized contract. The risk factors in the tests were assumed to affect the industry that the debtors’ business belonged to. Important credit risk factors

1.1 Credit concentration risk

TBANK aims to appropriately diversify its loans to various groups of customers, focusing on high potential customers and attempt to prevent concentration of loans to

a particular group of customers. Under such goal, the TBANK pursues proper risk management on overall credit portfolios with close monitoring and comprehensive assessment to report to the assigned committees on a regular basis. The purpose is to mitigate exogenous risks that may adversely affect any particular group of business excessively financed by the Bank.


Credit Status, as of December 31, 2012 and 2011 classified by business types was as follow: 2012 Debt balance (THB Million)

Percent

Agricultural and mining Manufacturing and commerce Real estate and construction Public utilities and services Housing loans Margin loans for securities business Hire purchase Others

16,644 88,813 51,325 63,263 82,621 2,613 396,873 51,911

2.21 11.78 6.81 8.39 10.96 0.34 52.63 6.88

10,830 81,967 47,972 58,441 73,636 2,236 286,361 73,777

1.71 12.90 7.55 9.20 11.59 0.35 45.08 11.62

Total loans and accrued interest receivables

754,063

100.00

635,220

100.00

Business type

2011 Debt balance (THB Million)

Percent

The overall credit data revealed that TBANK’s lending on hire purchase business grew moderately from 45 percent as of December 31, 2011 to 53 percent of total loans and accrued interest receivables as of December 31, 2012. Most of these hire purchase loans were provided to retail customers whose credit line was relatively small and with a large number of customers, such risk therefore was well diversified. 1.2 Risks from non-performing loans

The non-performing loans are loans classified as substandard, doubtful and doubtful of loss. They have been the major concerns across financial institutions due to their adverse effect on earnings and capital of TBANK and subsidiaries. At this juncture, TBANK has focused major efforts on controlling credit quality through appropriate policies and procedures to regularly monitor

the quality of the loans.

The NPLs Ratios of the TBANK and subsidiaries that were financial institution

As of December 31, 2012 and 2011 were as follow:

2012 Debt balance (THB Million)

Substandard Doubtful Doubtful of loss Total

Loan classification

Percent

2011 Debt balance (THB Million)

Percent

5,273 4,529 22,563

16.29 14.00 69.71

7,031 11,763 18,631

18.79 31.43 49.78

32,365

100.00

37,425

100.00

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51


The non-performing loans of TBANK and subsidiaries that were financial institutions dropped from THB 37,425 million as of December 31, 2011 to THB 32,365 million as of December 31, 2012. From the credit overview, the non-performing loans were accountable for 4.42 percent of total loans and accrued interest receivables, dropped from 6.03 percent as of December 31, 2011. The Non-Performing Loans Classifies by Type of Business

2012 Debt balance (THB Million)

Agricultural and mining Manufacturing and commerce Real estate and construction Public utilities and services Housing loans Margin loans for securities business Hire purchase Others Total loans and accrued interest receivables

Business type

Percent

2011 Debt balance (THB Million)

Percent

251 11,943 3,730 3,705 4,375 173 5,200 3,124

0.77 36.75 11.48 11.40 13.46 0.53 16.00 9.61

347 16,588 3,767 5,510 3,501 306 3,553 4,105

0.92 44.03 10.00 14.62 9.29 0.81 9.43 10.90

32,501

100.00

37,677

100.00

Troubled Debt Restructuring

Number of debtors (persons) Outstanding principal and accrued interest receivables Loans not fully covered by collateral Revaluation allowance for debt restructuring Total loans and accrued interest receivables Restructured debts to total loans (percent)

(Unit: THB Million) 2012

2011

54,854 33,661 19,573 344

53,922 38,816 14,558 382

755,129

636,183

4.46

6.10

The risk on debt restructuring arises from the re-entry of the substandard debtors, i.e. after the debt restructuring,

the debtors again default on their repayments and hence re-enter the non-performing status. The problem poses adverse effects on debt-restructuring performance of TBANK and its subsidiaries. As of December 31, 2012, the outstanding principal and the accrued interest receivables of the restructured debt amounted to THB 33,661 million or 4.46 percent of total loans and accrued interest receivables. The net restructured debt (less collateral) amounted to approximately THB 19,573 million.

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Annual Report 2012 Thanachart Bank Public Company Limited


1.3 Risks from Collaterals

For collateralized loans, TBANK carefully assess and classify quality of each type of collateral by taking into account the liquidity and overall risk from that collateral.

The assessment result is one of the important factors applied in the classification of each credit exposure. In this regard,

the collateral, both in the form of immovable and movable whose value could be appraised, is subject to appraisal or valuation complying with the BOT’s regulation. TBANK significant types of collateral are deposits and bills of exchange, marketable equity securities, non-listed equity securities, commercial immoveable property, immovable property from housing, vehicles, machinery, etc. TBANK has determined guidelines, standards and frequency of appraisal and valuation of each type of collateral. Furthermore, a report of the appraisal and valuation is made which includes clear and sufficient data and analysis to determine the price. In the case that it cannot be specified whether the collateral price has decreased or declined over time, the impairment of the asset must be considered by an official. In the past years, automobile hire purchase loans of TBANK and its subsidiaries have continued to expand. According to the BOT notification regarding the valueless and non-callable assets dated December 2006, the regulations on provisioning based on IAS39 whereby cars whose ownership belongs to the Bank can be used as collateral. In the case of default, the Bank is eligible to immediately repossess to collateral for the purpose of reselling in the used car market.

As a result, TBANK and its subsidiaries might be exposed to risk from the inability to repossess the cars or from recovering the incurred loss by reselling the assets. Such conditions depend on various risk factors, for instance, the conditions of the used car market and the repossessed car itself. 1.4 Risks from Guarantees and Avals

Under the current customer service, TBANK and its subsidiaries are also obligated in forms of avals, letter of credits and loan guarantees, which TBANK and its subsidiaries are held responsible for, should the customers are unable to fulfill their obligations. In managing such risk, TBANK carefully scrutinizes supporting information and applies strict approval procedures to these obligations. The close monitoring on these transactions is undertaken based on the same guideline used for its regular lending procedure of TBANK.

As of December 31, 2012, TBANK and its subsidiaries’ obligations in the form of avals and guarantees for loans amounted to THB 30,586 million or 3.01 percent of

the total assets. 2. Market Risk The market risk arises from movements in interest rates, exchange rates and prices of instruments in money market and capital market, which may adversely affect earnings and capital of TBANK and its subsidiaries. The market risk can be segmented into three categories including price risk, interest rate risk and exchange rate risk. At this juncture, TBANK’s policies are to control and manage these risks to remain at an appropriate level and inline with TBANK’s policy on risk management. 2.1 Price Risk

Price risk arises when TBANK and its subsidiaries’ earnings or capital are adversely affected by changes in the price of debt and equity instruments, causing the value of TBANK and its subsidiaries’ trading and availablefor-sales investment portfolio to decline. TBANK has developed risk measurement tools based on the Value-at-Risk (VaR) model to estimate the maximum loss amount at a certain confidence level and over

a given asset holding period. TBANK also determine the various limits of transactions in order to control risk to remain in as acceptable level, for example; Position Limit, Loss Limit and VaR Limit. The Risk Control Unit, separated from the front office and the back office, has the duty of risk control and reporting on the status of the limits to the Board of Directors, departments and executives associated to the risk management. In order to ensure the efficiency and accuracy of its tools for risk measurement, TBANK requires that the tools are subject to back-testing in accordance with the Bank of International Settlement (BIS) standards. Moreover, TBANK has conducted stress testing by formulating stress scenarios which can create extraordinary reduction in stock prices.

The test result could therefore shed light on the impact on TBANK earnings and required capital should such events occur.

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53


As of December 31, 2012, TBANK and its subsidiaries’ trading investments and available-for-sale securities classified by type of investment were as follow: Fair Value (THB Million) 2012

Trading investments Government and state enterprise securities Private debt securities Foreign debt securities Domestic marketable equity securities

2011

5,643 5,736 628 16

10,479 4,758 637 38

12,023

15,912

55,433 30,063 11,746 7,691

41,003 18,533 25,425 7,983

Total available-for-sale investments

104,933

92,944

Total trading and available-for-sale investments

116,956

108,856

Total trading investments Available-for-sale investments Government and state enterprise securities Private debt securities Foreign debt securities Domestic marketable equity securities

The trading and available-for-sale investments value of TBANK and subsidiaries has increased from additional investments in government and state-owned enterprise fixed income and private sector fixed income and some foreign fixed income that TBANK and subsidiaries invested in reached maturity. Therefore, the overall Price Risk value of TBANK and subsidiaries has gradually increased. 2.2 Interest Rate Risk

The interest rate risk is the risk that earnings or capital are adversely affected by changes in interest rates that pose impact on its rate-sensitive items including assets and off-balance sheet items whose repricing periods are mismatched. These changes may have a negative impact on net interest income of TBANK and its subsidiaries. It is the goal of TBANK to run their business operations under a long-term effective interest rate risk management system. In other words, to maintain an appropriate structure of assets and liabilities which are rate-sensitive at different time intervals. To ensure maximum benefits of TBANK’s shareholders, TBANK has developed the Repricing Gap Analysis Model as a tool for measuring interest rate risk by assessing the impact that may arise from the mismatch of the repricing periods of assets, liabilities and obligations at different time intervals, which is used for risk measurement every month. In order to ensure that the risk of TBANK business operations is within an acceptable limit, they have also established an acceptable risk ceiling and an early warning risk level, taking into account the structure of assets, liabilities and obligations as well as interest rate repricing which are expected to take pace in each period of TBANK business plan. The Asset and Liability Management Committee (ALCO) is responsible for monitoring and controlling such risk very closely. To effectively design appropriate measures to accommodate the risks,

the committee has to monitor economic conditions, development in the money market and capital market and the interest rate trend which could become important risk factors to the Bank’s rate-sensitive items.

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Annual Report 2012 Thanachart Bank Public Company Limited


Details of financial assets and liabilities as of December 31, 2012, classified by the period when the interest rates would be repriced in accordance with contracts related to financial assets and liabilities of TBANK and its subsidiaries were as follow: (Unit: THB Million) รายการ Items

Period of interest rate repricing or due date Over 0-3 3 - 12 months months 1 - 5 years 5 years No interest

At call

Financial assets Cash - - - - - 15,181 Interbank and money market items 24,651 30,232 3,045 4,460 - 9,534 Derivatives - - - - - 2,177 Investments 5 7,561 33,576 67,930 23,842 13,413 Loans 334,659 21,258 11,171 264,373 122,233 369 Receivables from clearing house - - - - - 944 Receivables from purchase and sale securities and derivatives - - - - - 2,103 Total financial assets

359,315

Financial liabilities Deposits Interbank and money market items Liabilities payable on demand Derivative liabilities Borrowings Payables to clearing house Payables from purchase and sale securities and derivatives

244,881 268,497 170,514 10,936 61,062 5,117 - - - - - - 5 15,855 12,140 - - -

Total financial liabilities

255,822 345,414 187,771

-

59,051 47,792

-

-

Total

15,181 71,922 2,177 146,327 754,063 944 2,103

336,763 146,075 43,721 992,717 7,535 - 8,429 - - - - - 37,592 12,516 - - -

-

6,945 698,372 2,233 87,777 4,989 4,989 1,206 1,206 41 78,149 126 126 2,874

2,874

53,556 12,516 18,414 873,493

Based on the aforementioned structure of financial assets and liabilities, TBANK’s net interest income in the next year would decrease should the market interest rate increase. This was mainly due to the expansion of TBANK’s hire purchase business with fixed-interest-rate feature. 2.3 Exchange Rate Risk

The exchange rate risk is a risk that the earnings or capital of TBANK and its subsidiaries can be adversely affected by exchange rate fluctuations from transactions in foreign currencies, exchange rate exposures in their possession of assets or liabilities in foreign currencies. There are two types of exchange rate risk-risk from transactions in foreign currencies (Transaction Risk) and risk from exchanging foreign currency to local currency (Translation Risk). The ALCO is responsible for monitoring and controlling this type of risk through the consideration in the proper matching between the structure and the maturity of assets and liabilities in foreign currencies. TBANK’s policy is to also rely on

the VaR ceiling in order to control the impact of exchange rate movements on earnings and capital. Nevertheless, in order to avoid the exchange rate risk, TBANK has also relied on hedging instruments such as forward contracts. As of December 31, 2012, TBANK and its subsidiaries faced with relatively low exchange rate risk as most of

the assets in foreign currencies have been hedged by forward contracts.

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3. Liquidity Risk Liquidity risk arises from the inability of TBANK and its subsidiaries to repay their debts or obligations upon the delivery date due to the lack of ability to convert assets into cash or to mobilize adequate funds or to mobilize funds at an acceptable cost. This could adversely affect the current and future earnings and capital of TBANK and its subsidiaries. The liquidity risk management mechanism starts with the assessment of the cash flows and liquidity position over particular time horizons of TBANK when

the different levels of funds may be required to accommodate deposit withdrawal, reduce other types of the Bank’s liabilities or increase the Bank’s assets by using the Liquidity Gap Analysis. Various liquidity ratios and “What if” scenarios to evaluate the sufficiency of the cash flow liquidity depending on customer behavior in extending contracts upon maturity and estimate the need of liquidity in various “What if” scenarios depending on the economic climate and extraordinary situations that may happen to TBANK and the financial institution system. Meanwhile, TBANK and its subsidiaries developed an emergency plan in the case of a liquidity problem and there

will be a revision of the significant occurrences that affect working operations. In this regard, TBANK and its subsidiaries have assigned ALCO, controlling and managing the liquidity risk with a weekly meeting to monitor and manage risk. The structure of TBANK’s capital fund could be classified by different type and maturity of source of funds as follow: Capital Funds Classified by Source

(Unit: THB Million) 2012

Percent

2011

Percent

Deposits Interbank and money market items Borrowings

698,372 87,777 78,149

80.80 10.16 9.04

436,040 60,151 254,297

58.10 8.02 33.88

Total

864,298

100.00

750,488

100.00

Capital Fund Classified by Maturity

(Unit: THB Million) 2012

Percent

2011

Percent

Less than 1 year More than 1 year

789,474 74,824

91.34 8.66

701,284 49,204

93.44 6.56

Total

864,298

100.00

750,488

100.00

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Annual Report 2012 Thanachart Bank Public Company Limited


As of December 31, 2012, deposits and borrowings of TBANK and its subsidiaries amounted to THB 864,298 million, where sources of funds were mostly from public deposits with the maturity less than one year. This is considered a common structure of the commercial banks. Nevertheless, TBANK and its subsidiaries also issued bills of exchange and debentures in order to increase the saving alternatives for their customers. The financial assets and liabilities as of December 31, 2012 classified by maturity date were as follow: (Unit: THB Million) รายการ Items

The maturity date of financial instruments At call

Less than 1 year More than 1 year Not specified

Total

Financial assets Cash Interbank and money market items Derivatives Investments Loans Receivables from clearing house Receivables from purchase and sale securities and derivatives

15,181 11,523 - - 35,386 -

- 57,185 2,177 48,072 240,308 944

- 3,214 - 86,067 478,369 -

- - - 12,188 - -

15,181 71,922 2,177 146,327 754,063 944

-

2,103

-

-

2,103

Total financial assets

62,090

350,789

567,650

12,188

992,717

Financial liabilities Cash Interbank and money market items Liabilities payable on demand Derivative liabilities Borrowings Payables to clearing house Payables from purchase sale securities and derivatives

248,014 12,889 4,989 - 46 -

441,579 66,081 - 1,206 20,865 126

8,779 8,807 - - 50,108 -

- - - - 7,130 -

698,372 87,777 4,989 1,206 78,149 126

-

2,874

-

-

2,874

Total financial liabilities

265,938

532,731

67,694

7,130

873,493

Off-balance sheet items Avals to bills and guarantees of loans Obligation under unmatured import bills Letter of credits Other commitments

11 450 258 43,578

429 435 2,925 8,179

114 - - 2,455

- - - 2

554 885 3,183 54,214

Total off-balance sheets

44,297

11,968

2,569

2

58,836

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4. Operational Risk The operational risk is the risk that arises from

the damage that occurs from lack of good corporate governance within the organization. Risk may also arise from the inadequate efficiency of the internal audit and internal control systems which could be relating to internal operation process, personnel, systems or external events. This also includes legal risks such as litigations, exploitation by

the government and also damage from settlements outside

the courtroom. Such risks can pose adverse impact on other risks, especially strategic risk and reputation risk. TBANK has established policies and guidelines to ensure the prevention and monitoring of this type of risk.

As the internal control system is an important tool in controlling and preventing potential risk that may occur, TBANK has implemented an efficient internal control system as follow: • Regarding the organization of the Bank’s structure, TBANK has specified the roles, the scope of duties and responsibilities for each position, based on a system of check and balance. The front office where all the transaction takes place is separated from the middle office, comprised of the Risk Control Department and the back office who record all items in the transactions. • Establish the transaction-supporting units which are independent and have expertise in their respective fields of work such as information technology unit, legal and appraisal unit in order to prevent any possible errors that may arise • Put operational procedures and regulations related to all types of transaction, staff manuals as well as the authority ranks for approval in writings as a guideline to set the same standards for all internal operations within the organization • Establish the Audit Committee and the Risk Management Committee to control, monitor, and assess

the risks of TBANK. The committees are responsible for examining and correcting the pitfalls in order to create soundness and efficiency in the Bank’s operation. • Improve the management of the information technology system and information security system in order to enhance its potential to accommodate business expansion and gain credibility from the customers in the aspect of data and technology. A particular focus is given to the prevention of damages from unauthorized access to the Bank’s information.

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Annual Report 2012 Thanachart Bank Public Company Limited

• Formulate the Business Continuity Plan which consists of an emergency plan, a plan for backup systems, and a business recovery plan to prevent disruption in business operation. In addition, the drills are essential to test for

the readiness and to consistently improve the plans for its effective implementation. TBANK also employs the services of the third party to operate some group activities as per the direction of the work operations of financial institutions at present and in the future. TBANK determines policies in order to manage the risk that may occur from outsourcing. These policies have to also be subject to regulations of BOT and must be beneficial to

the internal control of the Bank as well. In the measurement and assessment of operational risk, TBANK determines a principle, form or condition of the process used in the measurement and assessment of risk in TBANK. In the determination of this process, TBANK considers the circumstantial factors such as supervising guidelines of the government units associated with the Bank, state and complexity of the business, the capability of the Bank in accepting risk, probability, likelihood or frequency as well as the impact or severity of risk that has happened or may happen. As per BOT specification for commercial bank to maintain the funds to risk-weighted assets in credit, market and operation according to Basel II guidelines, TBANK has employed the Basic Indicator Approach to calculate operational risks. In addition, to monitor operational risk, TBANK determined a policy for executives of each department to have the responsibility of monitoring the risk and consider a part of their regular duties. This will help promptly inform all of the risk and problems that occur and to respond to the changes in each time period in an appropriate and timely manner, not damaging to the Bank. Nevertheless, to inform of the result of business operations and problems that occur, as well as trends and changes in information of risk factors, TBANK organized a filing and reporting of the information associated with operational risk management such as information on data loss, key risk indicators and important risk points to be continually and regularly reported to the Board of Directors, the Risk Management Committee and the executives to use in the determination of policies, to develop a sufficient risk management system and to be a tool in aiding TBANK to evaluate the capability and efficiency of the internal control system.


5. Strategic Risk This type of risk arises from the inappropriate formulation of strategies, business planning and implementation which are not compatible with internal setups and external environment, resulting in an adverse impact on earnings, capital or

the existence of TBANK and its subsidiaries. In managing

the strategic risk, the formulation of strategies of TBANK will be considered over the three years ahead, with the review required annually or in the case of an external event that may impact the achievement of the Bank’s business goals.

The Executive Committee is responsible for regular monitoring and evaluating the performance of the work units upon

the established targets stated in the annual operation plan. 6. Regulatory Risk The regulatory risk arises from amendments or changes in regulations, laws or requirements of the authorities especially the BOT. Changes in the authority’s policy may affect the strategies and business operations of TBANK and its subsidiaries. In 2012, from the fall of the US economy and the Euro debt crisis, the emergence of the Asian Economic Community (AEC) with the free flow of markets especially the free flow of capital caused the BOT to revise on some of its regulations. These revisions would provide enough time for the financial institution in Thailand to accommodate the free flow of capital as well as the revamping of the account standards to be in line with the international standards. Within this year, the BOT made revisions in accordance to the Basel III to ensure that the financial institutions have sufficient and quality capitals that are able to accommodate the risks during normal time and crisis period. In addition, the revision of the Anti-Money Laundering and Combating the Financing of Terrorism Act, which is the law that needs to be in line with the international standards,

the Anti-Money Laundering Committee; TBANK needs to be systematically and operationally ready to comply with the regulation. However, the revised regulation does not have any significant impact to TBANK’s strategies or businesses. Throughout the period, TBANK has always been revising and improving its operational standards and providing quality services to the customers. TBANK’s mission is to precede its businesses in accordance with the regulations of the related authorities.

7. Risk from Capital Inadequacy TBANK calculates its capital to cushion any possible risks, in accordance with Basel II criteria as follow: • Credit risk by means of the Standardized Approach • Market risk to explore status of market risk by means of the Standardized Approach • Operational Risk by means of the Basic Indicator Approach In addition, TBANK has assessed its future capital adequacy based on budget and 3-year business plan. The risk calculated is capped with risk limit in which the Risk Management Division monthly reports the adequacy of capital to the Executive Committee and the Board of Directors to ensure that TBANK has sufficient capital after risk capital allocation to support sustainable business’ growth as planned. As of December 31, 2012, TBANK’s total capital registered at THB 101,417 million of which THB 61,546 million was Tier I capital and THB 39,871 million was for Tier II.

The BIS ratio amounted to 13.99 percent which exceeded

the BOT’s minimum requirement at 8.50 percent. This level of capital should be sufficient in accommodating any potential risks as well as the Bank’s future business expansion.

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59


CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES Corporate Social Responsibilities

Thanachart Group is determined to play a participative role in building and developing society, by continuing conducting business operations and social responsibility activities at the same time. Although the goal of its operations is to make profit, Thanachart Group conducts its business affairs within the ethical framework and in line with good corporate governance principles. The purpose is to be an organization capable of developing and operating business in a sustainable manner while maintaining

a balance between economic success, social responsibility and environmental protection. It has always been the Group’s intent

to be a socially and environmentally responsible organization, both in the conduct of business affairs and in the performance

of various activities aiming at promoting sustainable livelihood of people in society and communities. Importantly, the Group also encourages its employees to participate in socially responsible activities. During the early part of 2012, the Group joined Thanachart Foundation for Thai Society in giving assistance to and alleviating the suffering of people who were affected by floods.

The objectives were to rehabilitate the disaster victims and to further enhance the socially responsible activities in which the Group has always been involved.

CSR-in-Process

This type of corporate social responsibility focuses on conducting business affairs with responsibility towards society. In this connection, Thanachart Group has been embracing the principles of corporate social responsibility for a long time. It treats all groups of stakeholders including shareholders, customers, consumers, and business counterparts in a fair and equitable manner. Recognizing the importance of good corporate governance, Thanachart Group also place strong emphasis on transparency

in information disclosure. It regularly and continuously organizes training activities for its staff on good corporate governance.

In regard to the employees, the Group has promoted and fostered good relations with its staff by offering competitive remuneration, excellent welfare benefits, and a stimulating work environment. In addition, as part of its energy conservation policy, the Group encourages its staff to participate in activities aiming at using less electricity and paper, thus conserving energy and preserving

the environment.

CSR-after-Process

This type of corporate social responsibility covers any activities other than those undertaken in the ordinary course of its business. Thanachart Group had been involved in this type of activities for a long time since the beginning of its operations.

Later, as the commercial banking services became one of Thanachart Group’s main businesses with an extensive branch network nationwide, the corporate social responsibility activities have been implemented in line with the policy established by the central organization. The activities are supported by the regional hubs concerned. In this connection, the CSR Committee is responsible

for approving and financing the programs for all activities. After the approval is granted, staff of TBANK and other members of Thanachart Group in each regional hub will start implementing the CSR activities together. Their customers and business counterparts, as well as people living in communities, will also be invited to participate in the activities. As a guideline for

the implementation of the activities, Thanachart Group has established a framework of social issues to be addressed. They can be divided into four main groups as follows: 1. Development activities for youth and disadvantaged children. 2. Community health and hygiene. 3. Conservation of culture and national identity. 4. Assistance to society and alleviation of suffering of natural disaster victims.

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Annual Report 2012 Thanachart Bank Public Company Limited


Thanachart Group’s CSR activities have been implemented through the various projects

as follows:

Thanachart Initiates and Fulfils Thai Identity Project The activities of TBANK’s project place emphasis on promoting the country’s unique identity and beautiful culture

by encouraging young people to read Thai aloud with correct pronunciation and to learn about good manners in Thai culture, which they can use in daily life. This is an extension of

Siam City Bank’s previous project entitled “Siam City Bank Conserves Thai Identity” which was continuously implemented for over 40 years. The project consists of two main activities including reading aloud contests and Thai manners contests. First rounds of the contests to select qualified candidates are organized in four regions including North, North East, South, and Central. Educational institutions are provided with

an opportunity to send students from Prathomsuksa 1 to

the university level as their representatives to participate

in the contests to compete for Her Royal Highness Princess Maha Chakri Sirindhorn’s Cups, honorable shields and certificates of honour, as well as scholarships. The project was first initiated in 1972 in the form of

a contest organized on “Thai Manners” under the auspices

of Bangkok Metropolitan Bank. Later in 1980, the first “Reading Aloud Contest by Bangkok Metropolitan Bank” was organized. In 1995, it was humbly requested that Her Royal Highness Princess Maha Chakri Sirindhorn graciously give royal cups to

1

2

3

4

top winners of the two contests. In 2002, Bangkok Metropolitan Bank merged with Siam City Bank and the name of the project was changed to “Siam City Bank Conserves Thai Identity”.

In 2011, TBANK continued implementing the project. The intention to maintain and preserve Thai identity including reading aloud Thai and using Thai manners in daily life is the inspiration behind the project. The objective is for Thai people to preserve the unique values and prevent their disintegration over time as a result of the social situation in which many people get carried away by fads and fashion. Moreover, the project helps inculcate in Thai youth the love of Thai culture. The love makes them cherish the culture and helps keep it as part of Thai society forever. Both the Thai language and Thai manners are widely recognized as unique characteristics of Thai identity. In addition, TBANK had arranged video to widely educate student and undergraduate in the institution for dissemination of reading Thai and good Thai manners. Project to support Red Cross

“Annual Red Cross Fair” Activity

TBANK participated in the sales of Red Cross lottery tickets as well as the Red Cross Fair which was organized annually. In 2012, the 36th anniversary fair was held from

30 March to 7 April 2012 in Suan Amporn Park, under the theme entitled “All Thai People Join Their Hearts to Celebrate the 80th Birthday of Her Majesty the Queen, President of

1 - 2. 2012 Offering Ceremony of Royal Kathin Robes to Wat Dhammabucha, Muang District, Surat Thani Province 3. Mr. Somjate Moosirilert humbly presented proceeds from TBANK’s participation in Annual Red Cross Fair to Her Royal Highness Princess Maha Chakri Sirindhorn 4 - 6. Photographs about assistance given to flood-hit schools in 2011 - 2012

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the Thai Red Cross Society”, with Her Majesty the Queen serving as Honorary President. TBANK was the only commercial bank which participated in the fair. The purpose was to raise funds with the proceeds to be humbly presented to Her Royal Highness Princess Maha Chakri Sirindhorn. TBANK was one of the top five institutes which presented the highest proceeds. The continuing participation in the Annual Red Cross Fair

for 36 years is an extension of the project implemented earlier by Bangkok Metropolitan Bank and Siam City Bank respectively. The net proceeds from its sales of Red Cross lottery tickets and from its participation in the fair were humbly presented annually to Her Royal Highness Princess Maha Chakri Sirindhorn, Executive Vice-President of the Council of the Thai Red Cross Society, for charity at the discretion of Her Royal Highness as partial financial support to the Council. The participation in the annual fair could be traced back to the year 1976 when Bangkok Metropolitan Bank was

the only commercial bank which was invited to join the Red Cross Fair, at which the bank used the name of ‘Bangkok Metropolitan Bank’s Booth’. Later in 2002 when Bangkok Metropolitan Bank merged with Siam City Bank, Siam City Bank participated in the fair, using the name of ‘Siam City Bank’s Booth’. In 2011 when Siam City Bank merged with TBANK, the name at the fair was changed to ‘Thanachart Bank’s Booth’. Today, it is still the only commercial bank with a booth at the Annual Red Cross Fair in Suan Amporn Park.

5

6

7

8

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Annual Report 2012 Thanachart Bank Public Company Limited

Blood Donation in Honor of the Royal Father Project

This activity has been implemented by the Bank’s

Khon Kaen Hub for eight consecutive years. The activity involves a campaign aiming at encouraging both members of the public and staff to donate blood in honor of His Majesty

the King and Her Majesty Queen Sirikit for charity. Donating blood not only helps save the lives of victims of emergent accidents but also alleviate blood shortage during treatment. The activity is well supported by the Faculty of Medicine, Khon Kaen Unviersity, who facilitates the blood donation. Moreover,

the Bank also gives financial health check-up to those who participate in the activity. Tree seedlings are also distributed to the participants, as part of the fight global warming campaign. The objective is also to instill into people the cooperation

in preserving the environment. In 2012, 1,159 people donated 483,450 cc of blood to the Thai Red Cross Society. Project on TBANK’s continuous support to a group of schools Reuse Project entitled ‘Pi Chai Ngan Nong Chai Rien’

(Senior use them for work, junior use them for learning)

With the idea that materials can be reused, TBANK reuses all structural and decorative materials (such as tables, chairs, bookshelves, educational materials, incandescent lamps and structures) at its booths at Money Expo to build multipurpose facilities and libraries, as well as donating table and chair sets, sports equipment, and stationery materials. In 2012, TBANK gave a library building, tables, chairs, bookshelves and equipment

to Pak Dan Temple School in Sichon District, Nakhon Si Thammarat

7 - 8. Thanachart Initiates and Fulfils Thai Identity Project in 2012


Province, which was adversely affected by floods in the southern part of the country. The objectives of the activity were to facilitate the rehabilitation and restoration of the school and to give moral support to the young students so that they will have both good education and good future. Projects to support disaster victims TBANK continued to implement these CSR activities which were undertaken during the period from 2011 and 2012 when many provinces in Thailand, including part of Bangkok, were hard hit by great floods. The flood havoc resulted in deaths, injuries and considerable property damage. As a result, Thanachart Group joined Thanachart Foundation for Thai Society in organized activities aiming at giving assistance to disaster victims through the projects entitled “Thanachart

joins hands to help flood victims in 2011” and “Thanachart Foundation for Thai Society helps flood victims” respectively. Emphasis was placed on alleviating the suffering of the victims and restoration of flood-hit educational institutions, particularly small schools that needed immediate assistance so that they could reopen and were capable of developing the potential of the youth. Moral support was also given to educational personnel who helped the youth fulfill their academic potential so that they would become productive citizens capable of improving Thai society in the future. In 2012, Thanachart Group organized activities aiming at helping disaster victims, through Thanachart Foundation for Thai Society which served as an intermediary between people

9

10

11

12

who donated money and more than 50 damaged schools which received the donations. The rehabilitation assistance could be divided into the following groups: Group 1: R estoration construction such as toilet construction and improvements, wall construction, building painting, laying tiles and landscape improvements, Group 2: Libraries, computers as well as teaching

and learning materials, Group 3: Tables, chairs, school supplies as well as playgrounds for children. With the assistance from Thanachart Foundation for Thai Society, learning and teaching at the recipient schools became more efficient. As well, staff of the Foundation and

the various hubs in flood-hit areas visited teachers and students at the schools to provide them with moral support and continued assistance. New social development projects which

the Foundation would implement were also proposed to them. Thanachart Foundation for Thai Society Thanachart Foundation for Thai Society focuses on building and developing society, aiming at serving as prototypes in community and social development. These include development of knowledge in self-development and improvement, development of practical knowledge, thinking and skills, development of self-confidence and volition, as well as development of right attitudes and core values in making

a living and in improving one’s livelihood, based on the concept

9 - 10. Reuse Project entitled ‘Pi Chai Ngan Nong Chai Rien’ (Senior use them for work, junior use them for learning) with donations and assistance given to Pak Dan Temple School

in Sichon District, Nakhon Si Thammarat Province 11 - 12. Blood donation project of TBANK’s Khon Kaen Hub

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of the “Sufficient Economy” of His Majesty the King.

The Foundation also places emphasis on building networks and cooperation for giving assistance to society in different situations, taking into account the diverse array of current social problems. In 2012, Thanachart Foundation for Thai Society gave assistance to children and youth through flood victim support activities, recognizing the importance of social foundations of education. In addition, the Foundation continued to implement the project concerned with laying foundations for primary-age Thai children and youth, aiming at promoting learning by reading by improving the libraries of the schools under the patronage of the Foundation. It ensured that the libraries possessed appropriate books which were selected from the top 100 well-researched books. The Foundation also supports the enhancement of

the financial literacy for youth. The objective is to develop

the schools into a force in school banking, which plays a supporting role in teaching youth how to save money and manage their finances. The Foundation will develop teaching materials which make it easy for youth to become financially literate.

To support the project, voluntary staff of Thanachart Group will also assist in teaching financial literacy to youth so that they realize their potential and develop into quality youth.

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Annual Report 2012 Thanachart Bank Public Company Limited

Project for Buddhism

Activity to maintain and support Buddhism through

the offering of ‘Royal Kathin Robes’

TBANK annually organizes the offering ceremony of Royal Kathin Robes. In 2012, the Bank offered the Royal Kathin Robes, graciously bestowed by His Majesty the King, to Wat Dhammabucha, Muang District, Surat Thani Province.

In this connection, member companies of Thanachart Group, customers, business counterparts, executives, and staff

as well as members of the general public jointly donated 8,413,398.78 baht in good faith to the temple as part of the funds to be used for renovating its ordination hall (Ubosot) and maintaining the monasteries. The offering ceremony of Royal Kathin Robes, graciously bestowed by His Majesty the King, was first organized in 2006 and offered to Wat Keaw Go Ra Wa Ra Ram Temple in Krabi Province. Since then, TBANK has been organizing the offering ceremony of Royal Kathin Robes every year. The purpose of this CSR activity is to maintain and support Buddhism, Royal temples, and sanctuaries so that they remain intact as long as the nation exists. In addition, TBANK offers scholarships to financially needy students with good grades and good behavior.


Responsibilities of the Board of Directors for Financial Report TBANK’s Board of Directors is responsible for the separated and consolidated financial statements and for financial information presented in this annual report. The aforementioned financial statements were prepared in accordance with the generally accepted accounting principles, applying appropriate and consistent accounting policies and with careful judgments and best estimates. Important information is adequately and transparently disclosed to TBANK’s shareholders and other investors in the notes to financial statements. TBANK’s Board of Directors has established and maintained appropriate and effective risk management and internal control system in order to rationally assure that the accounting information is correctly and completely recorded and adequate to sustain TBANK’s assets, as well as to prevent any material irregular operations or frauds. TBANK’s Board of Directors has appointed the Audit Committee comprising independent directors responsible for revision of accounting policies and the quality of financial statements, internal control, internal audit and risk management system, as well as the disclosure of related party transactions. The committee’s comments on these issues were included in the Audit Committee Report in this annual report. TBANK’s separated and consolidated financial statements were audited by the certified public accountant of Ernst & Young Office Limited. TBANK’s Board of Directors had provided the auditing team all information and document supports in order that the auditor would be able to audit and address his/her opinion to the auditing standards. The auditor’s opinion was included in the Report of independent Auditor in this annual report. TBANK’s Board of Directors is of the opinion that TBANK’s overall internal control is at a satisfying level and provides reliability on TBANK’s separated and consolidated financial statements for the year ended December 31, 2012 which is in compliance with the generally accepted accounting principles and relevant rules and regulations.

(Mr. Banterng Tantivit) Chairman of the Board of Director

(Mr. Somjate Moosirilert) Chief Executive Officer and President

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Report of the Audit Committee

The Audit Committee of TBANK consisted of three qualified and experienced independent directors. The composition was as follows; 1. Mr. Kiettisak Meecharoen Chairman 2. Assoc. Prof. Dr. Somjai Phagaphasvivat Member 3. Mr. Sataporn Jinachitra Member Mrs. Vijitra Thumpothong, Executive Vice President, Audit, served as the secretary of the Audit Committee. The Audit Committee was responsible for carrying out the duties as assigned by TBANK’s Board of Directors in line with

the regulations imposed by the Securities and Exchange Commission (SEC), notifications of the Stock Exchange of Thailand (SET) and the Bank of Thailand (BOT) as stated in the charter stipulated by the Board of Directors. In 2012, the Audit Committee convened thirteen meetings in total with the management, top level executives of the related business units and auditors to acknowledge and consider numerous matters as of the following: • Financial Statements The Audit Committee reviewed the quarterly and year-end and consolidated financial statements of TBANK by consulting with the external audits and management of Chief Financial Officer (CFO) in order to ensure the accounting standards, the accuracy of its significant matters, and the appropriate disclosure of information. In addition, the Audit Committee convened the meetings without the presence of TBANK management in order to ensure the independence of the auditors’ duties and comments. • Internal Control and Internal Audit The Audit Committee reviewed the TBANK’s business to ensure an effective internal control and internal audit. It provided consultation for the internal auditors in formulating the annual audit plan to ensure its sufficiency and appropriateness of the auditors’ independence. The audit plan was monitored and evaluated quarterly. Including considered examination report of the BOT’s, external auditor in order to assess internal control and knowledge and capability of the internal auditors in order to further develop the effectiveness and efficiency of audit system.

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Annual Report 2012 Thanachart Bank Public Company Limited


• Regulatory Compliance The Audit Committee reviewed the performance of Compliance Unit’s to as certain that the Bank’s businesses were conducted in compliance with related rules and regulations imposed by authorities such as the BOT, SEC, SET, the Office of Insurance Commission (OIC) and the Anti-Money Laundering Office (AMLO). The Audit Committee also acknowledged changes of any rules or regulations that affected operation and ensured the adjustment of operation in response to those changes. • Risk Management The Audit Committee monitored and ensured the adequacy of the risk management framework. The Committee met with executives in order to acknowledge the risk management report in various aspects to ensure an adequacy and effectiveness of TBANK’s risk management system. • Audit Committee’s Charter The Audit Committee considered and approved the amendment in the Audit Committee’s Charter to make it up-to-date and more appropriate. • Independent Auditor The Audit Committee considered and approved the auditor based on their knowledge, competence, experience, independence and quality of last year audit. Also, considered appropriate audit fee before proposing to TBANK’s Board of Directors and Bank’s shareholder.

• Connected Transactions or Conflict of Interests The Audit Committee reviewed connected transactions and transactions where there might be conflict of interests based on rationale, transparency, and appropriate disclosure of information before giving and opinion to the Board of Directors. The Audit Committee performed its duties prudently and independently, and provided straightforward comments based on transparency and good governance. The Audit Committee considered core operations jointly with senior executives in charge of concerned groups, and internal and external auditors. The Audit Committee is of the opinion that financial statements have been prepared accurately with adequate information disclosure. The internal control, internal audit and risk management have been appropriate, effective, and in compliance with laws and regulations. Independent auditor was independent to perform duties. Connected transactions and conflict of interests have been disclosed appropriately. (Mr. Kiettisak Meecharoen) Chairman of the Audit Committee

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Independent Auditor’s Report

To the Shareholders of Thanachart Bank Public Company Limited I have audited the accompanying consolidated financial statements of Thanachart Bank Public Company Limited and its subsidiaries, which comprise the consolidated statement of financial position as at 31 December 2012, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, and have also audited the separate financial statements of Thanachart Bank Public Company Limited for the same period. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Thai Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Thai Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thanachart Bank Public Company Limited and its subsidiaries and of Thanachart Bank Public Company Limited as at 31 December 2012, and their financial performance and cash flows for the year then ended, in accordance with Thai Financial Reporting Standards. (Phuphun Charoensuk) Certified Public Accountant (Thailand) No. 4950 Ernst & Young Office Limited Bangkok: 21 February 2013

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Annual Report 2012 Thanachart Bank Public Company Limited


STATEMENTS OF FINANCIAL POSITION Thanachart Bank Public Company Limited and its subsidiaries Statements of financial position As at 31 December 2012 and 2011 (Unit: Thousand Baht) Consolidated

Separate

financial statements Note

2012

financial statements

2011

2012

2011

Assets Cash

15,181,402

16,005,678

15,180,228

16,004,051

Interbank and money market items - net

6

71,963,238

63,201,206

65,963,698

62,963,184

Derivatives assets

7

2,176,536

1,536,490

2,176,540

1,532,331

Investments - net

8

146,106,487

148,344,800

106,923,850

114,540,693

13,754,213

40,841,867

Investments in subsidiary and associated companies - net

9

1,621,284

1,423,339

Loans to customers and accrued interest receivables

10

Loans to customers

812,211,277

675,021,253

778,015,569

654,451,435

1,065,745

962,799

1,029,616

924,925

813,277,022

675,984,052

779,045,185

655,376,360

(58,148,129)

(39,801,128)

(54,992,223)

(37,738,871)

11

(23,774,973)

(25,897,903)

(15,067,430)

(12,485,712)

12

(344,196)

(381,719)

(344,196)

(381,719)

Accrued interest receivables Total loans to customers and accrued interest receivables Less: Deferred revenue Allowance for doubtful accounts Revaluation allowance for debt restructuring Net loans to customers and accrued interest receivables Customers' liability under acceptances

731,009,724

609,903,302

708,641,336

604,770,058

41,489

90,531

41,489

90,531

Property foreclosed - net

14

6,460,825

6,761,904

3,166,001

3,653,106

Land, premises and equipment - net

15

8,292,180

8,758,841

7,927,385

8,365,341

Intangible assets - net

16

4,293,964

4,709,082

4,230,138

4,650,449

Goodwill

17

15,749,643

15,749,643

15,739,527

15,739,527

Receivables from purchase and sale of securities

2,102,713

858,326

3,069

64,929

Prepaid corporate income tax

1,046,533

1,019,680

1,012,539

1,011,958

VAT refundable

2,300,943

56,557

2,295,101

48,441

Reinsurance assets

1,155,601

2,573,393

-

-

6,585,481

5,066,831

3,952,371

3,776,857

1,016,088,043

886,059,603

951,007,485

878,053,323

Other assets - net Total assets

18

The accompanying notes are an integral part of the financial statements.

Annual Report 2012 Thanachart Bank Public Company Limited

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STATEMENTS OF FINANCIAL POSITION (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of financial position (continued) As at 31 December 2012 and 2011 (Unit: Thousand Baht) Consolidated

Separate

financial statements Note

2012

financial statements

2011

2012

2011

Liabilities and equity Deposits

19

698,372,192

436,039,579

701,281,731

471,617,573

Interbank and money market items

20

87,776,947

60,150,845

82,083,807

59,282,708

4,989,214

2,130,716

4,989,214

2,130,716

Liability payable on demand Derivatives liabilities

7

1,206,215

2,885,848

1,202,000

2,876,790

Debt issued and borrowings

21

78,148,560

254,296,521

68,395,560

257,503,221

41,489

90,531

41,489

90,531

Banks' liability under acceptances Provisions

2,975,615

2,823,534

2,786,748

2,620,953

Payable from purchase and sale of securities

2,873,534

851,388

11,265

267,638

Accrued interest payable

4,053,383

3,266,851

3,997,033

3,413,511

Accrued expenses

5,047,880

3,855,403

4,366,477

3,077,407

39,632,420

36,154,060

-

-

22

Insurance contract liabilities

23

Other liabilities

24

7,973,567

7,980,763

5,345,461

4,287,918

933,091,016

810,526,039

874,500,785

807,168,966

59,346,193

59,346,193

59,346,193

59,346,193

55,136,649

55,136,649

55,136,649

55,136,649

2,100,694

2,100,694

2,100,694

2,100,694

25

1,637,035

612,902

959,419

211,106

26

1,329,516

989,326

1,329,516

989,326

21,959,342

16,008,739

16,980,422

12,446,582

82,163,236

74,848,310

76,506,700

70,884,357

833,791

685,254

-

-

82,997,027

75,533,564

76,506,700

70,884,357

1,016,088,043

886,059,603

951,007,485

878,053,323

-

-

-

-

Total liabilities Equity Share capital Registered 5,934,619,272 ordinary shares of Baht 10 each Issued and paid-up share capital 5,513,664,903 ordinary shares of Baht 10 each Share premium Other components of equity Retained earnings Appropriated - statutory reserve Unappropriated Equity attributable to owner of the company Non-controlling interests of the subsidiaries Total equity Total liabilities and equity

The accompanying notes are an integral part of the financial statements.

70

Annual Report 2012 Thanachart Bank Public Company Limited


STATEMENTS OF COMPREHENSIVE INCOME Thanachart Bank Public Company Limited and its subsidiaries Statements of comprehensive income For the years ended 31 December 2012 and 2011 (Unit: Thousand Baht except earnings per share expressed in Baht) Consolidated

Separate

financial statements Note

2012

financial statements

2011

2012

2011

Profit or loss Interest income

29

49,653,150

44,052,306

46,330,705

29,386,039

Interest expenses

30

(25,534,723)

(19,635,865)

(25,371,321)

(14,797,270)

24,118,427

24,416,441

20,959,384

14,588,769 2,889,294

Net interest income Fees and service income

5,699,611

5,009,890

5,407,517

(1,488,086)

(1,298,733)

(1,330,010)

31

4,211,525

3,711,157

4,077,507

2,053,543

32

664,401

890,895

705,399

563,565

33

447,696

712,193

269,896

59,843

143,113

156,064

-

-

16,060,773

12,853,319

-

-

447,183

707,542

3,788,113

1,590,458

Fees and service expenses Net fees and service income

(835,751)

Gains on trading and foreign exchange transactions Gains on investments Share of profit from investments accounted for under equity method Insurance/Life insurance income Dividend income Income on supporting service

26,028

45,678

314,955

1,062,319

Other operating income

2,046,140

1,113,549

1,745,968

1,123,802

Total operating income

48,165,286

44,606,838

31,861,222

21,042,299

(12,185,991)

(10,725,745)

-

-

35,979,295

33,881,093

31,861,222

21,042,299

10,579,852

10,735,944

9,085,979

6,626,964

Insurance expenses Net operating income Other operating expenses Employee's expenses Directors’ remuneration

34

Premises and equipment expenses Taxes and duties Other expenses Total other operating expenses

31,473

43,223

24,473

26,888

3,234,772

3,522,317

2,866,517

1,881,531

915,061

898,439

836,880

406,770

7,580,340

5,547,255

7,094,592

4,010,900

22,341,498

20,747,178

19,908,441

12,953,053

Impairment losses of loans and debt securities

35

Profit before income tax Income tax

36

Profit for the year Other comprehensive income

2,979,503

2,504,008

4,680,020

1,421,636

10,658,294

10,629,907

7,272,761

6,667,610

(2,222,938)

(2,948,049)

8,435,356

7,681,858

(468,948) 6,803,813

6,667,610

37

Gains (losses) on changes in value of available-for-sale investments

862,419

(355,528)

748,313

41,594

161,714

(180,370)

-

-

Total other comprehensive income (loss)

1,024,133

(535,898)

748,313

41,594

Total comprehensive income

9,459,489

7,552,126

6,709,204

Share of other comprehensive income of associates (loss)

7,145,960

The accompanying notes are an integral part of the financial statements.

Annual Report 2012 Thanachart Bank Public Company Limited

71


STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of comprehensive income (continued) For the years ended 31 December 2012 and 2011 (Unit: Thousand Baht except earnings per share expressed in Baht) Consolidated

Separate

financial statements Note

financial statements

2012

2011

2012

2011

8,220,576

7,671,425

6,803,813

6,667,610

214,780

10,433

8,435,356

7,681,858

9,244,709

7,136,544

7,552,126

6,709,204

214,780

9,416

9,459,489

7,145,960

1.49

1.39

1.23

1.21

Profit attributable to: The Bank Non-controlling interests

Total comprehensive income attributable to: The Bank Non-controlling interests

Earnings per share of the Bank

38

Basic earnings per share Profit attributable to the Bank (Baht per share)

The accompanying notes are an integral part of the financial statements.

72

Annual Report 2012 Thanachart Bank Public Company Limited


STATEMENTS OF CASH FLOWS Thanachart Bank Public Company Limited and its subsidiaries Statements of cash flows For the years ended 31 December 2012 and 2011 (Unit: Thousand Baht) Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011

7,272,761

6,667,610

Cash flows from operating activities Profit before income tax

10,658,294

10,629,907

Adjustments to reconcile profit before income tax to net cash received (paid) from operating activities: Share of profit from investments accounted -

-

Depreciation and amortisation

for under equity method

1,597,212

1,715,216

1,466,423

768,191

Impairment losses of loans and debt securities

2,979,503

2,504,008

Increase (decrease) in provisions

(143,113)

(156,064)

4,680,020

1,421,636

152,081

(346,472)

165,795

1,195,615

(28,914)

364,504

(62,113)

Amortisation of premiums (discounts) on investment in debt securities

(69,123)

Gain from disposal of investments in subsidiary companies

-

(65,751)

-

-

-

(22,276)

-

-

10,543

(40,978)

56,774

4,463

49,226

(10,110)

1,825

35,616

443,562

4,063

29,079

4,616

93,470

5,100

-

35,309

26,843

35,309

24,816

(5,012)

(1,967)

(5,012)

(1,967)

(41,223)

(7,923)

(40,221)

(2,632)

Gain from disposal of investment in an associated company Increase (decrease) in allowance for impairment of investments Decrease (increase) in allowance for change in value of investments

(595)

Increase in allowance for impairment of property foreclosed Increase in allowance for impairment of land, premises and equipment Increase in allowance for impairment of intangible asset Interest income and other income from the assets transferred for debt repayment Gain on disposal of equipment Loss from disposal of intangible assets Unrealised (gain) loss on exchange

46,888

-

298,055

(145,039)

46,888 298,055

(145,039)

Decrease (increase) in allowance for impairment of other assets Increase in other income receivable Decrease in fees and rental received in advance

20,827

(270,482)

9,068

(2,011)

(266,724)

(156,200)

(57,479)

(75,977)

(30,302)

(46,437)

(30,302)

(46,437)

Decrease in deferred income

(61,311)

Increase in accrued expenses

212,529

Amortisation of discounts on borrowings Net interest income Dividend income

(4,708) 1,077,288

(61,311) 309,123

(4,708) 1,453,301

13,972

810

13,972

-

15,488,251

15,640,537

14,096,803

11,218,642

(24,103,485)

(24,781,755)

(20,911,243)

(14,519,646)

(447,183)

(707,542)

(3,788,113)

(1,590,458)

Cash received from interest income

46,009,719

40,114,752

42,644,444

27,553,999

Cash payment for interest expenses

(16,651,972)

(11,936,018)

(16,808,865)

(8,303,265)

Cash paid for corporate income tax

(3,629,415)

(3,555,117)

(177,572)

(1,970,980)

16,665,915

14,774,857

Income from operating activities before changes in operating assets and liabilities

15,055,454

12,388,292

The accompanying notes are an integral part of the financial statements.

Annual Report 2012 Thanachart Bank Public Company Limited

73


STATEMENTS OF CASH FLOWS (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of cash flows (continued) For the years ended 31 December 2012 and 2011 (Unit: Thousand Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

Decrease (increase) in operating assets Interbank and money market items Investments in trading securities Derivatives assets Loans to customers

(8,833,905)

23,183,890

(3,107,251)

33,785,015

3,889,938

(12,792,593)

3,184,104

(4,780,207)

859,366 (130,721,464)

Property foreclosed Receivables from purchase and sale of securities Reinsurance assets Other assets

2,279,923 (22,441,973)

855,202 (113,965,363)

486,079 (52,904,541)

5,337,743

3,963,047

5,360,987

3,403,850

(1,244,386)

2,011,953

61,860

1,677,045

1,417,791

(2,040,620)

(3,824,568)

(220,462)

(2,708,876)

2,693,151

Increase (decrease) in operating liabilities Deposits

262,338,807

(96,616,551)

229,670,353

(27,141,638)

27,643,485

9,892,160

22,818,482

18,330,999

Interbank and money market items Liability payable on demand Derivatives liabilities

2,858,498

(996,229)

2,858,498

(973,984)

(2,460,410)

(924,746)

(2,455,567)

(915,774)

(256,373)

(1,465,422)

Payable from purchase and sale of securities

2,022,146

(3,202,552)

Liabilities under insurance/ life insurance

3,478,360

6,380,389

Other liabilities Net cash flows from (used in) operating activities

-

-

1,408,450

(1,963,750)

852,280

(2,982,791)

180,835,766

(78,713,257)

158,223,790

(18,399,926)

-

(39,253,886)

5,281,470

(10,547,385)

(2,785,000)

(2,681,425)

Cash flows from investing activities Cash payment for the entire business transfer

-

-

Decrease (increase) in investments in securities held for investment

(1,108,436)

Cash paid for acquire investment in subsidiaries

-

Cash paid for acquire investment in associated

-

4,964,042 (16,446) -

(820,858)

-

Cash received from disposal of investments in subsidiary companies

-

366,304

-

-

Cash received from disposal of investment in an associated company Capital returned from a subsidiary Cash received from interest on investments Cash received from dividend Cash paid for purchase of equipment Cash received from disposal of equipment Net cash flows from (used in) investing activities

-

113,750

-

-

-

-

30,642,266

16,922,510

4,827,979

4,533,638

3,374,860

1,984,309

3,787,387

1,590,487

494,159

824,488

(675,262)

(852,070)

(549,164)

72,558

39,767

69,504

3,610,998

9,973,473

39,000,465

The accompanying notes are an integral part of the financial statements.

74

Annual Report 2012 Thanachart Bank Public Company Limited

674,382 4,106 (31,306,902)


STATEMENTS OF CASH FLOWS (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of cash flows (continued) For the years ended 31 December 2012 and 2011 (Unit: Thousand Baht) Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011

Cash flows from financing activities Cash received from borrowings Cash paid for borrowings

555,070,968

1,181,760,489

546,400,268

990,764,061

(731,239,095)

(1,103,304,035)

(735,528,095)

(920,720,557)

Cash paid for interest from borrowings

(7,106,888)

(6,758,720)

(6,990,468)

(5,860,648)

Cash paid for dividend

(1,929,783)

(2,205,466)

(1,929,783)

(2,205,466)

(59,931)

(42,588)

Cash paid for dividend to non-controlling interests of subsidiaries Cash paid to non-controlling interests for capital refund Net cash flows from (used in) financing activities Net increase (decrease) in cash

(6,311)

(2,323)

-

-

-

-

(185,271,040)

69,447,357

(198,048,078)

61,977,390

(824,276)

707,573

(823,823)

12,270,562

Cash at beginning of the year

16,005,678

15,298,105

16,004,051

3,733,489

Cash at end of the year

15,181,402

16,005,678

15,180,228

16,004,051

4,833,924

3,307,890

4,639,587

3,137,524

432,097

-

432,097

-

148,859

159,024

140,901

112,184

4,957,747

1,479,108

1,909,159

618,108

Supplemental cash flows information Non-cash transactions Transfer of properties foreclosed from receivables for debt settlement Transfer of investment from receivables for debt settlement Accounts payable for purchase of fixed assets Bad debt written-off

The accompanying notes are an integral part of the financial statements.

Annual Report 2012 Thanachart Bank Public Company Limited

75


76

Annual Report 2012 Thanachart Bank Public Company Limited 55,136,649

-

-

-

The accompanying notes are an integral part of the financial statements.

Balance as at 31 December 2012

Total comprehensive income for the year

statutory reserve (Note 26)

Transfer of retained earnings to

of the subsidiaries

Decrease in non - controlling interests

-

55,136,649

Balance as at 1 January 2012

-

-

-

-

55,136,649

Dividend paid (Note 28)

Share premium

2,100,694

-

-

-

-

2,100,694

2,100,694

-

-

-

-

2,100,694

(123,379)

-

-

-

-

(123,379)

(123,379)

-

-

-

-

(123,379)

common control

55,136,649

share capital

Surplus on

1,455,803

862,419

-

-

-

593,384

593,384

(354,511)

-

-

-

947,895

of investments

changes in value

304,611

161,714

-

-

-

142,897

142,897

(180,370)

-

-

-

323,267

associates (loss)

income of

other comprehensive

business combination under

Issued and

Share of

Other components of equity

1,329,516

-

340,190

-

-

989,326

989,326

-

333,381

-

-

655,945

statutory reserve

21,959,342

8,220,576

(340,190)

-

(1,929,783)

16,008,739

16,008,739

7,671,425

(333,381)

-

(2,205,466)

10,876,161

Unappropriated

Retained earnings Appropriated -

Consolidated financial statements

Surplus from

fully paid-up

Balance as at 31 December 2011

Total comprehensive income for the year

statutory reserve (Note 26)

Transfer of retained earnings to

of the subsidiaries

Increase in non - controlling interests

Dividend paid (Note 28)

Balance as at 1 January 2011

For the years ended 31 December 2012 and 2011

Statements of changes in equity

Thanachart Bank Public Company Limited and its subsidiaries

STATEMENTS OF CHANGES IN EQUITY

833,791

214,780

-

(66,243)

-

685,254

685,254

9,416

-

471,774

-

204,064

interests

Non-controlling

82,997,027

9,459,489

-

(66,243)

-

(1,929,783)

75,533,564

75,533,564

7,145,960

-

471,774

(2,205,466)

70,121,296

Total

(Unit: Thousand Baht)


Annual Report 2012 Thanachart Bank Public Company Limited

77

2,100,694

2,100,694

55,136,649

55,136,649

Balance as at 31 December 2011

Balance as at 1 January 2012

2,100,694

55,136,649

The accompanying notes are an integral part of the financial statements.

Balance as at 31 December 2012

Total comprehensive income for the year

-

Transfer of retained earnings to statutory reserve (Note 26)

-

-

Dividend paid (Note 28)

-

-

Transfer of retained earnings to statutory reserve (Note 26)

Total comprehensive income for the year

-

-

2,100,694

959,419

748,313

-

-

211,106

211,106

41,594

-

-

169,512

investments

share capital 55,136,649

in value of Share premium

Surplus on changes

Issued and

of equity

Other components

1,329,516

-

340,190

-

989,326

989,326

-

333,381

-

655,945

statutory reserve

16,980,422

6,803,813

(340,190)

(1,929,783)

12,446,582

12,446,582

6,667,610

(333,381)

(2,205,466)

8,317,819

Unappropriated

Retained earnings Appropriated -

Separate financial statements

fully paid-up

Dividend paid (Note 28)

Balance as at 1 January 2011

For the years ended 31 December 2012 and 2011

Statements of changes in equity (continued)

Thanachart Bank Public Company Limited and its subsidiaries

STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

76,506,700

7,552,126

-

(1,929,783)

70,884,357

70,884,357

6,709,204

-

(2,205,466)

66,380,619

Total

(Unit: Thousand Baht)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Thanachart Bank Public Company Limited and its subsidiaries Notes to consolidated financial statements For the years ended 31 December 2012 and 2011 1.

General information

1.1

The Bank’s information Thanachart Bank Public Company Limited (“Thanachart Bank” or “the Bank”) was incorporated as a public limited company under Thai laws and its parent company is Thanachart Capital Public Company Limited (herein after referred to as “the Parent company”), a public limited company also existing under Thai laws. The Parent company holds 50.96 percent of the Bank issued shares and Scotia Netherlands Holding BV, a company registered in Netherland, holds 49.00 percent of the Bank issued shares. The Bank’s registered address is 900, Tonson Tower, Ploenchit Road, Lumpini, Pathumwan, Bangkok. The Bank has 628 operational branches (2011: 676 operational branches). All subsidiaries are registered limited or public limited companies under Thai laws and operate their businesses in Thailand. The subsidiaries businesses include non-performing assets management business, securities business, leasing and hire purchase business, nonlife insurance business, life insurance business, fund management business and others.

1.2

Entire Business Transfer from Siam City Bank Plc. (“SCIB”) The Bank acquired SCIB’s shares to make it a subsidiary of the Bank in April 2010, and included it in the consolidated financial statements since then. On 30 September 2011, Thanachart Bank entered into the Entire Business Transfer Agreement, legally effective on 1 October 2011, to transfer SCIB’s business to Thanachart Bank. The transferred business consisted of the assets, liabilities and commitments of SCIB as of 1 October 2011 and/or contingent liabilities that may arise in the future. After the transfer, SCIB discontinued its operations and then returned its banking license and banking authorisations to the Ministry of Finance, and registered the change in its name to be “SCIB Plc.”. SCIB registered its dissolution in December 2011.

78

Annual Report 2012 Thanachart Bank Public Company Limited


2.

Basis of preparation of the financial statements

2.1

Basis of preparation of the financial statements The financial statements have been prepared in accordance with accounting standard enunciated under the Accounting Professions Act B.E. 2547 with reference to accounting practice of “Transferring/Transferred of financial assets” and the principles stipulated by the Bank of Thailand (“BOT”). The presentation of the financial statements has been made in compliance with the BOT’s Notification relating to the preparation and format of the financial statements of commercial banks and holding company of financial business groups, dated 3 December 2010. The financial statements in Thai language are the official statutory financial statements of the Bank. The financial statements in English language have been translated from the Thai language financial statements. The financial statements have been prepared on a historical cost basis except where otherwise disclosed in the accounting policies.

2.2

Basis of preparation of the consolidated financial statements a)

The consolidated financial statements included the financial statements of the Bank and the following subsidiary companies (“the subsidiaries”). Percentage of holding Nature of business

2012

2011

Subsidiaries directly held by the Bank SCIB Plc.

In liquidation process

99.98

Thanachart Securities Plc.

Securities business

100.00

100.00

Thanachart Insurance Plc.

Non-life insurance

100.00

100.00

Life insurance

100.00

100.00

Thanachart Life Assurance Plc. Thanachart Fund Management Co., Ltd. Thanachart Broker Co., Ltd. Thanachart Group Leasing Co., Ltd. Thanachart Management and Services Co., Ltd. Thanachart Legal and Appraisal Co., Ltd. Thanachart Training and Development Co., Ltd. TS Asset Management Co., Ltd.

99.98

Fund management

75.00

75.00

Non-life insurance broker

100.00

100.00

Hire purchase

100.00

100.00

Services

100.00

100.00

-

100.00

100.00

100.00

Liquidated Training services Non-performing asset management

100.00

100.00

Life insurance

100.00

100.00

SCIB Service Co., Ltd.

Services

100.00

100.00

Ratchthani Leasing Plc.

Hire-purchase and leasing business

65.18

65.18

Leasing business

100.00

100.00

Siam City Life Assurance Plc.

Subsidiary indirectly held by the Bank National Leasing Co., Ltd.

Annual Report 2012 Thanachart Bank Public Company Limited

79


b)

Total assets and net operating income of the subsidiaries that have significant impact to and are included in the consolidated financial statements as at 31 December 2012 and 2011 and for the years then ended, after eliminating significant intercompany transactions, are as follows: (Unit: Million Baht) Net operating income for the years

Total assets 2011

2012 SCIB Plc.

c)

2012

2011

7

-

3

9,693

Thanachart Life Assurance Plc.

27,301

20,402

2,862

1,964

Ratchthani Leasing Plc.

18,836

12,033

1,091

171

Siam City Life Assurance Plc.

12,465

11,195

392

(89)

TS Asset Management Co., Ltd.

9,959

11,361

814

296

Thanachart Insurance Plc.

8,345

7,176

2,431

1,975

Thanachart Securities Plc.

6,898

3,877

1,429

1,284

In October 2011, SCIB transferred investment in 437,250,000 ordinary shares of Ratchthani Leasing Plc. to Thanachart Bank for a consideration of Baht 536 million, in accordance with the terms of the entire business transfer agreement. As a result, the Bank’s interest in Ratchthani was 48.35 percent. On 1 November 2011, the Bank purchased 437,486,500 additional shares at Baht 1.52 per share, or for a total of Baht 665 million, and as a result the Bank’s shareholding increasing to 65.18 percent of the total shares of Ratchthani Leasing Plc. in issue. The investment was therefore treated as investment in subsidiary. The consolidated statement of comprehensive income for the year ended 31 December 2011 thus included the operating results of such company from 1 November 2011 (the date that Thanachart Bank assumed control) to 31 December 2011.

d)

The consolidated statement of comprehensive income for the year ended 31 December 2011 included the operating results of Siam City Asset Management Co., Ltd. from 1 January 2011 until 30 May 2011 (the date of disposal of the investment). Such subsidiary had total income of Baht 31 million and net income of Baht 3 million. A gain on disposal of Baht 26 million was recognised in the consolidated financial statements.

80

Annual Report 2012 Thanachart Bank Public Company Limited


e)

The consolidated statement of comprehensive income for the year ended 31 December 2011 included the operating results of SCIB Securities Co., Ltd. from 1 January 2011 until 31 August 2011 (the date of disposal of the investment). This subsidiary had total income of Baht 114 million and net income of Baht 87 million. A gain on disposal of Baht 40 million was recognised in the consolidated financial statements.

f)

All subsidiaries are fully consolidated as from the acquisition, being the date on which the Bank obtains control, and continue to be consolidated until the date when such control ceases.

g)

The financial statements of the subsidiaries are prepared for the same reporting period as the Bank, using the same significant accounting policies. In case where there are different accounting policies the Bank has adjusted the effect of these in the consolidated financial statements.

h)

The outstanding balances and significant intercompany transactions between the Bank and its subsidiaries have been eliminated from the consolidated financial statements. The investments in subsidiaries as recorded in the Bank’s and subsidiaries’ books of accounts have been eliminated against equity of the subsidiaries.

i)

Non-controlling interests represent the portion of profit or loss and net assets of the subsidiaries that are not held by the Bank, and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position.

2.3

The separate financial statements, which present investments in subsidiary and associated companies under the cost method, have been prepared solely for the benefit of the public.

3.

New accounting standards not yet effective The Federation of Accounting Professions issued the following new/revised accounting standards that are effective for fiscal years beginning on or after 1 January 2013. Accounting standards: TAS 12

Income Taxes

TAS 20 (revised 2009)

Accounting for Government Grants and Disclosure of Government Assistance

TAS 21 (revised 2009)

The Effects of Changes in Foreign Exchange Rates

Financial Reporting Standard: TFRS 8

Operating Segments

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Accounting Standard Interpretations: SIC 10

Government Assistance - No Specific Relation to Operating Activities

SIC 21

Income Taxes - Recovery of Revalued Non-Depreciable Assets

SIC 25

Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

The management of the Bank and its subsidiaries believes that these accounting standards will not have any significant impact on the financial statements for the year when they are initially applied, except for TAS 12 Income Taxes. TAS 12 Income Taxes This accounting standard requires an entity to identify temporary differences, which are differences between the carrying amount of an asset or liability in the accounting records and its tax base, and to recognise deferred tax assets and liabilities under the stipulated guidelines. The management of the Bank and its subsidiaries expect the adoption of this accounting standard to have the effect of increasing the brought-forward of the equity attributable to the Bank (retained earnings and other components of equity) in the consolidated financial statements of the year 2013 by Baht 1,576 million and decreasing the comprehensive income attributable to the Bank for the year 2012 by Baht 54 million (separate financial statements: increasing brought-forward of the equity of the year 2013 by Baht 1,187 million and decreasing comprehensive income for the year 2012 by Baht 93 million). In addition, the Federation of Accounting Professions has issued Notification No. 30/2555 34/2555, published in the Royal Gazette on 17 January 2013, mandating the use of accounting treatment guidance and accounting standard interpretations as follows. Effective date Accounting Treatment Guidance for Transfers of Financial Assets

1 January 2013

Accounting Standard Interpretation: SIC 29

Service Concession Arrangements: Disclosures

1 January 2014

Financial Reporting Standard Interpretations: TFRIC 4

Determining whether an Arrangement contains a Lease

1 January 2014

TFRIC 12

Service Concession Arrangements

1 January 2014

TFRIC 13

Customer Loyalty Programs

1 January 2014

The management of the Bank and its subsidiaries is evaluating the first-year impact to the financial statements of the accounting treatment guidance and accounting standard interpretations and has yet to reach a conclusion.

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4.

Significant accounting policies

4.1

Revenue recognition a)

Interest and discounts on loans Interest on loan is recognised as income on an accrual basis, based on the amount of principal outstanding. Interest on hire purchase and financial lease is recognised on the effective interest rate. For loans on which principal or interest payments have been defaulted for more than three months past the due date, the Bank and its subsidiaries cease accrual of interest income, and accrued interest already recorded is reversed from the Bank and its subsidiaries’ accounts. Interest is then recognised as income on a cash basis until settlement of such overdue balance has been received from the debtors. Interest income on restructured loans is recognised as income on an accrual basis, with reference to the interest rate stipulated in the agreements, with the exception of interest on loans that are subject to monitoring for compliance with restructuring conditions, which the Bank and its subsidiaries recognise as income on a cash basis until the receivable is able to comply with the restructuring conditions for a period of no less than three months or three installments, whichever is longer. The Bank and its subsidiaries recognise interest income on investments in purchased/transferred loans for which loan repayment is received during the year based on the effective yield rate of the portfolio multiplied by the new book value (acquisition cost) of the outstanding balances of receivables. After the restructuring, interest income is recognised by the effective interest rate method for those receivables from which loan repayment was received during the year. Interest or discounts already included in the face value of notes receivable or loans are recorded as deferred interest and taken up as income evenly throughout the term of the notes or loans or in proportion of debt repayment. Interest income received in advance on hire purchase represents discounted on interest given to debtors by dealers, is recognised based on the effective interest method, in the same manner as interest income on hire purchase receivables.

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b)

Interest and dividends on investments Interest on investments is recognised as income on an accrual basis based on the effective interest rate. Dividends are recognised as income when the right to receive the dividends is established.

c)

Brokerage fee income Brokerage fees on trading of securities and derivatives are recognised as income on the transaction date.

d)

Interest on margin loans for purchase of securities Interest on margin loans for purchases of securities is recognised as income over the term of the loans based on the amount of principal outstanding. The subsidiary company ceases accruing interest for certain loans that fall under the conditions set by the Securities and Exchange Commission (“SEC�).

e)

Gains (losses) on investments and derivatives Gains (losses) on investments and derivatives are recognized as income/ expenses on the transaction date.

f)

Fees and service income Fees and service income are recognised as income on an accrual basis.

g)

Insurance/life insurance premium income Non-life insurance contract Premium income consists of direct premium and reinsurance premium less premium of cancelled policies and premiums refunded to policy holders, and adjusted with unearned premium reserve. Direct premium income is recognised on the date the insurance policy comes into effect. For long-term insurance policies with coverage periods of longer than 1 year, related premium are recorded as unearned items, and recognised as income over the coverage period. Reinsurance premium income is recognised as income when the reinsurer places the reinsurance application or the statement of accounts. Life insurance contract Premium income is recognised as income on the date the insurance policy comes into effect, after deducting premium ceded and refunded. For renewal policy, premium income is recognised as income when the premium is dued, only if the policy is still in force at the year -end date.

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4.2

Expenses recognition a)

Interest expenses Interest expenses are charged to expenses on an accrual basis. Interest on notes payable included in the face value is recorded as deferred interest and amortised to expenses evenly throughout the term of the notes.

b)

Commission and direct expenses charged on hire purchase/financial leases For hire purchase/financial lease contracts originating on or after 1 January 2007, initial direct expenses at the inception of a hire purchase/financial lease contract (i.e. commission expenses and stamp duty expenses) are to be deferred and amortised using the effective interest method, with amortisation deducted from interest income throughout the contract period, in order to reflect the effective rate of return on the contracts. Unearned income on hire purchase/financial leases is presented net of commission expenses and initial direct cost on the inception of the contracts.

c)

Fees and service expenses Fees and service expenses are recognised as expenses on an accrual basis.

4.3

Investments Investments in securities held for trading are stated at fair value. Changes in the fair value of the securities are recorded in profit or loss in the statements of comprehensive income. Investments in available-for-sale securities are stated at fair value. Changes in the fair value of these securities are recorded in other comprehensive income in the statements of comprehensive income, and will be recognised in profit or loss when the securities are sold. Investments in held-to-maturity debt securities are recorded at amortised cost. Premiums/ discounts on debt securities are amortised/accreted by the effective rate method with the amortised/accreted amount presented as an adjustment to the interest income. Investments in non-marketable equity securities, which are classified as other investments, are stated at cost net of allowance for impairment (if any). The fair value of marketable securities is based on the latest bid price of the last working day of the year. The fair value of debt securities is determined using the yield rates quoted by the Thai Bond Market Association, other markets, or yield rate of government bond adjusted by an appropriate risk factor. The fair value of unit trusts is determined from their net asset value.

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The fair value of embedded derivatives investments which no active market or no available market value was determined using an internal model. The gains/losses arising from revaluation are recognised in profit or loss. This method of measurement is in compliance with the principles stipulated by the BOT. The Bank and its subsidiaries recognised loss on impairment (if any) of available-for-sale securities, held-to-maturity debt securities and other investments in part of profit or loss in the statements of comprehensive income. In the event of the Bank and its subsidiaries’ transfer investments to another category, the investments are valued at their fair valued prevailing on the transfer date. Differences between the carrying amount of the investments and their fair value on that date are recorded as profit or loss in the statements of comprehensive income or surplus (deficit) from revaluation of investments, which is presented as a separate item in equity and amortised over the remaining period to maturity of the debt securities, depending on the type of investment which is reclassified. On disposal of an investment, the difference between net disposal proceeds and the carrying amount of the investment is recognised as income or expenses in part of profit or loss in the statement of comprehensive income. In case of disposal partial of the investment, the carrying value per share used to calculate the cost of the portion sold is determined using the weighted average method. 4.4

Investments in receivables purchased and allowance for impairment Investments in receivables purchased are presented at their acquisition cost net of allowance for impairment (if any). Loss on impairment is recognised as an expense in part of profit or loss in the statements of comprehensive income. In case that the receivables purchased enter into troubled debt restructuring agreements, they are transferred to loans and presented at fair value. The fair value is determined based on the outstanding balance of investments as at the transfer date or as at the date of restructuring. Allowance for impairment of investments in receivables purchased is determined based on the fair value, with reference to the collateral value.

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4.5

Investments in subsidiary and associated companies Investments in subsidiary and associated companies in the separate financial statements are accounted for under the cost method net of allowance for impairment (if any). Loss on impairment is recognised as expenses in part of profit or loss in the statements of comprehensive income. Investments in associated companies in the consolidated financial statements are accounted for under the equity method. Under this method, investments are initially recorded at acquisition cost and are adjusted to reflect the attributable shares of the net income from the operations of the associated companies, in proportion to the investment.

4.6

Loans Loans are stated at the principal balances, excluding accrued interest receivable, except for overdrafts which are presented at the principal balances plus accrued interest receivable. Unrecognised deferred income and discounts on loans are deducted from the loan balances. Hire purchase receivables and financial lease receivables are stated at the contract value of the hire purchase receivables and financial lease receivables net of unearned income, which is presented after netting commission expenses and initial direct cost on the inception of the contracts. Securities and derivatives business receivables comprise the net balances of securities business receivable and derivatives business receivables. Securities business receivable comprises receivable balances of credit balance accounts (for which the securities purchased are used as collateral), securities borrowing and lending receivables and guarantee deposit receivables (which comprise cash placed as guarantee for borrowers of securities or Thailand Securities Depository) as well as other receivables, such as overdue amounts in cash accounts and securities receivables which are under legal proceedings, are undergoing restructuring, or are being settled in installments. The receivable balance of cash accounts is presented as “Receivable from purchase and sale of securities�.

4.7

Allowances for doubtful accounts a)

Allowance for doubtful accounts for loans The Bank and its subsidiary companies that operate in asset management business provide allowance for doubtful accounts in accordance with the Notifications of the BOT and adjust these by the additional amount which is expected not to be collectible based

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on an evaluation of the current status of the debtors, taking into consideration the recovery risk and the value of collateral. Increase (decrease) in an allowance for doubtful accounts is recognised as an expense during the year. For loans, excluding hire purchase receivable - personal consuming of the Banks, the Bank and its subsidiary companies set provision for normal loans (including restructured receivables) and special mention loans at minimum rates of 1% and 2%, respectively, of the loan balances (excluding accrued interest receivable) net of collateral value. For non-performing loans, provision is set at a rate of 100% of the debt balance remaining after deducting the present value of expected future cash flows from debt collection or the present value of expected cash flows from collateral disposal, based on the use of a discount rate and assumptions as to the time needed to dispose of the collateral, in accordance with the BOT’s guideline. However, non-performing hire purchase receivables and financial lease receivables are treated as uncollateralised. Effective 1 January 2012, for hire purchase receivable - personal consuming of the Bank, the Bank sets provision using the collective approach method, which classifies groups of receivable having similar credit risk characteristics and considers historical loss experience of loans which is calculated based on the probability of default and a percentage of the loss given default. Furthermore, the Bank has set aside an additional provision by taking into consideration the potential additional loss arising from changes in economic circumstances that may impact the ability to pay of certain borrowers. This methodology, its parameters and assumptions have been reviewed in detailed and will be monitored on an ongoing basis for continued applicability (2011: The Bank set aside provision for hire purchase receivables - personal consuming that were classified as normal loans and special mention loans at minimum rates of 1% and 2%, respectively, of the loan balances net of collateral value. For non-performing loans, provision was set at a rate of 100% of the debt balance without deducting the collateral value). b)

Subsidiary engaged in securities business has provided an allowance for doubtful accounts based on a review of debtors’ repayment capability, taking into consideration the risk of recovery and the value of collateral. An allowance is set aside for doubtful debts not fully covered by collateral and/or those which may not be fully recovered. Such debt classifications and provisions are made in accordance with the Notifications of the SEC.

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c)

Subsidiaries engaged in hire purchase and leasing businesses have provided allowance for doubtful accounts at percentages of the amount of principal outstanding net of unearned income, based on the number of months overdue (with reference to the classification of loans under BOT’s guidelines). Allowance for doubtful accounts is provided based on the loan balances after net of collateral value for receivables overdue no more than 3 months, while provided based on the loans balance without deducting collateral value for receivables overdue more than 3 months.

d)

Allowance for doubtful accounts for other receivables is set up based on the amount of debt that may not be collectible, determined from a review of the current status of the receivables as at the financial reporting date.

e)

The Bank and its subsidiaries write off receivables when they determine that such receivables may not be collectible. Amounts written off as bad debts or bad debt recovery are deducted from or added to the allowance for doubtful accounts.

4.8

Troubled debt restructuring In cases where the debt restructuring involves modifications of the terms, the fair value of the receivables after restructuring is based on the net present value of expected future cash flows, discounted by the market’s minimum interest rate for credit to large customers as at the date of the debt restructuring. The differences between the fair values of receivables as of the restructuring date and their previous book values is recorded in “Revaluation allowance for debt restructuring”, and recognised as an expense in part of profit or loss in the statements of comprehensive income in the restructuring period. The Bank and its subsidiaries review such revaluation allowance based on the net present value of future cash flows over the remaining period to maturity, recognising adjustments against impairment of loans accounts. In cases where the troubled debt restructuring involves the transfer of assets or equity, the Bank and its subsidiaries record the assets or equity interest received as a result of debt restructuring at their fair value (based on the value appraised by internal appraisers or external independent appraisers) providing this does not exceed the amount of principal legally claimable from the debtor (including interest of which recognition has ceased until the restructuring date). Any excess of the fair value of the assets over the book value is recognised as gain on restructuring or interest income in profit or loss in the statement of comprehensive income.

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Losses arising from debt restructuring through waivers of part of principal or recorded accrued interest receivable are recognised as loss in part of profit or loss in the statement of comprehensive income when incurred. 4.9

Recognition and amortisation of customers’ assets Assets which customers have placed with the subsidiary company for securities trading, in term of cash accounts and credit balance accounts, including amounts which customers have placed as security for derivative trading, are recorded as assets and liabilities of the subsidiary company for internal control purpose. As at the reporting date, the subsidiary company write off those amounts which there are no guarantee obligations from both assets and liabilities and present only those assets which belong to the subsidiary company.

4.10 Property foreclosed Property foreclosed is stated at the lower of cost (fair value with reference to appraisal value, providing this does not exceed the legally claimable amount of debt) or net realisable value, which is determined with reference to the latest appraisal value less estimated selling expenses, adjusts these in accordance with the BOT’s guideline and taking into consideration the type and the nature of the assets. Gains on disposal of property foreclosed are recognised as income in part of profit or loss in the statements of comprehensive income on the disposal date, unless the purchase is made with a loan from the Bank. In such cases, gains are recognised in accordance with the BOT’s guideline. Losses on disposal and impairment losses are recognised as expenses in part of profit or loss in the statement of comprehensive income. 4.11 Land, premises and equipment and depreciation a)

Land and assets under installation are stated at cost, and depreciation is not provided.

b)

Premises and equipment are stated at cost less accumulated depreciation and allowance for impairment (if any). Depreciation is calculated by reference to their cost on a straight-line basis over the following estimated useful lives: Buildings

-

20 - 30

years

Buildings improvement

-

5 - 10

years

Furniture, fixtures and equipment

-

3 - 10

years

Motor vehicles

-

5

years

Depreciation is included in determining income.

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c)

Land, premises and equipment are derecognised upon disposal or when no future economic benefits are expected from their use or disposal. Any gain or loss arising on disposal of these assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the statement of comprehensive income.

4.12 Intangible assets and amortisation Intangible assets acquired through business combination are initially recognised at their fair value on the date of business acquisition while intangible assets acquired in other cases are recognised at cost. Following the initial recognition, the intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses (if any). The Bank and its subsidiaries amortised intangible assets with finite lives on a systematic basis over the economic useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method of such intangible assets are reviewed at least at each financial year end. The amortisation expense and loss on impairment are recognised as expenses in part of profit or loss in the statement of comprehensive income. The intangible assets with finite useful lives have useful lives of approximately 3 - 10 years. No amortisation for computer software under development. 4.13 Leasehold rights Leasehold rights are stated at cost less accumulated amortisation. Leasehold rights are amortised on a straight-line basis over the lease periods and the amortisation amounts are recognised as expenses in part of profit or loss in the statement of comprehensive income. 4.14 Business combination and goodwill Business combination accounted for under purchase method. Goodwill is initially recorded at cost, which equals the excess of the cost of business combination over the fair value of the net assets acquired. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or when circumstances indicate that the carrying value may be impaired.

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4.15 Receivables from/payable to Clearing House Receivables from/payable to Clearing House comprise the net balance receivable/payable in respect of securities and derivatives trades. These include amounts pledged with the Derivatives Clearing House as security for derivatives trading. 4.16 Securities purchased under resale agreements/securities sold under repurchased agreements The Bank enters into agreements with private entities to purchase/sell securities whereby there is an agreement to resell/repurchase the securities at certain dates and at fixed price. Amounts paid for the securities purchased are presented as assets under the caption of interbank and money market items or loans, depending on the counter party, and the underlying securities are treated as collateral to such receivables. The securities sold under repurchase agreement at the amounts received are presented as liabilities under the caption of interbank and money market items and the underlying securities are treated as collateral. 4.17 Premium receivable and allowance for doubtful accounts Premium receivable from both direct and reinsurance is stated at its net realisable value. Subsidiary companies provide an allowance for doubtful accounts based on the estimated loss that may be incurred in collection of the premium due, on the basis of collection experiences and a review of current status of the premium receivables as at the end of reporting period. 4.18 Reinsurance assets and liabilities a)

Reinsurance assets represent amounts due from reinsurers (consisting of claims receivable and various other items receivable for reinsurers excluding reinsurance premium receivable less allowance for doubtful accounts), amounts deposited on reinsurance and insurance reserve refundable from reinsurers. Insurance reserve refundable from reinsurers is estimated based on the proportion of premium reserve and loss reserve made in accordance with the law regarding insurance reserve calculation that has been reinsured.

b)

Amounts due to reinsurers are stated at the outstanding balances payable from reinsurance and amounts withheld on reinsurance. Amounts due to reinsurers consist of reinsurance premiums and other items payable to reinsurers.

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4.19 Premium reserve/life insurance premium reserve Non-life insurance contract Premium insurance reserve comprise with unearned premium reserve and unexpired risks reserve. a)

Unearned premium reserve Unearned premium reserve is calculated based on direct premium before deducting premium ceded as follows:

b)

Transportation (cargo), travelling accident with coverage periods of not over six-months

-

Others

-

100% of premium as from the date policy is effective, throughout the period of insurance coverage (2011: Unearned premium reserve for in marine and transportation is calculated from net premium written for the last ninety days, and for travelling accident is calculated from net premium written for the last thirty days) Monthly average basis (the one-twenty fourth basis)

Unexpired risks reserve Unexpired risks reserve is the reserve for the future claims that may be incurred in respect of in-force policies. Unexpired risks reserve is set aside using an actuarial method, at the best estimate of the claims that are expected be incurred during the remaining period of coverage, based on historical claims data.

As at the end of the reporting period, the subsidiary compares the amounts of unexpired risks reserve with the unearned premium reserve, and if unexpired risks reserve is higher than unearned premium reserve, the difference is recognised as unexpired risks reserve in the financial statements. Life insurance contract Life assurance policy reserve represents the accumulated total liabilities for estimated future claims under all policies in force as at the financial statement date. Subsidiaries determine life assurance policy reserve under long-term policies by using the higher of the net level premium valuation method (NPV) and the gross premium valuation method (GPV).

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Life assurance policy reserve under NPV method is a type of actuarial method with the main assumptions used relating to mortality rate, morbidity rate, longevity and discount rates. Calculation of life assurance policy reserve under GPV method is another type of actuarial method with main assumptions used relating to lapse rate or surrender rate, selling and administrative expenses, mortality and morbidity rate, discount rates and non-guaranteed dividend rate. This calculation method is in compliance with the bases stipulated in the Office of Insurance Committee (“OIC”)’s notification regarding valuation of assets and liabilities of life insurance company. 4.20 Loss reserve and outstanding claims/Benefits payment to life policy Non-life insurance contract Outstanding claims are recorded at the actual amount to be paid. Loss reserve is recorded upon the receipt of the claims advice from the insured based on the number of claims notified by the insured and estimates made by a subsidiary’s management. The estimated value of losses is limited to not more than the sum insured of the related insurance policies. In addition, the subsidiaries set up additional reserve for incurred but not reported (IBNR) claims using an actuarial method based on a best estimate of claims which are expected to be paid in the future for losses occurring before or as at the reporting date, including both reported and unreported claims, and net of recorded claims. Life insurance contract Benefits paid under life policies are provided for upon receipt of the claims advices from the insured or in accordance with the conditions of the policy. 4.21 Long-term leases Leases that transfer substantially all the risks and rewards of ownership to the Bank and its subsidiaries are classified as financial leases. Financial leases are capitalised at the lower of the fair value of the leased assets and the present value of the minimum lease payments. The outstanding rental obligations, net of finance charges, are included in other payables, while the interest element is charged to profit or loss in the statement of comprehensive income over the lease period. Assets acquired under finance leases are depreciated over their estimated useful lives.

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Leases of assets which do not transfer substantially all the risks and rewards of ownership are classified as operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. 4.22 Financial derivatives The Bank and its subsidiaries have entered into derivative financial instruments in order to manage risk of the Bank and its subsidiaries and in response to customer needs. Financial derivative contracts which were originated for trading purposes are recorded as offbalance items. Gains or losses arising from changes in the fair value of the contracts are recognised as part of profit or loss in the statement of comprehensive income. The fair values of the contracts are based on the quoted market prices. If the fair value of financial derivatives cannot be determined with reference to market price, it is determined using valuation techniques and models, in which the variables used are derived from observable markets factors. Other financial derivative contracts (forward foreign currency contracts, interest rate swap contracts and cross currency and interest rate swap contracts) which were not originated for trading purposes are recorded as off-balance items, and presented on an accrual basis. Foreign currency components are translated at the year-end exchange rate, in the same manner as the hedged items, with unrealised gains or losses on translation recognised as part of profit or loss in the statement of comprehensive income. Interest rate components are presented on an accrual basis, in the same manner as the hedged assets or liabilities, with gains or losses recorded to interest income and interest expense over the terms of the contracts. Receivables and payables under foreign exchange contracts are presented at the net amount in the statement of financial position. 4.23 Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by, the Bank and its subsidiaries, whether directly or indirectly, or which are under common control with the Bank and its subsidiaries. They also include associated companies and individuals which directly or indirectly own a voting interest in the Bank and its subsidiaries that give them significant influence over the Bank and its subsidiaries, key management personnel, directors and officers with authority in the planning and direction of the Bank’s and its subsidiaries’ operations.

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4.24 Impairment of assets At the end of each reporting date, the Bank and its subsidiaries assess whether there is an indication that an asset may be impaired. The Bank and its subsidiaries realise loss on impairment when the asset’s recoverable amount is less than the book value. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. Fair value less costs to sell reflects the amount that the Bank and its subsidiaries could obtain at the financial reporting date from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The Bank and its subsidiaries recognise impairment losses as expenses in part of profit or loss in the statement of comprehensive income. In assessing impairment of asset other than goodwill, if there is any indication that previously recognised impairment losses may no longer exist or may have decreased, the Bank and its subsidiaries estimate the asset’s recoverable amount. A previously recognised impairment loss for assets other than goodwill is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The increased carrying amount of the asset attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in part of profit or loss in the statement of comprehensive income. 4.25 Employee benefits a)

Short-term employee benefits The Bank and its subsidiaries recognised short-term employee benefits, such as salary, wages, bonuses, contributions to the social security fund, and vacation, as expenses when incurred.

b)

Post-employment benefits (Defined contribution plans) The Bank, its subsidiaries and its employees have jointly established a provident fund. The fund is monthly contributed by employees and by the Bank and its subsidiaries. The fund’s assets are held in a separate trust fund, and the Bank and its subsidiaries’ contributions are recognised as expenses when incurred.

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c)

Post-employment benefits (Defined benefit plans) The Bank and its subsidiaries have obligations in respect of the severance payments it must make to employees upon retirement under labor law. The Bank and its subsidiaries treat these severance payment obligations as a defined benefit plan. The obligation under the defined benefit plan is determined by a professionally qualified independent actuary, using the projected unit credit method. Actuarial gains and losses arising from post employment benefits are recognised immediately in profit or loss.

4.26 Foreign currencies Foreign currency transactions are translated into Baht at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies and commitment outstanding on the financial reporting date have been translated into Baht at the rates ruling at the reporting date. Exchange gains and losses arising from trading or translation of foreign currencies are included in determining income. 4.27 Income tax Income tax is provided in the accounts at the amount expected to be paid to the taxation authorities, based on taxable profits determined in accordance with tax legislation. 4.28 Provisions Provisions are recognised when the Bank and its subsidiaries have a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 5.

Significant accounting judgments and estimates The preparation of financial statements in conformity with Thai Financial Reporting Standards at times requires management to make subjective judgments and estimates regarding matters that are inherently uncertain. These judgments and estimates affect reported amounts and disclosures; and actual results could differ from these estimates. Significant judgments and estimates are as follows:

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5.1

Recognition and derecognition of assets and liabilities In considering whether to recognise or to derecognise assets or liabilities, the management is required to make judgment on whether significant risk and rewards of those assets or liabilities have been transferred, based on their best knowledge of the current events and arrangements.

5.2

Allowance for doubtful accounts for loans and allowance for impairment of investment in receivables Allowance for doubtful accounts for loans and allowance for impairment of investment in receivables are intended to adjust the value of loans for probable credit losses. The management uses the BOT’s and SEC’s regulations regarding the provision of allowance for doubtful accounts and judgments to estimate losses on outstanding loans when there is any doubt about the borrower’s capability to repay the principal and/or the interest. The allowances for loan losses are determined through a combination of specific reviews, probability of default, value of collateral and current economic conditions.

5.3

Allowance for impairment of investments in securities The Bank and its subsidiaries review an impairment of investments in securities when indication of impairment exists. The determination of what is indication of impairment requires the management’s judgment.

5.4

Fair value of financial instruments In determining the fair value of financial instruments that are not actively traded and for which quoted market prices are not readily available, the management exercised judgment, using a variety of valuation techniques and models. The input to these models is taken from observable markets, and includes consideration of liquidity, correlation and longer-term volatility of financial instruments.

5.5

Allowance for impairment of property foreclosed The Bank and its subsidiaries assess allowance for impairment of property foreclosed when net realisable value falls below the book value. The management uses the BOT’s regulation and judgment to estimate impairment losses, taking into consideration the latest appraisal value, the type and the nature of the assets.

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5.6

Land, premises and equipment/Depreciation In determining depreciation of premises and equipment, the management is required to make estimates of the useful lives and salvage values of the premises and equipment, and to review these estimated useful lives and salvage values when there are any changes. In addition, the management assesses whether there are indicators of the impairment of land, premises and equipment, and record impairment losses in the period when it is determined that the recoverable amounts are lower than the carrying amounts. This requires judgments in terms of forecasting future revenues and expenses relating to the assets subject to the review.

5.7

Goodwill and intangible assets The initial recognition and measurement of goodwill and intangible assets, and subsequent impairment testing, require management to exercise judgment as to the recoverable amount to be generated by the asset, using the discounted cash flows method, and including the selection of a suitable discount rate in order to determine the present value of that cash flow. The estimated cash flows may differ as a result of competitive forces, or changes in revenue trends, cost structures, and the discount rate, industry circumstances or related market conditions.

5.8

Finance lease/Operating lease In determining whether a lease is to be classified as an operating lease or finance lease, the management is required to use judgment regarding whether significant risk and rewards of ownership of the leased asset has been transferred, taking into consideration terms and conditions of the arrangement.

5.9

Loss sharing from transfer of non-performing loans to TAMC In estimating losses arising from the transfer of non-performing loans to the Thai Asset Management Corporation (“TAMC�), the Bank uses the latest information received from TAMC and projections of the amounts expected to be received from the debtors or from debtors’ collateral value. The management uses judgment in determining the assumptions as to the percentage on the amount expected to be recovered from the debt restructuring agreement, or as to collateral value. The management considers these assumptions to be appropriate given the current available information and current situation.

Annual Report 2012 Thanachart Bank Public Company Limited

99


5.10 Unearned premium/Life insurance premium reserve Unexpired risk reserve is calculated under an actuarial method, which reflects the best estimate of losses expected to be incurred over the remaining period of the insurance. Life assurance policy reserve is calculated under an actuarial method, based on the best estimate at that time, which reflects current assumptions or assumption established at inception of the contract. Such reserve requires the management to exercise judgment in order to reflect the best estimates at that time. 5.11 Loss reserve and outstanding claims At each reporting date, subsidiaries estimate loss reserves and outstanding claims in two parts; loss incurred for which the claims advice has been received from the insured, and loss incurred but not yet reported (IBNR). The IBNR reserve is calculated using an international standard actuarial method. The main assumptions underlying these techniques relate to historical claims experience, including development of estimates of paid and incurred losses, average costs per claim, and claim numbers. Such estimates require the management to exercise judgment in order to reflect the best estimates available at that time. 5.12 Post-employment benefits under defined benefit plans Obligations under the defined benefit plan are determined by using actuarial technique. Such determination is made based on various assumptions, including discount rate, future salary increase rate, staff turnover rate, and mortality rate, based on their best knowledge of current situation. 5.13 Litigation and contingent liabilities The Bank and its subsidiaries have contingent liabilities as a result of litigation and contingent liabilities as a result of transfer of business and transfer of non-performing assets. The management has used judgment to assess of the results of the litigation, and in case where they believe that there will be no losses, they will not provide provisions and contingent liabilities.

100

Annual Report 2012 Thanachart Bank Public Company Limited


6.

Interbank and money market items (assets) (Unit: Million Baht) Consolidated financial statements 2011

2012 At call

Term

Total

At call

Term

Total

Domestic Bank of Thailand and Financial Institutions Development Fund Commercial banks Specialised financial institutions Other financial institutions Total Add: Accrued interest receivables Less: Allowance for doubtful accounts Total domestic items

8,282

2,000

10,282

5,492

2,000

7,492

1,106

20,414

21,520

549

8,518

9,067

68

29

97

39

8,238

8,277

300

23,634

23,934

197

22,618

22,815

9,756

46,077

55,833

6,277

41,374

47,651

10

43

53

-

11

11

(217)

(217)

-

(193)

(193)

9,766

45,903

55,669

6,277

41,192

47,469

244

15,478

15,722

1,449

13,470

14,919

50

-

50

119

-

119

Others

317

-

317

523

103

626

Total

611

15,478

16,089

2,091

13,573

15,664

Add: Accrued interest receivables

-

208

208

-

68

68

Less: Allowance for doubtful accounts

-

-

-

-

Foreign US Dollar Euro

Total foreign items Total

(3)

(3)

611

15,683

16,294

2,091

13,641

15,732

10,377

61,586

71,963

8,368

54,833

63,201

Annual Report 2012 Thanachart Bank Public Company Limited

101


(Unit: Million Baht) Separate financial statements 2011

2012 At call

Term

Total

At call

Term

Total

Domestic Bank of Thailand and Financial Institutions Development Fund

8,282

2,000

10,282

5,492

2,000

7,492

395

15,000

15,395

393

8,340

8,733

61

-

61

27

8,200

8,227

300

23,834

24,134

196

22,769

22,965

9,038

40,834

49,872

6,108

41,309

47,417

Add: Accrued interest receivables

-

17

17

-

9

9

Less: Allowance for doubtful accounts

-

(219)

(219)

-

Commercial banks Specialised financial institutions Other financial institutions Total

Total domestic items

(195)

(195)

9,038

40,632

49,670

6,108

41,123

47,231

244

15,478

15,722

1,449

13,470

14,919

50

-

50

119

-

119

Others

317

-

317

523

103

626

Total

611

15,478

16,089

2,091

13,573

15,664

Add: Accrued interest receivables

-

208

208

-

68

68

Less: Allowance for doubtful accounts

-

-

-

-

Foreign US Dollar Euro

Total foreign items Total

(3)

(3)

611

15,683

16,294

2,091

13,641

15,732

9,649

56,315

65,964

8,199

54,764

62,963

As at 31 December 2012, the Bank had loan to a subsidiary company, which was a financial institution, of Baht 200 million in the separate financial statements (2011: Baht 150 million). 7.

Derivatives As at 31 December 2012 and 2011, the notional amount and the fair value of trading derivatives, and the adjustments made on an accrual basis for banking book derivatives, were classified by type of risk as follow.

102

Annual Report 2012 Thanachart Bank Public Company Limited


(Unit: Million Baht) Consolidated financial statements 2012

2011

Fair value/Adjustment

Fair value/Adjustment

on an accrual basis Assets

Notional

Liabilities

amount*

on an accrual basis Assets

Notional

Liabilities

amount*

Type of risk Foreign exchange rate Derivatives for trading

766

674

77,561

858

820

63,491

Derivatives for banking book

316

19

27,038

-

1,706

31,788

493

490

101,254

64

60

5,957

-

-

26,100

-

-

3,967

Interest rate Derivatives for trading Derivatives for banking book Foreign exchange rate and interest rate Derivatives for trading Derivatives for banking book

18

6

1,595

29

9

2,212

584

13

10,650

585

291

15,445

-

4

54

-

-

641

2,177

1,206

244,252

1,536

2,886

123,501

Others Derivatives for trading Total

* Disclosed only in case that the Bank and its subsidiaries have an obligation to pay

(Unit: Million Baht) Separate financial statements 2012

2011

Fair value/Adjustment

Fair value/Adjustment

on an accrual basis Assets

Notional

Liabilities

amount*

on an accrual basis Assets

Notional

Liabilities

amount*

Type of risk Foreign exchange rate Derivatives for trading

766

674

77,579

854

811

63,491

Derivatives for banking book

316

19

27,038

-

1,706

31,788

493

490

101,254

64

60

5,957

-

-

26,100

-

-

3,667

18

6

1,595

29

9

2,212

584

13

10,650

585

291

15,445

2,177

1,202

244,216

1,532

2,877

122,560

Interest rate Derivatives for trading Derivatives for banking book Foreign exchange rate and interest rate Derivatives for trading Derivatives for banking book Total

* Disclosed only in case that the Bank has an obligation to pay

Annual Report 2012 Thanachart Bank Public Company Limited

103


Derivatives for banking book are obligations under contracts which are not held for trading, and are measured on an accrual basis. Gain (loss) on exchange at the end of the year is presented under derivatives assets/derivatives liabilities. Accrued interest receivables (payables) per the contracts are recorded as receivables and payables in other assets/liabilities. Below are the proportions of trading derivatives transactions classified by counterparty, determined based on the notional amount, as at 31 December 2012 and 2011. Consolidated financial statements Counterparties

2012

2011

Percent Financial institutions

Investments

8.1

Classified by type of investments

Percent

2011

Percent

Percent

80.01

90.99

79.83

-

-

0.03

0.89

9.01

19.99

8.98

19.28

100.00

100.00

100.00

100.00

Third parties

8.

2012

90.99

Companies within Thanachart Group

Total

Separate financial statements

(Unit: Million Baht) Consolidated financial statements 2012

2011

2012

Cost/

Cost/

Fair value

2011

Cost/

Amortised

Amortised cost

Separate financial statements

Cost/

Amortised

cost

Fair value

cost

Amortised Fair value

cost

Fair value

Trading securities Government and state enterprises securities

5,745

5,643

10,508

10,479

Private debt securities

5,683

5,736

4,770

4,758

Foreign debt securities

620

628

642

637

16

16

34

38

12,064

12,023

15,954

15,912

1,638

1,639

3,174

3,179

35

35

1,661

1,660

620

628

642

637

-

-

-

-

2,293

2,302

5,477

5,476

Domestic marketable equity securities

Add (less): Allowance for change in value Net

104

(41) 12,023

Annual Report 2012 Thanachart Bank Public Company Limited

(42) 15,912

9 2,302

(1) 5,476


(Unit: Million Baht) Consolidated financial statements 2012

Separate financial statements

2011

2012

Cost/

Cost/

Cost/

Amortised

Amortised

2011 Cost/

Amortised

Amortised

cost

Fair value

cost

Fair value

cost

Fair value

cost

Fair value

55,220

55,433

40,877

41,003

49,044

49,247

38,431

38,554

Private debt securities

29,669

30,063

18,389

18,533

19,091

19,331

13,529

13,600

Foreign debt securities

11,485

11,746

25,516

25,425

11,485

11,746

25,516

25,425

7,062

7,691

7,483

7,983

5,860

6,119

6,099

6,241

103,436

104,933

92,265

92,944

85,480

86,443

83,575

83,820

Available-for-sale securities Government and state enterprises securities

Domestic marketable equity securities

Add: Allowance for change in value Less: Allowance for impairment Net

1,497

683 (4)

104,933

92,944

963

245

-

-

86,443

83,820

Held-to-maturity debt securities Government and state enterprises securities

21,756

22,495

26,876

27,771

12,734

13,108

17,642

18,096

Private debt securities

2,731

2,802

6,592

6,689

800

829

1,600

1,647

Foreign debt securities

-

-

1,500

1,488

-

-

1,500

1,488

Investment in receivables purchased

5

4

12

12

5

3

12

12

24,492

25,301

34,980

35,960

13,539

13,940

20,754

21,243

Less: Allowance for impairment Net

(1)

-

(1)

-

24,491

34,980

13,538

20,754

564

671

564

671

4,111

3,794

4,093

3,776

39

84

39

84

4,714

4,549

4,696

4,531

General investment Investment in property fund Domestic non-marketable equity securities Foreign non-marketable equity securities

Less: Allowance for impairment Net Total investment - net

(55)

(40)

(55)

(40)

4,659

4,509

4,641

4,491

146,106

148,345

106,924

114,541

Annual Report 2012 Thanachart Bank Public Company Limited

105


8.2

Classified by remaining period of debt securities (Unit: Million Baht) Consolidated financial statements 2012

2011

Due within

Due within

Less than

Over

1 year

1 - 5 years

28,698

26,463

955

Less than

5 years

Over

Total

1 year

1 - 5 years

5 years

59

55,220

20,031

20,828

18

40,877

20,074

8,640

29,669

1,557

14,836

1,996

18,389

2,647

7,290

1,548

11,485

19,021

6,495

-

25,516

32,300

53,827

10,247

96,374

40,609

42,159

2,014

84,782

72

626

170

868

35

103

41

179

32,372

54,453

10,417

97,242

40,644

42,262

2,055

84,961

2,883

13,383

5,490

21,756

5,157

15,659

6,060

26,876

Private debt securities

1,326

1,227

178

2,731

3,990

2,288

314

6,592

Foreign debt securities

-

-

-

-

1,500

-

-

1,500

Investment in receivables

2

3

-

5

8

4

-

12

4,211

14,613

5,668

24,492

10,655

17,951

6,374

34,980

-

-

-

-

-

-

4,210

14,613

5,668

24,491

10,655

17,951

6,374

34,980

36,582

69,066

16,085

121,733

51,299

60,213

8,429

119,941

Total

Available-for-sale securities Government and state enterprises securities Private debt securities Foreign debt securities Total Add: Allowance for change in value Total Held-to-maturity debt securities Government and state enterprises securities

Total Less: Allowance for impairment Total Total debt securities

106

(1)

Annual Report 2012 Thanachart Bank Public Company Limited

(1)


(Unit: Million Baht) Separate financial statements 2012

2011

Due within

Due within

Less than

Over

1 year

1 - 5 years

22,945

26,099

575

5 years

Less than

Over

Total

1 year

1 - 5 years

5 years

-

49,044

18,399

20,014

18

38,431

16,966

1,550

19,091

975

12,554

-

13,529

2,647

7,290

1,548

11,485

19,021

6,495

-

25,516

26,167

50,355

3,098

79,620

38,395

39,063

18

77,476

70

585

49

704

32

71

-

103

26,237

50,940

3,147

80,324

38,427

39,134

18

77,579

1,785

10,949

-

12,734

4,938

12,704

-

17,642

Private debt securities

500

150

150

800

800

650

150

1,600

Foreign debt securities

-

-

-

-

1,500

-

-

1,500

Investment in receivables

2

3

-

5

8

4

-

12

2,287

11,102

150

13,539

7,246

13,358

150

20,754

-

-

-

-

-

-

2,286

11,102

150

13,538

7,246

13,358

150

20,754

28,523

62,042

3,297

93,862

45,673

52,492

168

98,333

Total

Available-for-sale securities Government and state enterprises securities Private debt securities Foreign debt securities Total Add: Allowance for change in value Total Held-to-maturity debt securities Government and state enterprises securities

Total Less: Allowance for impairment Total Total debt securities

8.3

(1)

(1)

As at 31 December 2012, the Bank and its subsidiaries have a revaluation deficit arising from transfers of investments in debt securities of Baht 9 million in the consolidated financial statements and Baht 4 million in the separate financial statements. These are presented in equity caption (2011: Revaluation deficit of Baht 3 million in the consolidated, and revaluation deficit of Baht 34 million in the separate financial statements).

8.4

Investments in securities in which the Bank and its subsidiaries hold not less than 10 percent of the equity of the investee As at 31 December 2012 and 2011, investments in companies which the Bank and its subsidiaries hold not less than 10 percent of the equity of the investee, but which are not treated as subsidiaries or associated companies, separated by industry as follow:

Annual Report 2012 Thanachart Bank Public Company Limited

107


(Unit: Million Baht) Separate financial statements

Consolidated financial statements 2011

2012 Banking and finance sector

2012

2011

1,440

761

549

600

311

-

311

-

Hotel

The investments in banking and finance sector as mentioned above include investments in unit trusts in which the Bank and its subsidiaries hold not less than 20 percent of the units issued. The Bank and its subsidiaries do not treat these investments as investments in subsidiaries or associates because the Bank and its subsidiaries do not have control or influence over the financial and operating policies of these funds, which are independently managed by fund managers in accordance with the details of each fund project, and are under the supervision of the SEC. The Bank and its subsidiaries therefore record them as available-for-sale or other investments, based on their investment objectives. Consolidated financial statements

Securities

2012

2011

2012

2011

Net book Percentage

Net book Percentage

Net book Percentage

Net book Percentage

value

of holding

value

of holding

value

of holding

value

of holding

Million

Percent

Million

Percent

Million

Percent

Million

Percent

Baht The Thai Business Fund 3 Sub Thawee Property Fund

Separate financial statements

Baht -

-

Baht

144

60.00

Baht -

-

144

60.00

-

-

36

56.00

-

-

36

56.00

278

67.33

278

67.33

278

67.33

278

67.33

61

27.79

62

27.79

-

-

-

-

-

-

50

22.63

-

-

-

-

SCB Foreign Fix Income Fund 1Y22

829

23.53

-

-

-

-

-

-

Hua Hin Property Fund

121

100.00

-

-

121

100

-

-

Business Strategic Fund Thanachart Long Term Fixed Income Fund Thanachart Fixed Income FIF 51

In addition, the investments in hotel sector mentioned above were investments received as a result of debt restructuring made by the Bank. Although the Bank holds 100 percent of shares in this company but does not treat these investments as investments in subsidiary because the Bank intends to hold these investments only temporarily, and has been granted permission by the BOT to maintain holdings in excess of the limit for no longer than 1 year.

108

Annual Report 2012 Thanachart Bank Public Company Limited


9.

Investments in subsidiary and associated companies

9.1

Separate financial statements As at 31 December 2012 and 2011, investments in subsidiary and associated company in the separate financial statements stated under the cost method, consist of investment in ordinary shares of the following companies: (Unit: Million Baht) Separate financial statements Value of investment Paid-up share

Percentage

under the

Dividend income

capital

of holding (Percent)

cost method

for the years

Company’s name 2012

2011

2012

2011

2012

2011

2012

2011

Subsidiary companies 21,128

21,128

99.

99.98

1,913

32,542

-

TS Asset Management Co., Ltd.

SCIB Plc.

2,000

2,000

100

100

2,000

2,000

-

260 -

Thanachart Securities Plc.

1,500

1,500

100

100

1,858

1,858

270

345

Ratchthani Leasing Plc.

1,342

1,342

65.

65.18

1,201

1,201

70

-

Thanachart Insurance Plc.

740

740

100

100

867

867

-

300

Siam City Life Assurance Plc.

700

700

100

100

761

761

-

-

Thanachart Life Assurance Plc.

3,285

500

100

100

3,721

936

2,785

250

Thanachart Group Leasing Co., Ltd.

360

360

100

100

400

400

94

203

Thanachart Broker Co., Ltd.

100

100

100

100

104

104

75

65

Thanachart Fund Management Co., Ltd.

100

100

75

75

97

97

67

97

-

10

-

100

-

13

-

-

10

10

100

100

5

5

1

-

Thanachart Legal and Appraisal Co., Ltd. SCIB Service Co., Ltd. Thanachart Management and Services Co., Ltd.

6

6

100

100

6

6

-

-

Thanachart Training and Development Co., Ltd.

5

5

100

100

5

5

15

12

12,938

40,795

3,377

1,532

-

-

-

40,795

3,377

1,532

Total investments in subsidiary companies

(5)

Less: Allowance for impairment Total investments in subsidiary companies -

12,933

net Associated companies MBK Plc. Siam Samsung Life Insurance Co., Ltd. Total investments in associated companies

1,886

-

4.

-

821

-

21

-

-

500

-

25

-

47

-

-

821

47

21

-

13,754

40,842

3,398

1,532

Total investments in subsidiary and associated companies

In March 2012, SCIB Plc. returned capital to its shareholders at Baht 14.50 per share, the Bank therefore recognised Baht 30,629 million of this amounts by deducting it against the value of its investment.

Annual Report 2012 Thanachart Bank Public Company Limited

109


In October 2012, Thanachart Life Assurance Plc. issued additional share capital of 278.5 million shares at Baht 10 each. The Bank exercises its right to purchase such new shares. As a result, the Bank has investment in Thanachart Life Assurance Co., Ltd. of Baht 3,721 million. In additions, the Extraordinary meeting of Thanachart Life’s shareholders approved the payment of an interim dividend totally Baht 2,785 million, the Bank therefore recognise such dividend as income in the statement of comprehensive income for the year. On 5 November 2012, the Bank signed a Share Purchase Agreement with Prudential Life Insurance (Thailand) Plc. (“the Buyer”) to sell the common shares of Thanachart Life Assurance Public Company Limited (“Thanachart Life Assurance”) held by the Bank, which represented 100% of the total issued and paid-up shares. Under this agreement, share payment and transfer will only occur after fulfillment of certain conditions such as that buyer has to obtain approval from the Office of Insurance Commission in accordance with the Life Insurance Act., and both party have to sign the Exclusive Bancassurance Agreement specifying that Thanachart Bank acts as the distributor of Prudential Life’s products and services. The payment of the consideration and the transfer of the shares are expected to occur during the first quarter of 2013. At the date of Thanachart Bank transferring the shares to the buyer, the full amount of Baht 17,500 million will be paid by the buyer and also a postcompletion adjustment based on agreed terms to reflect the net asset value as at the completion date. A further payment of Baht 500 million is due 12 months after the completion date. This sale transaction will be recognised on the date that the Bank completes the transfer of the shares to the buyer and receives the above consideration. In September 2012, the Bank purchased investment in ordinary shares of MBK Plc. from its subsidiary company of 7,684,200 shares, or 4.07 percent interest in such company, of Baht 821 million. Such purchase price was reference from market rate. Since the Bank, its parent company and its subsidiaries have significant influence to such company, the Bank therefore classified such investment as investment in an associated company. 9.2

Consolidated financial statements As at 31 December 2012 and 2011, investments in associated companies in the consolidated financial statements consist of investments in ordinary shares of the following companies which operate in Thailand:

110

Annual Report 2012 Thanachart Bank Public Company Limited


(Unit: Million Baht) 2012

Company’s name

Paid-up share

Percentage

capital

of holding

Value of investment Cost method

Equity method

Dividend

Share of

income

income(loss)

for the years

for the years

MBK Plc. (operating in property rental, hotel and services business)

1,886

9.90

984

1,621

98

-

-

-

984

1,621

98

168

Siam Samsung Life Insurance Co., Ltd. (operating in life insurance business)

-

-

(25)

Total investments in associated companies

143

(Unit: Million Baht) 2011

Company’s name

Paid-up share

Percentage

capital

of holding

Value of investment Cost method

Equity method

Dividend

Share of

income

income(loss)

for the years

for the years

MBK Plc. (operating in property rental, hotel and services business)

1,886

9.90

984

1,389

93

132

500

25.00

104

34

-

(46)

Siam Samsung Life Insurance Co., Ltd. (operating in life insurance business) Siam City Insurance Co., Ltd. (disposed during the year 2011)

-

-

-

-

10

(8)

-

-

-

-

12

78

1,088

1,423

115

156

Ratchthani Leasing Plc. (transfer to investment in subsidiary during the year 2011) Total investments in associated companies

The Bank and its subsidiaries classified investment in MBK Plc. as investments in an associated company since the Parent company, the Bank and its subsidiaries had significant influence in that company. In March 2012, Siam Sumsung Life Insurance Co., Ltd. issued additional share capital but the Bank did not exercise its right to purchase the new shares. As a result, the Bank’s shareholding decreased from 25 percent to 19.23 percent of the total shares in issue and the investment therefore changed from investment in an associated company to general investment. The value of the investment on the date of the change is treated as the new cost of investment. In August 2011, SCIB disposed of all of investments in ordinary shares of Siam City Insurance Co., Ltd., and in October 2011, the Bank received the transfer of shares in Ratchthani Leasing Plc. (“THANI”) from SCIB, treating it as investment in an associated company. In November

Annual Report 2012 Thanachart Bank Public Company Limited

111


2011, the Bank also purchased additional new shares from THANI, and the Bank’s shareholding therefore increased from 48.35 percent to 65.18 percent, with the status of Ratchthani Leasing Plc. thus changing from an associated company to a subsidiary company. 9.3

Summarised financial information of associated companies a)

Summarised financial information of MBK Plc. as at 30 September 2012 and 2011 and for the years then ended are as follows: (Unit: Million Baht)

Paid-up share capital

Total assets 30 September

30 September 2012

2011

1,886

1,886

Total liabilities

2012 30,499

30 September

2011 27,409

Total income

Income

for the years ended

for the years ended

30 September

30 September

2012

2011

2012

2011

2012

2011

14,161

13,916

8,953

8,582

1,692

1,338

The share of income of MBK Plc. recognised in the current period is determined based on financial statements of MBK Plc. prepared for a different period, as a result of limitations on the availability of information. The financial information used was based on the statements of financial position as at 30 September 2012 and 2011 and the income statements for the years then ended prepared by the Bank’s management, with reference to the financial statements as reviewed by its auditor and adjusted for the effect of the differences in accounting policies. The Bank’s management believes that the net income for the year ended 30 September 2012 is not material different from that income for the year ended 31 December 2012. b)

Summarised financial information of Siam Samsung Life Insurance Co., Ltd., Siam City Insurance Co., Ltd. and Ratchthani Leasing Plc. as at 31 December 2012 and 2011 and for the years then ended are as follows: (Unit: Million Baht) Paid-up share Company’s name

Siam Samsung Life Insurance Co., Ltd.

capital

Total assets

Total liabilities

Total income

Income (loss)

for the years

for the years

2012

2011

2012

2011

2012

2011

2012

-

500

-

1,989

-

1,854

270

2011 1,170

2012

2011

(100)

(184)

Siam City Insurance Co., Ltd.

-

-

-

-

-

-

-

414

-

(17)

Ratchthani Leasing Plc.

-

-

-

-

-

-

-

913

-

160

Income, profit or loss and shares of profit (loss) from investments in associated companies were determined based on the financial statements of those companies for the period starting from the date that the Bank and/or the subsidiaries invested in such companies, in proportion to the shareholding interest, and until the Bank disposed of such investment or its status was changed.

112

Annual Report 2012 Thanachart Bank Public Company Limited


c)

As at 31 December 2012, the fair value of investment in an associated company (MBK Plc.) which is listed in the Stock Exchange of Thailand amounting to Baht 2,036 million in the consolidated financial statements and Baht 821 million in the separate financial statements (2011 : Baht 1,649 million in consolidated financial statements).

9.4

Cash flow information of an asset management company that is a subsidiary Cash flow information of TS Asset Management Company Limited, a subsidiary, for the years ended 31 December 2012 and 2011 is as follows: (Unit: Million Baht) 2012 Cash flows from operating activities Profit before income tax Adjustments to reconcile profit before income tax to net cash provided by (paid for) operating activities Reversal of bad debt and doubtful account Increase in allowance for impairment of property foreclosed Increase in allowance for impairment of other assets Interest income - net Cash received from interest income Cash paid for interest expense Cash paid for corporate income tax Income from operating activities before changes in operating assets and liabilities (loss) Decrease (increase) in operating assets Loans Property foreclosed Other assets Increase (decrease) in operating liabilities Interbank and money market items Provision Other liabilities Net cash flows used in operating activities Cash flows from investing activities Cash paid for purchase of equipment Cash received from interest on investment Net cash flows (used in) investing activities Cash flows from financing activities Paid-up share capital Net cash flows from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year

2011

2,201

321

(1,811) 15 6 (358) 619 (253) (571)

(221) 12 (188) 232 (83) -

(152)

73

2,749 439 38

(8,010) (3,093) (47)

(3,762) (23) (42)

9,822 123

(753)

(1,132)

(1) -

4

(1)

4

-

2,000

-

2,000

(754) 872

872 -

118

872

Annual Report 2012 Thanachart Bank Public Company Limited

113


10.

Loans to customers and accrued interest receivables

10.1 Classified by loan type (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

21,528

23,358

21,528

23,358

276,482

271,129

261,810

250,290

54,597

49,984

60,657

68,048

454,777

325,976

432,067

310,595

2,002

2,104

1,741

1,926

212

234

212

234

Loans to customers Overdrafts Loans Notes receivable Hire purchase receivables Financial lease receivables Others

(58,148)

(39,801)

(54,992)

(37,739)

751,450

632,984

723,023

616,712

1,066

963

1,030

925

752,516

633,947

724,053

617,637

- Individual Approach

(17,572)

(25,197)

- Collective Approach

(5,520)

Less: Deferred revenues Total loans to customers net of deferred revenues Add: Accrued interest receivables Total loans to customers net of deferred revenues and accrued interest receivables Less: Allowance for doubtful accounts 1)

BOT’s minimum requirement provision

2)

Excess provision

-

(9,049) (5,520)

(12,102) -

(511)

(396)

(499)

(383)

(344)

(382)

(344)

(382)

Less: Revaluation allowance for debt restructuring Loans to customers and accrued interest receivables - net

728,569

607,972

708,641

604,770

2,424

1,926

-

-

189

310

-

-

2,613

2,236

-

-

-

-

Securities business receivables Receivables under securities borrowing and lending business Other receivables Total securities business receivables Less: Allowance for doubtful accounts Securities business receivables - net

(172)

(305)

2,441

1,931

-

-

731,010

609,903

708,641

604,770

Loans to customers and accrued interest receivables - net

114

Annual Report 2012 Thanachart Bank Public Company Limited


10.2 Classified by currency and country (Unit: Million Baht) Consolidated financial statements 2012 Domestic Baht US Dollar

Total

Domestic

Foreign

Total

729,983

485

730,468

620,816

450

621,266

19,472

3,393

22,865

7,282

5,853

13,135

361

369

730

395

424

819

749,816

4,247

754,063

628,493

6,727

635,220

Other currencies Total*

Foreign

2011

* Total loans net of deferred revenues (Unit: Million Baht) Separate financial statements 2011

2012 Domestic Baht US Dollar

Total

Domestic

Foreign

Total

698,943

485

699,428

602,308

450

602,758

19,472

3,393

22,865

7,282

5,853

13,135

361

369

730

395

424

819

718,776

4,247

723,023

609,985

6,727

616,712

Other currencies Total*

Foreign

* Total loans net of deferred revenues

10.3 Classified by type of business and loan classification (Unit: Million Baht) Consolidated financial statements 2012 The Bank and a subsidiary company which is a financial institution

Normal

Special

Sub-

Doubtful

mention

standard

Doubtful

Subsidiary

of loss

Total

companies Consolidated

Agricultural and mining

16,376

13

9

38

204

16,640

4

16,644

Manufacturing and commerce

75,514

1,267

2,395

1,603

7,945

88,724

89

88,813

Real estate and construction

46,506

1,080

179

359

3,192

51,316

9

51,325

Public utilities and services

55,949

3,500

355

598

2,752

63,154

109

63,263

77,192

1,051

438

666

3,271

82,618

3

82,621

-

-

-

-

-

-

2,613

2,613

351,384

20,701

1,143

982

3,075

377,285

19,588

396,873

27,516

855

570

275

1,722

30,938

179

31,117

20,190

30

176

8

373

20,777

17

20,794

670,627

28,497

5,265

4,529

22,534

731,452

22,611

754,063

Personal consuming Housing loans Securities business Hire purchase Others Others Total*

*

Total loans net of deferred revenues

Annual Report 2012 Thanachart Bank Public Company Limited

115


(Unit: Million Baht) Consolidated financial statements 2011 The Bank and a subsidiary company which is a financial institution

Normal Agricultural and mining

Special

Sub-

mention

standard

Doubtful Doubtful

Subsidiary Total

of loss

companies Consolidated

10,452

27

95

104

148

10,826

4

10,830

Manufacturing and commerce

60,956

4,364

3,363

6,741

6,484

81,908

59

81,967

Real estate and construction

42,730

1,463

577

736

2,454

47,960

12

47,972

Public utilities and services

49,553

3,317

921

1,529

3,060

58,380

61

58,441

68,632

1,503

552

1,221

1,728

73,636

-

73,636

Personal consuming Housing loans Securities business Hire purchase Others

-

-

-

-

-

-

2,236

2,236

242,023

27,443

664

648

2,241

273,019

13,342

286,361

48,357

2,076

673

763

2,095

53,964

116

54,080

Others

18,927

177

178

14

382

19,678

19

19,697

Total*

541,630

40,370

7,023

11,756

18,592

619,371

15,849

635,220

*

Total loans net of deferred revenues

(Unit: Million Baht) Separate financial statements 2012 Special

Agricultural and mining

Normal

mention

16,312

12

Doubtful Substandard

Doubtful

8

38

of loss 60

Total 16,430

Manufacturing and commerce

75,048

1,263

393

1,382

3,326

81,412

Real estate and construction

46,383

1,069

162

348

2,114

50,076

Public utilities and services

54,597

3,465

280

336

1,353

60,031

Housing loans

77,118

1,026

419

658

1,895

81,116

Hire purchase

351,384

20,701

1,143

982

3,075

377,285

27,481

849

564

272

1,178

30,344

Others

26,249

30

5

8

37

26,329

Total*

674,572

28,415

2,974

4,024

13,038

723,023

Personal consuming

Others

* Total loans net of deferred revenues

116

Annual Report 2012 Thanachart Bank Public Company Limited


(Unit: Million Baht) Separate financial statements 2011 Special Normal

mention

Doubtful Substandard

Doubtful

of loss

Total

Agricultural and mining

10,452

27

69

15

25

10,588

Manufacturing and commerce

60,956

4,364

583

672

2,725

69,300

Real estate and construction

42,730

1,463

295

333

1,323

46,144

Public utilities and services

48,218

3,317

545

1,255

1,773

55,108

Personal consuming Housing loans

68,627

1,503

493

738

692

72,053

Hire purchase

242,023

27,443

664

648

2,241

273,019

48,356

2,076

654

616

1,596

53,298

Others

36,991

177

5

2

27

37,202

Total*

558,353

40,370

3,308

4,279

10,402

616,712

Others

* Total loans net of deferred revenues

10.4 Non-performing loans As at 31 December 2012 and 2011, the Bank and its subsidiaries (securities and asset management business) had non-performing loans classified in accordance with the Notification of the BOT and SEC (debtors classified as substandard, doubtful and doubtful of loss) as follows: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

20,036

17,989

20,036

17,989

173

306

-

-

12,292

19,382

-

-

Non-performing loans (excluding accrued interest receivables) Banking business Securities business Asset management business

The above definition of non-performing loans does not include overdue loans which have been already restructured and are now qualified for classification as Normal or Special mention debt.

Annual Report 2012 Thanachart Bank Public Company Limited

117


Additionally, the Bank and its subsidiaries engaged in the securities business had loans for which income recognition under an accrual basis has been discontinued, as follows: (Unit: Million Baht)

Banking business

Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

18,525

16,558

18,525

16,558

173

306

-

-

Securities business

The subsidiary company engaged in the asset management business recognises income from loan on a cash basis. 10.5 Debt restructuring During the years 2012 and 2011, the Bank and its subsidiaries, securities and asset management business, have entered into debt restructuring agreements with their debtors as follows: Consolidated financial statements For the years ended 31 December Fair value of Outstanding Number of Type of restructuring

debtors

balances before restructuring

(1)

Outstanding balances after restructuring

(1)

Million Baht

Million Baht

15,232

16,078

13,151

34

1,293

1,118

Type of assets

assets to be

to be

transferred under

transferred

agreement Million Baht

2012 Modification of repayment conditions Transfer of assets and/or ordinary shares and/or modification of

Land, land and

1,129

building,

repayment conditions

ordinary shares and unit trusts

Total

15,266

17,371

14,269

38,673

16,529

16,529

12

651

651

2011 Modification of repayment conditions Transfer of assets and/or ordinary shares and/or modification of

building and

repayment conditions Total

Land, land and ordinary shares

38,685

17,180

17,180

(1) Presents the outstanding balance per the books of account (principal plus accrued interest receivable).

118

Annual Report 2012 Thanachart Bank Public Company Limited

216


Separate financial statements For the years ended 31 December Fair value of

Number of Type of restructuring

debtors

Outstanding

Outstanding

Type of assets

assets to be

balances before

balances after

to be

transferred under

transferred

agreement

restructuring

(1)

restructuring

Million Baht

(1)

Million Baht

Million Baht

2012 Modification of repayment conditions Transfer of assets and/or ordinary

14,988

7,217

7,217

15

670

508

shares and/or modification of

489

shares and

repayment conditions Total

Land, ordinary

unit trusts 15,003

7,887

7,725

38,353

13,163

13,163

6

14

14

38,359

13,177

13,177

2011 Modification of repayment conditions Transfer of assets and/or ordinary

Land

15

shares and/or modification of repayment conditions Total

(1) Presents the outstanding balance per the books of account (principal plus accrued interest receivable).

Counting from the end of the year, the remaining periods to maturity of receivables which entered into debt restructuring agreements during the years 2012 and 2011, are summarised below. Consolidated financial statements For the years ended 31 December 2011

2012 Outstanding

Periods

Outstanding

Number of

balances after

Number of

balances after

debtors

restructuring

debtors

restructuring

Million Baht

Million Baht

Past due after restructuring

4,987

4,551

1,261

1,734

Due within the year

2,409

3,966

908

1,504

Less than 5 years

6,810

3,579

27,984

8,645

5 - 10 years

854

1,566

8,498

5,213

10 - 15 years

69

280

13

45

Over 15 years

137

327

21

39

15,266

14,269

38,685

17,180

Total

Annual Report 2012 Thanachart Bank Public Company Limited

119


Separate financial statements For the years ended 31 December 2012

2011 Outstanding

Outstanding

Number of

balances after

Number of

balances after

debtors

restructuring

debtors

restructuring

Periods

Million Baht

Million Baht

Past due after restructuring

4,951

2,913

1,169

841

Due within the year

2,346

1,060

812

168

Less than 5 years

6,754

2,412

27,947

8,098

5 - 10 years

794

868

8,422

4,029

10 - 15 years

52

225

5

31

Over 15 years

106

247

4

10

15,003

7,725

38,359

13,177

Total

Supplemental information for the years 2012 and 2011 relating to restructured loan is as follows: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2011

2012

2012

2011

Interest income recognised in the statements of comprehensive income Cash repayment from receivables Properties foreclosed received for debts settlement

2,285

1,292

1,873

543

12,090

4,960

8,537

2,288

1,684

84

1,043

58

15

40

15

15

Loss on debt restructuring (net of allowance for doubtful accounts as previously recorded)

As at 31 December 2012 and 2011, the Bank and its subsidiaries have the following restructured receivables balances (principal and accrued interest receivable): Restructured receivables Outstanding balances,

Total number of outstanding receivables 2012

Thanachart Bank Plc. Thanachart Securities Plc.

1,719,657

2011

1,378,861

Number of receivables 2012

2011

Outstanding balances

net of collateral

2012

2011

2012

2011

Million Baht

Million Baht

Million Baht

Million Baht

53,284

52,289

24,058

25,803

14,604

9,350

517

886

4

3

50

35

50

35

2,257

2,459

1,566

1,630

9,553

12,978

4,919

5,173

TS Asset Management Co., Ltd.

120

Annual Report 2012 Thanachart Bank Public Company Limited


10.6 Hire purchase/Financial lease receivables As at 31 December 2012 and 2011, hire purchase/financial lease receivables of the Bank and its subsidiaries, which are engaged in the hire purchase and financial lease business, mostly comprise hire purchase agreements or financial lease agreements for cars, trucks and motorcycles. The terms of the agreements are generally between 3 and 7 years and they carry interest at fixed rates stipulated in the agreements. (Unit: Million Baht) Consolidated financial statement as at 31 December 2012 Amounts due under lease agreements Less than 1 - 5 years

1 year*

Over 5 years

Total

Gross investment in the lease

125,943

308,966

21,870

456,779

Less: Unearned finance income

(21,174)

(35,881)

(1,020)

(58,075)

104,769

273,085

20,850

398,704

Present value of minimum lease payments receivables

(6,643)

Allowance for doubtful accounts

392,061

Hire purchase/Financial lease receivables - net * Included non-performing receivables

(Unit: Million Baht) Consolidated financial statement as at 31 December 2011 Amounts due under lease agreements Less than 1 - 5 years

1 year* Gross investment in the lease Less: Unearned finance income

98,530

218,233

(15,589)

(23,687)

82,941

194,546

Over 5 years 11,317 (515)

Total 328,080 (39,791)

Present value of minimum lease payments receivables Allowance for doubtful accounts Hire purchase/Financial lease receivables - net

10,802

288,289 (5,569) 282,720

* Included non-performing receivables

Annual Report 2012 Thanachart Bank Public Company Limited

121


(Unit: Million Baht) Separate financial statement as at 31 December 2012 Amounts due under lease agreements Less than 1 year*

1 - 5 years

Gross investment in the lease

124,742

287,531

Less: Unearned finance income

(21,104)

(32,859)

103,638

254,672

Over 5 years 21,535 (956)

Total 433,808 (54,919)

Present value of minimum lease payments receivables

20,579

378,889 (5,885)

Allowance for doubtful accounts

373,004

Hire purchase/Financial lease receivables - net * Included non-performing receivables

(Unit: Million Baht) Separate financial statement as at 31 December 2011 Amounts due under lease agreements Less than 1 year* Gross investment in the lease Less: Unearned finance income

1 - 5 years

96,982

204,671

(15,423)

(21,881)

81,559

182,790

Over 5 years 10,868 (425)

Total 312,521 (37,729)

Present value of minimum lease payments receivables Allowance for doubtful accounts Hire purchase/Financial lease receivables - net

10,443

274,792 (4,777) 270,015

* Included non-performing receivables

10.7 Classified by classification As at 31 December 2012 and 2011, the Bank and its financial institution subsidiary (asset management business) classified and made allowances against their loans in accordance with the BOT’s guidelines as summarised below.

122

Annual Report 2012 Thanachart Bank Public Company Limited


(Unit: Million Baht) Consolidated financial statements

(1)

Net balance used in made Loans and accrued interest

allowance for doubtful

Allowance for doubtful

receivables

accounts

accounts

2012

2011

2012

2011

671,590

542,456

480,914

201,301

4,834

3,970

28,554

40,447

22,591

18,289

1,475

722

Substandard

5,273

7,031

3,721

3,870

3,535

3,870

Doubtful

4,529

11,763

2,555

7,507

2,393

7,507

22,563

18,631

10,514

8,208

10,109

8,348

732,509

620,328

520,295

239,175

22,346

24,417

499

383

22,845

24,800

Normal Special mention

Doubtful of loss Total

2012

Additional allowance for possible uncollectability debts Total (1)

2011

Only the Bank and subsidiary company subject to BOT’s regulations; and after deducting intragroup transactions.

(Unit: Million Baht) Separate financial statements Net balance used in made Loans and accrued interest

allowance for doubtful

Allowance for doubtful

receivables

accounts

accounts

2012

2011

2012

2011

675,527

559,184

485,339

218,024

3,260

2,812

28,473

40,447

22,581

18,289

1,465

721

Substandard

2,975

3,309

1,975

1,500

1,790

1,500

Doubtful

4,024

4,279

2,264

1,791

2,102

1,791

13,054

10,418

6,357

5,138

5,952

5,278

724,053

617,637

518,516

244,742

14,569

12,102

499

383

15,068

12,485

Normal Special mention

Doubtful of loss Total

2012

Additional allowance for possible uncollectability debts Total

2011

Percentage of allowance for doubtful account Hire purchase receivablespersonal consumer 2012 Normal Special mention

(2)

0.2

2011

2012

2011

1

1

1

2

2

2

83.14

100

100

100

Doubtful

83.14

100

100

100

Doubtful of loss

83.14

100

100

100

Substandard

3.5

Other loans

(2) These percentages are average rates used in setting up allowance for doubtful accounts

Annual Report 2012 Thanachart Bank Public Company Limited

123


The Bank and its subsidiary company, which engages in asset management business, previously set up allowance for doubtful debts in accordance with the BOT’s regulation which based on overdue period and fixed provisioning rates. However, starting from 1 January 2012, the Bank changed its method of estimating allowance for doubtful debts for hire purchase receivable - personal consumer, from setting allowance aside in accordance with the BOT guidelines with reference to overdue period and fixed provisioning rates to using a collective approach, as mentioned in Note 4.7 to the financial statements. This change in accounting estimate resulted in a Baht 922 million decrease in impairment loss of loans accounts expenses in the statement of comprehensive income for the year ended 31 December 2012. 10.8

Loan to companies which have settlement problems As at 31 December 2012 and 2011, loans of the Bank and its subsidiaries (which engaged in asset management and hire purchase and financial lease business) in the consolidated financial statements and the separate financial statements included amounts due from companies with weak financial positions and poor operating results, as follows: Consolidated financial statements Allowance for doubtful accounts provided Number of debtors 2012

1. Listed companies possible to

2011

Debt balance

Collateral value

in the accounts

2012

2011

2012

2011

2012

2011

Million

Million

Million

Million

Million

Million

Baht

Baht

Baht

Baht

Baht

Baht

6

6

835

857

64

67

771

790

10

9

584

585

329

334

238

236

1,168

1,130

17,523

24,337

9,695

11,760

8,702

13,213

delisting from the SET 2. Non - listed companies with similar operating results and financial positions to listed companies possible to delisting from the SET 3. Companies which have loan settlement problems or have defaulted on the repayment

124

Annual Report 2012 Thanachart Bank Public Company Limited


Separate financial statements Allowance for doubtful accounts provided Debt balance

Number of debtors 2012

1. Listed companies possible to

2011

Collateral value

in the accounts

2012

2011

2012

2011

2012

2011

Million

Million

Million

Million

Million

Million

Baht

Baht

Baht

Baht

Baht

Baht

3

3

168

169

28

31

140

138

10

9

584

585

329

334

238

236

813

737

7,207

8,042

4,323

5,323

2,887

2,726

delisting from the SET 2. Non - listed companies with similar operating results and financial positions to listed companies possible to delisting from the SET 3. Companies which have loan settlement problems or have defaulted on the repayment

10.9 Classification of securities business receivables in accordance with the Notification of the Securities and Exchange Commission As at 31 December 2012 and 2011, a subsidiary company operating in the securities business classified securities business receivables and accrued interest receivables, and provided related allowance for doubtful accounts, in accordance with the Notification of the Securities and Exchange Commission (SEC), as follows: (Unit: Million Baht) Debt balances net of allowance Allowance for doubtful accounts

Receivable balances 2011

2012 Normal Substandard Doubtful Total

2012

2011

for doubtful accounts 2012

2011

2,440

1,930

-

-

2,425

1,930

5

3

4

2

1

1

168

303

168

303

-

-

2,613

2,236

172

305

2,426

1,931

Allowance for doubtful accounts for substandard loans set aside by the subsidiary is higher than the minimum amount required by the SEC, and takes into account uncertainties as to collateral value and the risk from collection of such receivables.

Annual Report 2012 Thanachart Bank Public Company Limited

125


10.10 Hire purchase/financial lease receivables of subsidiaries classified by aging As at 31 December 2012 and 2011, hire purchase and financial lease receivables balances of subsidiary companies engaged in hire purchase and financial lease businesses are classified by the due date of the contracts (after elimination) as follows: (Unit: Million Baht) 2012 Current or overdue not over 90 days

2011

19,269

12,863

249

363

Overdue more than 1 year

64

66

Debtors under legal actions

233

205

19,815

13,497

758

792

Overdue 91 - 365 days

Total Allowance for doubtful accounts provided in the accounts

10.11 As at 31 December 2012 and 2011, the Bank has loans to subsidiary companies as follows: (Unit: Million Baht) Outstanding balances Company’s name

2012

2011

Thanachart Group Leasing Co., Ltd.

-

353

National Leasing Co., Ltd.

-

22

Ratchthani Leasing Plc.

-

7,867

TS Asset Management Co., Ltd.

6,060

9,822

Total

6,060

18,064

Such loans are in the form of promissory notes at call and are carried interest at a rate reference to the Bank’s cost of fund plus a fixed interest rate per annum. 11.

Allowance for doubtful accounts (Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2012 The Bank and a subsidiary company which is a financial institution

Normal Balance - beginning of the year

Substandard

Doubtful

General

of loss

provision

Subsidiary Total

722

7,507

8,348

383

24,800

871

753

(333)

(2,669)

4,236

116

2,974

Bad debts recovery

-

-

-

-

451

-

Bad debts written-off

-

-

-

-

(7)

-

(2)

Reversal from hair cut Reversal from disposal of loans Balance - end of the year

3,870

Doubtful

3,970

Increase (decrease) during the year

126

Special mention

(2,445)

-

-

-

-

4,834

1,475

3,535

2,393

Annual Report 2012 Thanachart Bank Public Company Limited

451

companies 1,098 (6) 10

(1,909)

-

(1,909)

(55)

(535)

-

(2,989)

(117)

(482) 10,109

499

(482) 22,845

Consolidated 25,898 2,968 461 (1,964) (3,106)

-

(482)

930

23,775


(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2011 The Bank and a subsidiary company which is a financial institution Special

Sub-

mention

standard

Doubtful

2,082

2,249

2,898

8,277

8,199

534

24,239

1,550

25,789

-

-

-

-

-

-

-

542

542

-

-

-

-

-

-

-

Normal Balance - beginning of the year

Doubtful

General

of loss

provision

Subsidiary Total

companies Consolidated

Beginning balance of the subsidiaries acquired during the year Balance of a subsidiary company disposed during the year

(1,023)

(1,023)

Increase (decrease) during the year

1,888

(1,527)

992

(571)

Bad debts recovery

-

-

Bad debts written-off

-

-

Reversal from disposal of loans

-

-

-

-

3,970

722

3,870

7,507

Balance - end of the year

(20)

1,826

(151)

2,457

91

409

11

253

156

-

(452)

(933)

-

(1,405)

(900)

-

(900)

8,348

383

24,800

(73)

2,548 420 (1,478)

-

(900)

1,098

25,898

(Unit: Million Baht) Separate financial statements For the year ended 31 December 2012 Special

Balance - beginning of the year

Substandard

Doubtful

Doubtful

General

of loss

provision

Total

Normal

mention

2,812

721

1,500

1,791

5,278

383

12,485

448

744

290

311

2,764

116

4,673

-

-

-

-

451

-

451

Increase (decrease) during the year Bad debts recovery Bad debts written-off

-

-

-

-

(1,909)

-

Reversal from hair cut

-

-

-

-

(150)

-

(150)

Reversal from disposal of loans

-

-

-

-

(482)

-

(482)

3,260

1,465

1,790

2,102

Balance - end of the year

5,952

499

(1,909)

15,068

(Unit: Million Baht) Separate financial statements For the year ended 31 December 2011 Special

Balance - beginning of the year

Normal

mention

1,155

168

10

138

1,647

415

Substandard 1,070

Doubtful

Doubtful

General

of loss

provision

Total

775

3,888

375

7,431

729

1,278

8

1,388

1,205

287

1,474

-

5,028

Increase (decrease) during the year

(775)

Additional allowance for receivables received during the year Bad debts recovery

-

-

-

-

156

-

156

Bad debts written-off

-

-

-

-

(618)

-

(618)

Reversal from disposal of loans

-

-

-

-

(900)

-

(900)

2,812

721

1,500

1,791

Balance - end of the year

5,278

383

12,485

Annual Report 2012 Thanachart Bank Public Company Limited

127


12.

Revaluation allowance for debt restructuring (Unit: Million Baht) Consolidated financial statements 2012 Balance - beginning of the year

Separate financial statements

2011

2012

2011

382

460

382

38

-

-

-

369

Additional allowance for receivables received during the year Increase (decrease) during the year

13.

(2)

(35)

(2)

15

Amortised during the year

(36)

(43)

(36)

(40)

Balance - end of the year

344

382

344

382

Classification of assets As at 31 December 2012 and 2011, the quality of assets of the Bank and its financial institution subsidiary (asset management business) classified in accordance with the announcements of the Bank of Thailand are as follows: (Unit: Million Baht) Consolidated financial statements 2012 Loans to

Normal

Interbank and

customers and

money market

accrued interest

items

receivables

Property foreclosed

Investments

Other assets

Total

39,224

671,590

-

-

199

711,013

Special mention

-

28,554

-

-

93

28,647

Substandard

-

5,273

-

-

7

5,280

Doubtful

-

4,529

-

-

6

4,535

Doubtful of loss

-

22,563

56

179

247

23,045

39,224

732,509

56

179

552

772,520

Total

(Unit: Million Baht) Consolidated financial statements 2011 Loans to

Normal

customers and accrued interest

items

receivables

Property Investments

foreclosed

Other assets

Total

39,364

542,456

-

-

162

581,982

Special mention

-

40,447

-

-

108

40,555

Substandard

-

7,031

-

-

4

7,035

Doubtful

-

11,763

-

-

4

11,767

Doubtful of loss

-

18,631

238

197

237

19,303

39,364

620,328

238

197

515

660,642

Total

128

Interbank and money market

Annual Report 2012 Thanachart Bank Public Company Limited


(Unit: Million Baht) Separate financial statements 2012 Loans to

Normal

Interbank and

customers and

money market

accrued interest

items

receivables

Property foreclosed

Investments

Other assets

Total

39,424

675,527

-

-

199

715,150

Special mention

-

28,473

-

-

93

28,566

Substandard

-

2,975

-

-

7

2,982

Doubtful

-

4,024

-

-

6

4,030

Doubtful of loss

-

13,054

61

153

241

13,509

39,424

724,053

61

153

546

764,237

Total

(Unit: Million Baht) Separate financial statements 2011 Loans to

Normal

Interbank and

customers and

money market

accrued interest

items

receivables

Property Investments

foreclosed

Other assets

Total

39,514

559,184

-

-

162

598,860

Special mention

-

40,447

-

-

108

40,555

Substandard

-

3,309

-

-

4

3,313

Doubtful

-

4,279

-

-

4

4,283

Doubtful of loss

-

10,418

238

148

237

11,041

39,514

617,637

238

148

515

658,052

Total

Annual Report 2012 Thanachart Bank Public Company Limited

129


14.

Property foreclosed

(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2012 Balance -

Balance Change

end of the

appraiser

year

beginning of the year

Additions

Disposals

Assets transferred in settlement of debts Immovable assets External appraiser

5,615

Internal appraiser

737

(1,230)

77

5,199

97

14

(4)

365

4,777

(4,468)

-

674

External appraiser

707

20

(342)

58

443

Internal appraiser

64

-

(3)

116

232

(48)

-

300

6,964

5,780

(6,095)

-

6,649

Movable assets

(77)

30

Assets foreclosed from purchase by bid on the open market Immovable assets (58)

3

Non-used branches External appraiser Total property foreclosed

(389)

(202)

Less: Allowance for impairment

6,762

Property foreclosed - Net

403

5,391

-

(5,692)

(188)

-

6,461

(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2011 Increase from Balance -

purchase of

beginning

subsidiary

of the year

company

Balance Additions

Disposals

Change

end of the

appraiser

year

Assets transferred in settlement of debts Immovable assets External appraiser

6,472

-

108

(1,079)

233

-

16

(38)

289

4

3,184

(3,112)

-

365

External appraiser

673

-

93

(63)

4

707

Internal appraiser

72

-

7

(11)

(4)

64

168

-

(52)

-

116

7,907

4

-

6,964

Internal appraiser Movable assets

114 (114)

5,615 97

Assets foreclosed from purchase by bid on the open market Immovable assets

Non-used branches External appraiser Total property foreclosed Less: Allowance for impairment Property foreclosed - Net

130

(56) 7,851

Annual Report 2012 Thanachart Bank Public Company Limited

4

3,356 (528) 2,828

(4,303) 382 (3,921)

-

(202) 6,762


(Unit: Million Baht) Separate financial statements For the year ended 31 December 2012 Balance beginning of the year

Additions

Disposals

Change

Balance - end

appraiser

of the year

Assets transferred in settlement of debts Immovable assets External appraiser Internal appraiser

2,564

108

(847)

79

1,904

89

1

(4)

345

4,583

(4,287)

External appraiser

624

10

(228)

Internal appraiser

63

-

(3)

116

232

(48)

-

300

3,801

4,934

(5,417)

-

3,318

Movable assets

(79)

7

-

641

58

464

Assets foreclosed from purchase by bid on the open market Immovable assets (58)

2

Non-used branches External appraiser Total property foreclosed Less: Allowance for impairment Property foreclosed - Net

(148) 3,653

(345)

341

4,589

-

(5,076)

(152)

-

3,166

(Unit: Million Baht) Separate financial statements For the year ended 31 December 2011 Increase from Balance -

purchase of

beginning

subsidiary

of the year

company

Balance Additions

Disposals

Change

end of the

appraiser

year

Assets transferred in settlement of debts Immovable assets External appraiser

111

Internal appraiser

230

-

283

4

External appraiser

1

636

-

Internal appraiser

71

-

7

-

116

-

696

3,123

3,145

Movable assets

2,367

-

(33)

119

16

(38)

(119)

3,122

(3,064)

2,564 89

-

345

(17)

4

624

(11)

(4)

63

-

116

-

3,801

Assets foreclosed from purchase by bid on the open market Immovable assets

Non-used branches External appraiser Total property foreclosed Less: Allowance for impairment

(56)

Property foreclosed - Net

640

(63) 3,060

(165) 2,980

(3,163) 136 (3,027)

-

(148) 3,653

Annual Report 2012 Thanachart Bank Public Company Limited

131


15. Land, premises and equipment (Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2012

Land

Buildings and

Furniture,

building

fixtures and

improvement

equipment

Vehicles

Assets under installation

Total

Cost 31 December 2011 Additions Transfers/disposals

4,704

2,484

5,117

226

146

12,677

-

-

478

9

163

650

(51)

(197)

(487)

(190)

(40)

(9)

4,514

2,444

5,586

184

112

12,840

31 December 2011

-

165

3,493

165

-

3,823

Transfer/disposals

-

3

(178)

(49)

-

(224)

Depreciation for the year

-

140

682

27

-

849

31 December 2012

-

308

3,997

143

-

4,448

68

26

1

-

-

95

-

-

5

-

-

5

68

26

6

-

-

100

4,446

2,110

1,583

41

112

8,292

31 December 2012 Accumulated depreciation

Allowance for impairment 31 December 2011 Increase during the year 31 December 2012 Net book value 31 December 2012 Depreciation charge for the year

132

Annual Report 2012 Thanachart Bank Public Company Limited

849


(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2011

Land

Buildings and

Furniture,

Assets

buildings

fixtures and

under

improvement

equipment

Vehicles

installation

Total

Cost 31 December 2010

4,649

2,657

4,218

240

134

11,898

12

44

19

14

-

89

-

-

(29)

(2)

-

(31)

Increase from purchase of subsidiary company Decrease from disposal of a subsidiary company Additions

43

54

428

10

327

862

(271)

481

(36)

(315)

(141)

Transfers/disposals

-

31 December 2011

4,704

2,484

5,117

226

146

12,677

-

206

2,560

145

-

2,911

-

7

13

7

-

27

Accumulated depreciation 31 December 2010 Increase from purchase of subsidiary company Decrease from disposal of a subsidiary (17)

(2)

-

(19)

Transfer/disposals

company

-

-

(264)

-

180

(26)

-

(110)

Depreciation for the year

-

216

757

41

-

1,014

31 December 2011

-

165

3,493

165

-

3,823

-

-

1

-

-

1

68

26

1

-

-

95

-

-

(1)

-

-

(1)

68

26

1

-

-

95

4,636

2,293

1,623

61

146

8,759

Allowance for impairment 31 December 2010 Increase during the year Decrease from disposal of a subsidiary company 31 December 2011 Net book value 31 December 2011 Depreciation charge for the year

1,014

Annual Report 2012 Thanachart Bank Public Company Limited

133


(Unit: Million Baht) Separate financial statements For the year ended 31 December 2012

Land

Buildings and

Furniture,

buildings

fixtures and

improvement

equipment

Vehicles

installation

Assets under Total

Cost 31 December 2011 Additions Transfers/disposals 31 December 2012

4,618

2,314

3,540

110

144

10,726

-

-

414

-

148

562

(31)

(187)

(360)

79

105

10,928 2,361

(189)

(47)

94

4,429

2,267

4,048

31 December 2011

-

100

2,189

Transfers/disposals

-

Depreciation for the year

-

31 December 2012

Accumulated depreciation 72

-

(65)

(30)

-

(98)

132

585

16

-

733

-

229

2,709

58

-

2,996

31 December 2011

-

-

-

-

-

-

Increase during the year

-

-

5

-

-

5

31 December 2012

-

-

5

-

-

5

4,429

2,038

1,334

21

105

7,927

(3)

Allowance for impairment

Net book value 31 December 2012

733

Depreciation charge for the year

(Unit: Million Baht) Separate financial statements For the year ended 31 December 2011

Land

Buildings and

Furniture,

buildings

fixtures and

improvement

equipment

Assets under Vehicles

installation

Total

Cost 31 December 2010

2,572

105

13

3,536

1,921

756

8

114

6,899

22

197

5

50

317

Transfers/disposals

-

-

15

(8)

(33)

(26)

31 December 2011

4,618

2,314

3,540

110

144

10,726

31 December 2010

-

48

1,736

1,846

Transfers/disposals

-

-

Depreciation for the year

-

31 December 2011

4,618

2,214

Received from Entire Business Transfer Additions

475

371

4,100 43

Accumulated depreciation 62

-

(17)

(8)

-

52

470

18

-

540

100

2,189

72

-

2,361

1,351

38

144

8,365

(25)

Net book value 31 December 2011 Depreciation charge for the year

134

Annual Report 2012 Thanachart Bank Public Company Limited

540


As at 31 December 2012, the Bank and its subsidiaries have vehicles acquired under financial leases with net book values amounting to approximately Baht 22 million. In addition, the Bank and its subsidiaries have office equipment and vehicles which have been fully depreciated but are still in use. The gross carrying amount before deducting accumulated depreciation and allowance for impairment loss amounting to approximately Baht 1,887 million (separate financial statements: Baht 18 million and Baht 1,617 million, respectively). 16.

Intangible assets (Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2012 Membership fees for Intangible

Thailand

assets from

Futures

Computer

business

Computer

Exchange and

software under

combination

software

others

development

Total

Cost 31 December 2011

4,100

1,466

7

180

5,753

Additions

-

131

-

229

360

Transfers/disposals

-

54

-

(135)

(81)

31 December 2012

4,100

1,651

7

274

6,032

31 December 2011

602

411

6

-

1,019

Transfers/disposals

-

(34)

-

-

(34)

538

154

1

-

693

1,140

531

7

-

1,678

31 December 2011

-

25

-

-

25

Increase during the year

-

35

-

-

35

31 December 2012

-

60

-

-

60

2,960

1,060

-

274

4,294

Accumulated amortisation

Amortisation for the year 31 December 2012 Allowance for impairment

Net book value 31 December 2012

693

Amortisation expenses for the year Remaining amortisation period (years)

7.3 years

0 - 9.9 years

-

-

Annual Report 2012 Thanachart Bank Public Company Limited

135


(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2011 Intangible

Membership fees

assets from

for Thailand

Computer

business

Computer

Futures Exchange

software under

combination

software

and others

development

Total

Cost 31 December 2010

4,100

933

7

163

5,203

-

6

-

6

12

-

(29)

-

-

(29)

Additions

-

341

-

233

Transfers/disposals

-

215

-

(222)

31 December 2011

4,100

1,466

7

180

5,753

137

255

6

-

398

-

4

-

-

4

-

(11)

-

-

(11)

-

(7)

-

-

(7)

Increase from purchase of a subsidiary company Decrease from disposal of a subsidiary company

574 (7)

Accumulated amortisation 31 December 2010 Increase from purchase of a subsidiary company Decrease from disposal of a subsidiary company Disposals Amortisation for the year

465

170

-

-

635

31 December 2011

602

411

6

-

1,019

31 December 2010

-

-

-

-

-

Increase during the year

-

27

-

-

27

-

(2)

-

-

(2)

-

25

-

-

25

3,498

1,030

1

180

4,709

Allowance for impairment

Decrease from disposal of a subsidiary company 31 December 2011 Net book value 31 December 2011 Amortisation for the year

136

Annual Report 2012 Thanachart Bank Public Company Limited

635


(Unit: Million Baht) Separate financial statements For the year ended 31 December 2012 Intangible assets

Computer

from business

Computer

software under

combination

software

development

Total

Cost 31 December 2011

3,613

1,199

164

4,976

Additions

-

123

217

340

Transfers/disposals

-

52

(112)

(60)

31 December 2012

3,613

1,374

31 December 2011

115

Transfers/disposals

-

269

5,256

186

-

301

(12)

-

(12)

Accumulated amortisation

Amortisation for the year

538

139

-

677

31 December 2012

653

313

-

966

Allowance for impairment 31 December 2011

-

25

-

25

Increase during the year

-

35

-

35

31 December 2012

-

60

-

60

2,960

1,001

269

4,230

Net book value 31 December 2012

677

Amortisation expenses for the year Remaining amortisation period (years)

7.3 years

2.4 - 9.7 years

(Unit: Million Baht)

Separate financial statements For the year ended 31 December 2011 Intangible assets

Computer

from business

Computer

software under

combination

software

development

Total

Cost 31 December 2010

-

501

99

600

3,613

238

-

3,851

Additions

-

300

225

525

Transfers

-

160

(160)

3,613

1,199

164

4,976

Increase from Entire Business Transfer

31 December 2011

-

Accumulated amortisation -

115

-

115

Amortisation for the year

31 December 2010

115

71

-

186

31 December 2011

115

186

-

301

Allowance for impairment 31 December 2010

-

-

-

-

Increase during the year

-

25

-

25

31 December 2011

-

25

-

25

3,498

988

164

4,650

Net book value 31 December 2011 Amortisation for the year

186

Annual Report 2012 Thanachart Bank Public Company Limited

137


As at 31 December 2012 and 2011, the Bank and its subsidiaries have computer software which have been fully amortised but are still in use with original costs, before deducting accumulated amortisation, amounting to approximately Baht 44 million and Baht 40 million, respectively (separate financial statements: Baht 7 million and Baht 7 million, respectively). 17.

Goodwill As at 31 December 2012 and 2011, goodwill as stated in the financial statements is as follows. (Unit: Million Baht)

Goodwill - beginning of the year Increase during the year Goodwill - ending of the year

18.

Consolidated

Separate

financial statements

financial statements

2012

2011

2012

15,750

15,750

15,740

-

-

-

-

15,740

15,750

15,750

15,740

15,740

2011

Other assets (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012 Accrued premium insurance income

2011

2012

2011

496

440

-

-

Other receivables

1,408

730

1,402

724

Accrued interest and dividend income receivable

1,162

1,052

795

725

327

392

323

388

225

197

209

184

Deposit

313

276

288

255

Estimated insurance claims recoveries

256

191

-

-

Receivable from clearing house

944

25

-

-

Deposit from derivative contracts

102

357

102

357

Prepaid expenses

337

244

95

101

Others

1,343

1,470

1,004

1,300

Total

6,913

5,374

4,218

4,034

Prepaid leasehold rights Other receivables - VAT paid in advance for customers

Less: Allowance for impairment Other assets - Net

138

Annual Report 2012 Thanachart Bank Public Company Limited

(328) 6,585

(307) 5,067

(266) 3,952

(257) 3,777


19.

Deposits

19.1 Classified by type of deposits (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

Current

8,514

7,129

8,559

7,227

Saving

239,328

169,196

239,931

170,386

Promissory notes

-

61

-

61

Certificates of deposit

2

2

2

2

Fixed deposits - Less than 6 months

119,833

52,172

119,981

86,450

- 6 months and up to 1 year

202,761

133,560

204,761

133,560

- Over 1 year

127,934

73,920

128,048

73,932

698,372

436,040

701,282

471,618

Total deposits

19.2 Classified by currency and countries (Unit: Million Baht) Consolidated financial statements 2012

2011

Domestic

Foreign

698,079

1

US Dollar

122

Other currencies

130 698,331

Baht

Total

Total

Domestic

Foreign

Total

698,080

435,796

1

435,797

21

143

84

20

104

19

149

22

117

139

41

698,372

435,902

138

436,040

(Unit: Million Baht) Separate financial statements 2012

2011

Domestic

Foreign

700,989

1

US Dollar

122

Other currencies

Baht

Total

Total

Domestic

Foreign

Total

700,990

471,374

1

471,375

21

143

84

20

104

130

19

149

22

117

139

701,241

41

701,282

471,480

138

471,618

Annual Report 2012 Thanachart Bank Public Company Limited

139


20.

Interbank and money market items (liabilities) (Unit: Million Baht) Consolidated financial statements 2011

2012 At call

Term

Total

At call

Term

Total

Domestic Bank of Thailand and the FIDF Commercial banks

2

6,869

6,871

-

3,065

3,065

1,121

23,311

24,432

700

10,032

10,732

192

13,722

13,914

3,100

7,234

10,334

Other financial institutions

10,534

16,427

26,961

17,015

9,705

26,720

Total domestic items

11,849

60,329

72,178

20,815

30,036

50,851

Specialised financial institutions

Foreign US Dollar

54

14,336

14,390

3

8,599

8,602

Baht currency

486

723

1,209

241

457

698

Total foreign items

540

15,059

15,599

244

9,056

9,300

12,389

75,388

87,777

21,059

39,092

60,151

Total

(Unit: Million Baht) Separate financial statements 2011

2012 At call

Term

Total

At call

Term

Total

Domestic Bank of Thailand and the FIDF

2

6,869

6,871

-

3,064

Commercial banks

679

17,213

17,892

681

8,779

3,064 9,460

Specialised financial institutions

162

13,722

13,884

3,100

7,234

10,334

Other financial institutions

11,031

16,807

27,838

17,420

9,705

27,125

Total domestic items

11,874

54,611

66,485

21,201

28,782

49,983

54

14,336

14,390

3

8,599

8,602

Foreign US Dollar Baht currency

486

723

1,209

241

457

698

Total foreign items

540

15,059

15,599

244

9,056

9,300

12,414

69,670

82,084

21,445

37,838

59,283

Total

As at 31 December 2012, interbank and money market items in the consolidated financial statements included loans of a subsidiary company amounting Baht 1,754 million, consisting of (i) a loan of Baht 174 million that is repayable in 36 monthly installments from the date of loan drawdown and carries interest at a fixed rate per annum, payable monthly, (ii) a loan of Baht 800 million, repayable within 3 years from the date of loan drawdown and carrying interest at a fixed rate per annum, payable monthly, (iii) a loan of Baht 280 million, repayable quarterly, carrying interest at MLR minus a fixed rate, payable monthly, and (iv) a loan of Baht 500 million in term of promissory rates, repayable at the date as specified in each promissory note, and carrying interest at fixed rates per annum, payable monthly. In addition, the subsidiary has to comply with the terms and conditions specified in the loan agreements, such as maintenance of a debt to equity ratio (2011: included loans of a subsidiary company amounting to Baht 1,054 million).

140

Annual Report 2012 Thanachart Bank Public Company Limited


21.

Debt issued and borrowings As at 31 December 2012 and 2011, the balance of debt issued and domestic borrowings, which stated in Baht, are as follows: (Unit: Million Baht) Interest rate

Consolidated

Perpetual subordinated hybrid bonds

financial statements

financial statements

per annum (as at Type of borrowings

Separate

31 December 2012)

Maturity date

2012

2011

2012

2011

8.50 percent

Dissolution

7,130

7,130

7,130

7,130

5.25 percent

2019 and 2024

5,000

5,000

5,000

5,000

4.70 - 6.00 percent

2015 - 2022

33,773

23,000

33,773

23,000 -

issued under Tier I (a) Subordinated hybrid bonds issued under Tier II (b) Subordinated debentures issued under Tier II (c – h) Subordinated debentures (h)

2022

1,743

-

1,743

Unsubordinated debentures (i-k)

3.45 - 5.50 percent

4.70 percent

2013 - 2016

11,072

-

2,072

-

Short-tem debentures

2.85- 3.03 percent

2013

13,235

-

13,235

-

Bills of exchange

0 percent

At call

41

57

41

56

Bills of exchange

1.00, 2.35 – 3.85

2012 - 2013

4,889

217,999

5,299

222,148

Promissory note

0.50 – 2.50, 4.25

At call

1,168

942

5

-

98

169

98

169

78,149

254,297

68,396

257,503

percent percent Borrowings - Department of

0.50 percent

2013 - 2017

Alternative Energy Development and Efficiency Total debt issued and borrowings

(a)

On 22 April 2010, the Bank issued 7,130,000 name registered of perpetual, non-cumulative, subordinated, hybrid Tier 1 bonds, with a face value of Baht 1,000 each, and sold them to two major shareholders of the Bank. The bonds mature upon dissolution or liquidation of the Bank. The bonds are unsecured and non-convertible and bear interest at a fixed rate equal to the highest interest rate for a six-month fixed deposit plus 6 percent per annum, payable semi-annually. The Bank has a call option to early redeem the bonds at par if the condition specified are met.

(b)

On 24 July 2009, the Bank issued 5,000,000 name registered subordinated hybrid bonds, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. Of these, 3.5 million units mature in 2019 and bear interest at a fixed rate of 5.25 percent per annum for the first five years, and 5.5 percent per annum for the sixth to tenth years, while 1.5 million units mature in 2024 and bear interest at a fixed rate of 5.25 percent per annum for the first five years, 6.0 percent per annum for the sixth to tenth years and 6.5 percent per annum for the eleventh to fifteenth years, payable quarterly. The Bank has a call option to early redeem these debentures at par and has option to postpone principal and/or interest payment date if the conditions as specified are met.

Annual Report 2012 Thanachart Bank Public Company Limited

141


(c)

On 9 May 2008, the Bank issued 5,000,000 name registered subordinated, unsecured, unconvertible debentures with no debenture holders’ representative, with a face value of Baht 1,000 each. The debentures mature in 2015 and bear interest at a fixed rate of 5.1 percent per annum for the first three years, and 6 percent per annum for the fourth to seventh years, payable quarterly.

(d)

On 3 April 2009, the Bank issued 2,000,000 name registered subordinated, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debentures mature in 2019 and bear interest at a fixed rate of 5.25 percent per annum for the first three years, 5.75 percent per annum for the fourth to seventh years, and 6.5 percent per annum for the eighth to tenth years, payable quarterly. The Bank has a call option to early redeem these debentures at par if the conditions specified are met.

(e)

On 2 April 2010, the Bank issued 6,000,000 name registered subordinated, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debenture mature in 2020 and bear interest at a fixed rate of 5 percent per annum for the first five years and 5.5 percent per annum for the sixth to tenth years, payable quarterly. The Bank has a call option to early redeem these debentures at par if the conditions specified are met.

(f)

On 20 June 2011, the Bank issued 10,000,000 unsecured subordinated debentures with a face value of Baht 1,000 each. The debentures mature in 2019 and bear interest at fixed rates of 6.00 percent per annum until June 2016, and 6.50 percent per annum for the remaining years, payable quarterly. The Bank has a call option to early redeem these debentures at par if the conditions specified are met. This debenture was issued to replace SCIB’s debentures which were early redeemed in accordance with the BOT stipulations regarding the transfer of the entire business of SCIB.

(g)

On 20 July 2012, the Bank issued 8,497,000 name registered subordinated, unsecured debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debenture mature in 2022 and bear interest at a fixed rate of 4.70 percent per annum, payable quarterly. The Bank has a call option to early redeem these debentures at par if the conditions specified are met.

(h)

On 19 October 2012, the Bank issued 4,018,500 name registered subordinated, unsecured debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debenture mature in 2022 and bear interest at a fixed rate of 4.70 percent per annum, payable quarterly. The Bank has a call option to early redeem these debentures at par if the

142

Annual Report 2012 Thanachart Bank Public Company Limited


conditions specified are met. Part of this debenture, amounting to Baht 2,276 million, meets the criteria to be counted as Tier 2 capital. (i)

On 27 March 2012, the Bank issued 2,072,100 name registered unsubordinated, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debenture mature in 2013 and bear interest at fixed rate of 3.45 percent per annum, payable quarterly.

(j)

On 27 April 2012, a subsidiary company issued 6,000,000 name registered unsubordinated, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. Of these, 2 million units bear interest at fixed rate of 4.90 percent per annum and mature in 2014, and 1.5 million units bear interest at fixed rate of 5.20 percent per annum and mature in 2015, and another 2.5 million units bear interest at fixed rate of 5.50 percent per annum mature in 2016. All debentures pay interest quarterly. The subsidiary has to comply with the terms and conditions as specified in the loan agreement, such as maintenance of a debt to equity ratio.

(k)

On 1

November

2012, a

subsidiary

company

issued 3,000,000

name

registered

unsubordinated, unsecured, unconvertible debentures with debenture holders’ representative, with a face value of Baht 1,000 each. The debenture mature in 2016 and bear interest at fixed rate of 5.00 percent per annum, payable quarterly. In addition, the subsidiary has to comply with the terms and conditions as specified in the loan agreement, such as maintenance of a debt to equity ratio. 22.

Provisions (Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2012

Balance as at 1 January 2012 Increase during the year

Loss from

Employee

Obligations from

litigation

benefits

off-balance items

85

1,953

270

516

2,824

101

80

32

134

347

Utilised

-

Reversal of provisions

-

-

186

1,922

Balance as at 31 December 2012

(111)

(80) 222

Others

Total

(4)

(115)

-

(80)

646

2,976

Annual Report 2012 Thanachart Bank Public Company Limited

143


(Unit: Million Baht) Consolidated financial statements For the year ended 31 December 2011

Balance as at 1 January 2011

Loss from

Employee

Obligations from

litigation

benefits

off-balance items

89

2,315

285

483

3,172

-

3

-

-

3

2

360

39

90

491

Others

Total

Increase from purchase of subsidiary company Increase during the year Decrease from disposal of a subsidiary company

(1)

(3)

-

Utilised

(1)

(387)

-

Reversal of provisions

(4)

(335)

Balance as at 31 December 2011

85

(57)

(54)

1,953

-

270

516

(4) (445) (393) 2,824 (Unit: Million Baht)

Separate financial statements For the year ended 31 December 2012

Balance as at 1 January 2012

Loss from

Employee

Obligations from

litigation

benefits

off-balance items

Others

Total

84

1,755

270

512

2,621

-

24

-

-

24

65

32

133

-

-

Employee benefits for staff transferred from TS AMC Increase during the year Utilised Reversal of provisions Balance as at 31 December 2012

101 -

(109)

-

-

185

1,735

(80)

-

222

645

331 (109) (80) 2,787 (Unit: Million Baht)

Separate financial statements For the year ended 31 December 2011

Balance as at 1 January 2011

Loss from

Employee

Obligations from

litigation

benefits

off-balance items

19

358

-

92

469

-

1,395

-

-

1,395

Others

Total

Employee benefits for staff transferred from SCIB Increase from Entire Business 64

259

231

402

956

Increase during the year

Transfer

1

50

39

18

108

Utilised

-

(54)

-

-

(54)

Reversal of provisions

-

(253)

-

-

(253)

270

512

Balance as at 31 December 2011

144

84

Annual Report 2012 Thanachart Bank Public Company Limited

1,755

2,621


Employee Benefits Provision for long-term employee benefits, which is compensations on employees’ retirement, was as follows: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2011

2012 Defined benefit obligation at beginning of the year

2012

2011

1,924

2,272

1,732

356

Employee benefits for staff transferred from TS AMC

-

-

24

-

Employee benefits for staff transferred from SCIB

-

-

-

1,395

-

-

-

72

Current service cost

Increase from Entire Business Transfer

171

149

144

82

Interest cost

107

81

98

41

(236)

(47)

(216)

(73)

(69)

(160)

(68)

Actuarial (gain) loss Decrease from curtailment Reversal of provisions Defined benefit obligation at end of the year

-

(371) 1,924

1,897

-

(141)

1,714

1,732

Long-term employee benefits which is recognised in profit or loss in the statements of comprehensive income can be summarised as follows: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2011

2012

2012

2011

Current service cost

171

149

144

82

Interest cost

107

81

98

41

-

-

Loss on curtailment

-

(160)

Actuarial (gain) loss recognised during the year - Assumptions changing adjustments - Experience adjustments

(236) -

(47) -

(191)

(73)

(25)

-

Decrease from curtailment

(69)

(160)

(68)

-

Total expense recognised in profit or loss

(27)

(137)

(42)

50

Annual Report 2012 Thanachart Bank Public Company Limited

145


The principal actuarial assumptions used to calculate the defined benefit obligations are as follows: (Percent per annum)

23.

Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

Discount rate

4.07 - 4.38

4.07 - 4.70

4.38

4.09

Future salary increase rate

5.50 - 7.35

6.00 - 6.50

5.50

6.00

Average staff turnover rate (depending on age)

0.00 - 47.76

0.00 - 42.11

0.00 - 19.02

0.85 - 21.51

Insurance contract liabilities (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

34,291

29,831

-

-

Loss reserve and outstanding claims

1,975

3,441

-

-

Unearned premium reserve

3,116

2,659

-

-

250

223

-

-

39,632

36,154

-

-

Life policy reserve

Other liabilities under insurance policies Total insurance contract liabilities

2012

2011

From July to December 2011, there was widespread flooding in Thailand, affecting parties insured by the subsidiary. The subsidiary has assessed and recorded the impact of the flood in its financial statements based on available evidence and surveyors’ reports. However, some claims are still in the process of negotiations and further examination of the facts, which could affect the amount of loss reserves and loss reserves refundable from reinsurers. The management believes that no further significant losses will be incurred.

146

Annual Report 2012 Thanachart Bank Public Company Limited


24.

Other liabilities (Unit: Million Baht) Consolidated financial

Separate financial

statements

statements

2012 Other payables

2012

2011

1,341

1,546

1,106

1,330

Suspense cash received from account receivables

444

415

399

415

Insurance premium payable

393

69

603

208

Income received in advance

434

300

432

322

Provision for income tax

716

330

716

330

1,193

2,431

288

-

126

306

-

-

Others

3,327

2,584

1,801

1,683

Total other liabilities

7,974

7,981

5,345

4,288

Corporate income tax payable Payable from clearing house

25.

2011

Other components of equity (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2011

2012

2012

2011

Surplus from business combination under (123)

(123)

Debt instruments

901

Equity instruments

common control

-

-

364

705

287

607

488

259

143

1,508

852

964

430

Revaluation surplus on investments Revaluation surplus on investments Available-for-sale investments

Total Revaluation deficit on investments Available-for-sale investments Debt instruments Equity instruments

(43)

(252)

(1)

(184)

-

(4)

-

(1)

(9)

(3)

(4)

(34)

(52)

(259)

(5)

(219)

Held-to-maturity investments (transfer from available-for-sale investments) Total Total revaluation surplus on investments

1,456

593

959

211

304

143

-

-

1,637

613

959

211

Share of other comprehensive income of associates Total

Annual Report 2012 Thanachart Bank Public Company Limited

147


26.

Statutory reserve Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Bank is required to set aside to a statutory reserve at least 5 percent of its net profit after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of the registered capital. The statutory reserve is not available for dividend distribution. In August 2012, the Bank’s Board of Director passed a resolution to allocate Baht 71 million of net income to statutory reserve, and on 31 December 2012, the Bank additional allocated Baht 269 million of net income for the year 2012 to the statutory reserve (2011: Baht 333 million).

27.

Capital funds The primary objectives of the Bank’s capital management are to maintain the Bank’s ability to continue as a going concern and to maintain a capital adequacy ratio in accordance with the Act on Undertaking of Banking business B.E. 2551. As at 31 December 2012 and 2011, capital funds of the Bank consist of the following: (Unit: Million Baht) 2012

2011

Tier I Issued and fully paid up share capital

55,137

55,137

Share premium

2,101

2,101

Perpetual subordinated hybrid bonds (Hybrid Tier I)

7,130

7,130

Statutory reserve

1,060

968

Retained earnings - unappropriated

11,858

12,042

Total

77,286

77,378

(15,740)

(15,740)

61,546

61,638

35,773

26,000

3,982

3,391

116

64

39,871

29,455

101,417

91,093

Less: goodwill Total Tier II Subordinated debentures Reserve for assets classified as normal Net revaluation surplus on investment in equity securities Total Total capital funds

148

Annual Report 2012 Thanachart Bank Public Company Limited


On 23 August 2012, the Board of Directors’ meeting of Thanachart Bank passed a resolution to allocate amounting Baht 71 million of net income for the six-month period ended 30 June 2012 to statutory reserve. The remaining net income of such period, amounting Baht 1,341 million, was allocated as capital funds of the Bank. As at 31 December 2012 and 2011, the Bank’s capital ratios, calculated based on the BOT’s regulation relating to the calculation of capital funds announced by the BOT are as follows: 2011

2012 Minimum

Total capital to risk assets (percent)

Minimum

Capital ratio

requirement

Capital ratio

requirement

of the Bank

by BOT

of the Bank

by BOT

13.99

8.50

13.72

8.50

8.49

4.25

9.28

4.25

Total Tier I to risk assets (percent)

The Bank will disclose qualitative and quantitative information regarding capital maintenance as at 31 December 2012 in accordance with the Notification of the Bank of Thailand Re: Public Disclosure of Capital Maintenance Information for Commercial Banks on its website at www.thanachartbank.co.th, within April 2013. 28.

Dividends Dividends Dividends on net income for the year 2011 Dividends on net income for the year 2010

29.

Approved by

Total dividends

Dividend per share

Million Baht

Baht

Annual General Meeting of the Shareholders on 5 April 2012

1,930

0.35

2,205

0.40

Annual General Meeting of the Shareholders on 7 April 2011

Interest income Interest income for the years ended 31 December 2012 and 2011 consisted of the following: (Unit: Million Baht) Separate

Consolidated

Interbank and money market items

financial statements

financial statements

2012

2012

2011

2011

2,347

1,899

2,229

480

78

68

24

4,468

4,290

3,418

2,199

Loans

21,202

20,774

20,914

9,413

Hire purchase and financial lease

21,156

17,011

19,702

16,722

Total interest income

49,653

44,052

46,331

29,386

Investments and trading transactions Investments in debt securities

1,028

Annual Report 2012 Thanachart Bank Public Company Limited

149


30.

Interest expenses Interest expenses for the years ended 31 December 2012 and 2011 consisted of the following:

(Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012 Deposits Interbank and money market items Contribution fee to the Deposit Protection Agency Contribution fee to FIDF

2011

2012

2011

14,549

8,972

14,713

5,766

1,561

1,127

1,472

1,393

202

1,955

202

1,132

2,792

-

2,792

-

2,434

2,145

2,435

1,889

318

-

79

-

3,665

5,434

3,650

4,606

14

3

28

11

25,535

19,636

25,371

14,797

Issues debt instruments - Subordinated debentures - Unsubordinated debentures - Others Fees and services expense on borrowing Total interest expenses

31.

Fees and service income Fees and service income for the years ended 31 December 2012 and 2011 consisted of the following: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

Fees and service income Acceptance, aval and guarantees

331

271

331

102

1,216

1,168

-

-

710

745

710

238

1,081

901

1,049

875

Insurance brokerage fee income

334

222

1,767

982

Management fees

438

474

-

-

Credit card fee

763

584

770

252

Others

827

645

781

441

5,700

5,010

5,408

2,890

Fees and service expenses

(1,488)

(1,299)

(1,330)

Net fees and service income

4,212

3,711

4,078

Brokerage fee from securities/ derivatives ATM and electronic banking services Hire purchase fee income

Total fees and service income

150

Annual Report 2012 Thanachart Bank Public Company Limited

(836) 2,054


32.

Gains on trading and foreign exchange transactions Gains on trading and foreign exchange transactions for the years ended 31 December 2012 and 2011 consisted of the following: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2012

2011

2011

Foreign exchange and derivatives relating to foreign exchange

585

871

591

518

2

1

2

-

Debt securities

65

21

112

46

Equity securities

(1)

(5)

-

-

Others

13

3

-

-

664

891

705

564

Foreign exchange and derivatives relating to interest

Total

33.

Gains on investments Gains on investments for the years ended 31 December 2012 and 2011 consisted of the following: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2012

2011

2011

Gains (losses) on disposal Available-for-sale securities

454

182

320

81 -

Held-to-maturity securities

-

(1)

-

Other investments

5

80

5

Investments in associated and subsidiary companies

-

87

2

-

-

33

-

-

4

-

-

-

(17)

Gain on revaluation of investment at equity from business combination Reversal of impairment (losses) Available-for-sale investments General investments Investments in associated and subsidiary companies Gain on transfer of investments Total

(15)

(41)

(52)

(4)

(5)

-

-

-

-

372

-

-

448

712

270

60

Annual Report 2012 Thanachart Bank Public Company Limited

151


During the year 2011, a subsidiary company transferred investment classified as held-tomaturity debt securities amounting to Baht 8,439 million to trading securities in order to comply with the measurement of insurance liabilities reserve for long-term insurance contracts, whereby the value of the liabilities reserve depends on any changes in market discount interest rate. As a result of this transfer, difference between carrying cost and fair value at transfer date of Baht 329 million was recognised as gain on transfer in profit or loss. The subsidiary company also transferred investments classified as available-for-sale securities amounting to Baht 2,000 million to trading securities with a gain on transfer of Baht 43 million. 34.

Directors’ remuneration Directors’ remuneration represents the benefits paid to the directors of the Bank and public subsidiary companies in accordance with Section 90 of the Public Limited Companies Act, exclusive of salaries and related benefits payable to directors who hold executive positions but including the payment of remuneration amounting to Baht 15 million to the Bank’s and its subsidiaries’ directors, which was approved by the Annual General Meeting of Shareholders of the Bank and its subsidiaries.

35.

Impairment loss of loans and debt securities Impairment loss of loans and debt securities for the years ended 31 December 2012 and 2011 consisted of the following: (Unit: Million Baht) Consolidated

Separate

financial statements

financial statements

2012

2011

2012

2011

2,968

2,548

4,673

1,388

(1)

27

31

27

59

(1)

(36)

(40)

15

15

Bad debts and doubtful accounts Loans to customers Interbank and money market items Amortisation o