Issuu on Google+

Six Strategic Intents for the Business Operation in 2012

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 with increasing share in higher yielding

4. We intend to aggressively grow the housing loan portfolio to be the top-five in market share of the Commercial

Used and CYC segments. Banking Industry.

5. We intend to grow the Corporate and SME loan portfolios higher than industry average and gain market share.

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 targeted at meeting customers’ unique financial needs by creating

the highest quality products and services which strengthen our image as a trustworthy financial services group.


Financial highlights

As at and for the year ended December 31

Consolidated 2011

2010

2009

As at and for the year ended December 31

Separate financial statements

2008

2007

2011

2010

2009

2008

Consolidated

2007

Operating results (Million Baht)

Separate financial statements

2011

2010

2009

2008

2007

96.95

90.24

83.61

87.04

92.18

2011

2010

2009

2008

2007

82.46

85.62

90.67

Asset quality

Interest income

44,214

34,781

21,470

20,688

17,488

29,547

21,397

20,934

19,897

17,123

Interest expenses

19,797

11,566

6,736

9,398

9,396

14,959

7,375

6,791

9,429

9,386

Net interest income

24,416

23,216

14,734

11,290

8,092

14,589

14,022

14,143

10,467

7,737

NPL-gross to total loans (Percent)

5.58

5.60

2.57

2.37

2.41

2.74

2.26

2.49

2.30

2.31

Non-interest income

10,595

9,457

18,403

10,700

6,111

7,172

4,000

2,815

2,286

2,005

NPL-net to total loans (Percent)

2.64

2.48

0.58

0.58

0.78

1.45

0.57

0.59

0.60

0.81

Total income(1)

35,011

32,673

33,137

21,990

14,203

21,760

18,022

16,958

12,753

9,742

Coverage ratio(7) (Percent)

69.75

71.22

96.41

94.99

92.07

71.53

97.66

92.33

88.81

86.80

21,877

16,824

24,177

15,535

9,905

13,671

8,730

9,125

7,788

6,105

Total allowance to BOT regulation

104.27

108.05

111.66

112.75

121.72

103.12

105.32

102.85

101.55

108.38

(Percent) 37,677

36,859

8,675

7,466

17,989

7,648

8,359

7,167

5,213

Non-interest expenses Bad debt and doubtful

accounts(2)

Net income(3)

2,504

2,149

3,107

3,968

2,692

1,422

1,280

2,830

3,548

2,606

7,671

8,777

4,056

1,870

1,327

6,668

5,719

3,547

1,304

991

88.86

93.37

borrowings ratio (Percent)

Non-performing loans (NPL)

5,520

(Million Baht)

Operating performance Basic earnings per share (Baht)

Loans to deposits and short-term

1.39

1.92

2.19

1.08

0.84

1.21

1.25

1.91

0.75

Capital measures

0.63

Return on average assets (ROAA) (percent)

0.89

1.23

1.06

0.56

0.47

1.13

1.31

0.96

0.41

0.36

Tier I capital ratio (Percent)

9.28

11.71

8.65

8.02

10.15

Return on average equity (ROAE) (percent)

10.61

15.52

17.01

8.79

7.47

9.42

10.70

15.20

6.22

5.52

Total capital ratio (Percent)

13.72

14.75

14.10

11.18

12.00

2.92

3.33

3.73

3.17

2.64

2.99

3.63

3.66

3.14

2.73

Risk weighted assets (Million Baht) 664,103 609,277 273,366 252,634 197,128

62.49

51.49

56.51

60.09

62.11

62.83

48.44

53.81

61.06

62.67

Interest spread(4) (Percent) Cost to income ratio net insurance premium

income(5)

Common share information

(Percent) Common shares outstanding (Million shares)

Statement of financial position (Million Baht)

- Average-basic

5,514

4,563

1,854

1,735

1,584

5,514

4,563

1,854

1,735

1,584

- End of period

5,514

5,514

1,935

1,735

1,735

5,514

5,514

1,935

1,735

1,735

13.58

13.09

14.38

12.26

12.06

Loans

635,220 606,851 285,515 276,142 228,776 616,713 326,549 282,577 272,925 224,940

Book value (Baht)

12.86

12.10

13.62

12.26

11.93

Total assets

886,060 873,203 432,970 378,347 300,787 878,053 482,063 413,878 368,272 291,098

Dividends per share (Baht)

0.40

0.56

0.56

0.43

Deposits and bill of exchange

655,206 672,475 341,496 317,243 248,193 693,991 349,753 342,664 318,760 248,084

Total liabilities

810,526 800,809 405,098 357,006 279,807 807,169 415,327 387,523 347,002 270,402 14,152

7,871

7,470

7,534

4,603

676

256

256

213

166

89

92

76

64

Shareholders’ equity(6)

74,848

72,183

27,811

21,278

20,923

70,884

66,737

26,355

21,270

20,695

Other information Employees

16,298

16,846

9,368

9,630

6,210

Branches Exchange booth

Remark: Financial Statement Appearance in accordance with the notification of the BOT Re: the

1. Interest income excludes dividend income

Definitions and

Preparation and Announcement of Financial Statements of Financial Institutions dated

2. Interest expense excludes contribution fee to Deposit Protection Agency

Formulas

28 December 2010 or Sor Nor Sor 11/2010 resulted in change various items. However,

3. Non-interest income includes fee paid related to income and insurance/life insruance expenses

the Bank and its subsidiaries have revised the financial statement for the year 2011

4. Non-interest expense excludes fee paid related to income, insurance/life insurance expense and

(exepting Y2010) for analysis and comparison

contribution fee to Deposit Protection Agency

5. Financial ratios are calculated on disclosure financial statement

2

Annual Report 2011 Thanachart Bank Public Company Limited

(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

(8)

79

Cost of fund = Interest expenses/Average paying liabilities Paying liabilities = Total deposits + interbank and money market from interest bearing + total borrowings

(5)

Cost to income ratio = Non-interest expenses/Total income

Yield = Interest income/Average earning assets

(6)

Excluding minority interest/non-controlling interest

Earning assets = Interbank and money market from interest bearing +

(7)

Total allowance/NPL

net investment + loans

(8)

Stand alone exchange booth

Annual Report 2011 Thanachart Bank Public Company Limited

3


Mr. Suphadej  Poonpipat Vice Chairman and Chairman of the Executive Committee

Message from the BOARD OF DIRECTORS

processes have been unified. We greatly appreciate the

remains uncertain with slow recovery in the USA and the debt

support of our over 4 million customers throughout this

crisis continuing to impact major European economies. Here in

process and now with over 670 branches, 2,100 ATMs and a

Thailand, flood recovery efforts are now commencing with

2011 was a year of great change and challenge for

full range of financial services; the Thanachart Bank group is

subdued economic conditions expected until at least the

Thailand and Thanachart Bank. First and foremost was the

well positioned to meet all the unique financial needs of our

second half of the year. In addition, competition remains fierce

devastating flooding which impacted the central part of

customers.

not only among the commercial banks but also from the

Dear shareholders,

Thailand, including sections of Bangkok. This unprecedented

growing presence of the government owned Special Financial

disaster caused substantial damage to agriculture,

We continue to maintain our strong position as the

Institutions. The royal decree to restructure Financial

infrastructure and productive capacity and most sadly led to

market leader in auto Hire Purchase and to show strong

Institution Development Fund (FIDF)’s debt owed to the

substantial loss of life. 2011 was also a year of political change

growth in our credit card and revolving cash card portfolios

Finance Ministry B.E. 2555, allows the Bank of Thailand to

which saw the election of a new government led by Thailand’s

with an overall loan growth of 4.7%. The increase in the Bank

impose a 0.47% fee on the deposit bases of commercial banks,

first female Prime Minister.

of Thailand’s interest rates in the first half of the year along

will be another challenge facing commercial banks. Thus, it is

with heightened competition for deposits, especially from the

important that economic policy continue to support a strong

On the economic front, the global economy continued

government-owned Special Financial Institutions, resulted in

private sector financial system and a level playing field for all

to be impacted by a weak recovery in the USA and the

a rapid increase in deposit rates and funding costs throughout

participants so that the sector can continue to foster long

European Debt Crisis, which affected tourism, exports and

the year. This combined with our market leading fixed rate Hire

term, sustainable economic development and be competitive in

investments in Asian countries, including Thailand. As for

Purchase portfolio led to a decline in Net Interest Margin over

the increasingly integrated Asean Economic Community.

Thailand, inflation concerns prompted the Bank of Thailand to

the year from 3.33 to 2.92%. Along with the one-time

move into a tightening phase and substantially increase

integration costs and impact from the floods, these factors

2011 has truly been a year of transformation for our

interest rates in the first half of the year before starting to

impacted our results such that net income declined by 12.59%

bank with the successful completion of the merger with Siam

ease rates in light of the weak global economy and the effects

from THB 8,777 to THB7,672 million in 2011.

City Bank. This was carried out in a difficult local and global

of the flood. Due to these issues, the Thai economy contracted in the fourth quarter, reducing overall GDP growth from 7.8%

environment which was closely followed by devastating

With the systems and branch conversion phase of

flooding in many parts of Thailand. Through these many challenges, our management and staff showed their enduring

development with our efforts firmly focused on growth and

dedication to helping our customers and one another overcome

The banking industry was also affected. Despite

further increasing our productivity, sales capacity and

any obstacle and reach their goals. It is this spirit and

unfavorable factors and fierce competition, the overall banking

customer satisfaction through strategic investments in our

commitment which we take this opportunity to recognize and

industry remained strong with high growth in loans and

people, leadership, technology and processes. Working with

the Board of Directors expresses our sincere appreciate to all

deposits and well-controlled non-performing loans.

Scotiabank to implement global best practices, we will

our staff for their great efforts this year and we would also like

complete the process of upgrading our sales and support

to thank all the customers, stakeholders, and shareholders as

In the past year, we focused on the integration project

infrastructure which will centralize back office processes,

well for their strong support. While challenges abound, the

with Siam City Bank (SCIB) and serving our existing

allowing our branches and call centers to focus on sales and

Board is committed to strong corporate governance and is

customers amid the high impact from the floods. This was the

customer service activities, significantly accelerating our loan

confident that our strategy under the guiding principal of

largest and most complex merger in the history of Thailand’s

approval, fulfillment and collection processes while further

Transforming to Strength and realizing Synergies and with the

financial services industry and required additional one-time

improving our loan quality. We have recruited new leadership

trust of our customers and support of our strategic partner,

costs in such areas as branches, training, systems and human

in several key business lines and support functions to support

Scotiabank, Thanachart Bank is well positioned for further

resources among others. With the strong dedication and

these initiatives and are confident these investments will

growth and prosperity.

tremendous efforts of all of our staff and key vendors and with

position the bank as a leader in customer service in the Thai

the support of our strategic partner, The Bank of Nova Scotia

financial services sector.

(Scotiabank), we completed the Entire Business Transfer of

Annual Report 2011 Thanachart Bank Public Company Limited

integration now complete, we move into the next phase of our

in 2010 to only 0.1% in 2011.

14

Mr. Somjate  Moosirilert Member of the Executive Committee and Chief Executive Officer and President

all the assets of SCIB as scheduled on October 1, 2011 with

While we are excited about the future, we expect the

minimal disruption to our clients. All SCIB branches have now

environment for commercial banks in 2012 in Thailand to

Chairman of the Board of Director

been re-branded to Thanachart and all key systems and

continue to be challenging. The global economic recovery

Thanachart Bank Public Company Limited

(Mr. Banterng Tantivit)

Annual Report 2011 Thanachart Bank Public Company Limited

15


16

Annual Report 2011 Thanachart Bank Public Company Limited

Annual Report 2011 Thanachart Bank Public Company Limited

17


18

Annual Report 2011 Thanachart Bank Public Company Limited

Annual Report 2011 Thanachart Bank Public Company Limited

19


MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis of Financial Position and Performance (A comparative analysis of 2011 and 2010 consolidated Consolidated Financial Statements) On April 9, 2010, TBANK successfully acquired 1,005,330,950 SCIB common shares, equivalent to 47.58 percent of SCIB’s total issued and paid up shares, from Financial Institution Development Fund (FIDF). Thereafter, it conducted tender offers to purchase the remaining shares from public shareholders in June and November 2010 at a price of THB 32.50 per share (the same price that TBANK paid to FIDF). Consequently, TBANK’s held 99.95 percent of SCIB’s total issued and paid up shares. Upon the successful share acquisition as mentioned above, therefore, the balance sheets as well as consolidated income statements of SCIB and its subsidiaries have been consolidated into TBANK’s consolidated financial statements since the date that TBANK assumed a control over SCIB. TBANK, in the first quarter of 2011, established a wholly-owned subsidiary named TS Asset Management Company Limited (TS AMC) to facilitate an efficient management of the entire non-performing assets transferred from SCIB as part of the acquisition. All of SCIB Non-Performing Loans (NPLs), Non-Performing Asset (NPA), liabilities, and obligations whether existing ones or that may arise in the future were transferred to TS AMC on October 1, 2011 at a fair price recommended by the Independent Financial Advisor at THB 50,134 million, comprising assets of THB 381,077 million and liabilities of THB 330,943 million. Since the same date, SCIB had ceased its entire business operation. Thereafter on December 6, 2011, the Extraordinary General Meeting of Shareholders of SCIB approved a change its name to “SCIB Public Company Limited.” It returned a commercial banking license to the Ministry of Finance on December 8, 2011 and had gone under the process of liquidation since December 9, 2011. To allow the minority shareholders of SCIB to sell their shares before the liquidation, in November 2011 TBANK performed a tender offer to SCIB shareholders and acquired 696,865 SCIB shares at THB 16 million, resulting in 2,112,375,422 shares held in total, equivalent to 99.98 percent stake. Meanwhile, as part of the acquisition, 437.25 million ordinary shares or 48.35 percent stake of Ratchathani Leasing Public Company Limited’s (THANI) were transferred from the SCIB to TBANK on October 1, 2011. On October 21, 2011 TBANK subscribed to THANI shares from the THANI’s right offering proportionately to its original shareholding, resulting in 874.97 million shares held. However, the remaining of THANI shareholders did not exercise all of their rights; TBANK’s shareholding, therefore, rose from 48.35 percent to 65.18 percent of the total issued and paid up shares.

TBANK consolidated financial statements included performances of the following subsidiaries. Direct subsidiaries SCIB Public Company Limited (formerly Siam City Bank Public Company Limited) Thanachart Securities Public Company Limited Thanachart Insurance Company Limited Thanachart Life Assurance Company Limited Thanachart Fund Management Company Limited Thanachart Broker Company Limited Thanachart Group Leasing Company Limited Thanachart Management and Services Company Limited

20

Annual Report 2011 Thanachart Bank Public Company Limited


Thanachart Legal and Appraisal Company Limited Thanachart Training and Development Company Limited TS Asset Management Company Limited Ratchathani Leasing Public Company Limited Indirect Subsidiaries National Leasing Company Limited Siam City Securities Company Limited (Disposed investment in August 2011) Siam City Life Assurance Company Limited Siam City Asset Management Company Limited (Disposed investment in May 2011) SCIB Service Company Limited

OVERVIEW OF OPERATING RESULTS (A comparative analysis of 2011 and 2010 Consolidated Financial Statements)

Consolidated Income Statements

2011

2010

(Unit: THB Million)

Change from 2010 Increase/ (Decrease)

Percent

Interest income

44,214

34,781

9,432

27.12

Interest expenses

19,797

11,566

8,232

71.18

Net interest income

24,416

23,216

1,201

5.18

Net fee and service income

3,358

2,850

508

17.82

Other operating incomes(1)

7,237

6,607

630

9.54

Other operating

expenses(2)

Income (loss) before impairment loss of loans and debt securities Impairment loss of loans and debt securities Income before corporate income tax

21,877

16,824

5,054

13,134

15,849

(2,715)

2,504

2,149

355

10,630

13,701

(3,071)

30.04 (17.14) 16.55 (22.42)

Corporate income tax

2,948

4,548

(1,600)

(35.19)

Net income

7,682

9,152

(1,471)

(16.07)

Attributable to controlling interests

7,671

8,777

(1,105)

(12.60)

Attributable to minority interests

10

376

(365)

(97.23)

Earnings per share (Baht) Weighted average number of ordinary shares (shares)

Notes:

(1)

Income net of insurance/life assurance expenses

(2)

Exclusive of insurance/life assurance expenses

1.39

1.92

5,513.66

4,562.52

In 2011, net income of TBANK and its subsidiaries recorded THB 7,671 million, fell by THB 1,105 million or 12.60 percent year-on-year. The key factors contributing to its performance were the following:

• Loans grew by 4.7 percent year-on-year. In particular, the hire purchase Loans grew by 19.5 percent. Despite

negative impact from the flood crisis in the 4Q2011, TBANK maintained its leading position in the automobile hire

purchase loans. The outstanding hire purchase loans stood at THB 286,361 million where it achieved a penetration

rate of new car hire purchase loans of 19.1 percent. Owing to the successful merger with SCIB, the bank loan

portfolio was well diversified. The ratio of retail loans and SME loans was at 62 percent to 38 percent.

• Deposit and B/E fell by 2.6 percent year-on-year. In 2011, TBANK altered it products and interest rates offer

to be in line with the policy interest rate as well as the market trends. The ratio of current account deposits and

savings deposits (CASA) to total deposits including B/E was 26.9.

Annual Report 2011 Thanachart Bank Public Company Limited

21


• Interest spread stood at 2.9 percent,

• Capital Adequacy: TBANK’s total capital

decreased from 3.3 percent from 2010, with the

yield on earning assets rose to 5.5 percent along

61,638 million was Tier 1 and THB 29,455 million

with the rise of market interest rate, compared to

was Tier 2. BIS ratio was 13.7 percent. The

5.1 percent of the 4Q2010 despite lower interests

capital consideration has deducted THB 15,740

recognized as flood relief programs given to

million of goodwill from acquiring SCIB shares

customers who were affected by the flood crisis in

and included THB 10,000 million subordinated

4Q2011.

Yet, the gain is expected in 1Q2012.

debentures transferred from SCIB. This was

Meanwhile, yield on loan rose slightly in 4Q2011

carried out in accordance with a waiver granted

as a result of combining Ratchthani Leasing’s

by the Bank of Thailand which stipulated such

performance. Cost of fund increased to 2.6

consideration for capital after the completion of

percent compared to 1.8 percent of 2010 as a

the entire business transfer (October 1, 2011).

result of the higher market interest rates as well as

intensifying competition.

amounted to THB 91,093 million, of which THB

Net Interest income

• Non-performing loan management. Impairment

In 2011, net interest income of TBANK and its

loss of loans and debt expense to total loan ratio

subsidiaries recorded at THB 24,416 million, reflecting an

was 0.4 percent, slightly increased from 0.3 of

increase of THB 1,201 million or 5.18 percent year-on-

2010 despite an impact from the flood crisis.

year. This was due primarily to increasing volumes of

Meanwhile, a result of TS AMC’s good performance

TBANK and SCIB transactions. Total interest income

helped improve quality of NPL, thus, lowering its

amounted to THB 44,214 million, an increase of THB 9,432

provision for NPL. As of December 31, 2011,

million or 27.12 percent while interest expenses amounted

TBANK and its subsidiaries incurred NPL of THB

to THB 19,797 million, an increase of THB 8,232 million or

37,677 million with the ratio of gross NPL to total

71.18 percent year-on-year. As a result, interest spread of

loans of 5.6 percent.

2011 stood at 2.92, a decrease from 3.32 percent of 2010.

Non-interest Income

• Growth on non-interest income which was

contributed by fees and service income, brokerage

fees, gains on proprietary trading and foreign

Non-interest income consisted of net fee and

trading transactions, gain on investment, profit

service income, net insurance/life insurance premium

sharing from investments in associated companies

income, and other operating income recorded THB 10,595

recognized under equity method, dividend income,

million, an increase of THB 1,137 million or 12.03 percent

net insurance/life insurance premium income.

year-on-year.

Net-interest income to net operating income was

30.2 percent.

Net Fees and Service Income

• The effectiveness of operating expense

TBANK and its subsidiaries recorded net fees and

management: The ratio of operating expense

service income of THB 3,358 million, representing an

to total income was 62.5 percent, increased

increase of THB 508 million or 17.82 percent year-on-year.

from 51.1 percent of 2010. This was due

Fees and service income amounted to THB 3,858 million,

primarily to thinner interest spread and integration

an increase of THB 489 million or 14.52 percent while fees

costs which included IT system improvement,

and service expenses amounted to THB 500 million, a

branch decoration cost, employee benefits and

decrease of THB 19 million or 3.60 percent due to financial

trainings, as well as cost from early retirement

product variety offered to customers both from TBANK and

program.

SCIB.

• Corporate income tax: TBANK and its subsidiaries

corporate income tax for 2011 totaled THB 2,948

Other Operating Income

million baht, or 27.7 percent, compared to 33.2

Other operating income consisted of gain on trading

percent of 2010. This was because of NPA transfer

and foreign exchange transaction, gain on investments,

to TS AMC and sales of investment in Siam City

profit sharing from investments in associated companies

Securities Co., Ltd. And the provision could be

recognized under equity method, dividend income,

recognized as tax deductible expenses.

brokerage fees, net insurance/life assurance premium

22

Annual Report 2011 Thanachart Bank Public Company Limited


income, and other income. In 2011, other operating income (net of insurance/life assurance operating expenses) of TBANK and its subsidiaries recorded THB 7,237 million, reflecting an increase of THB 630 million or 9.54 percent year-on-year.

The increase was attributable to an increase of gain on investments of THB 398 million, gain on trading and foreign exchange transaction of THB 321 million, and dividend income SCIB received from Vayupak Fund of THB 246 million while net insurance/life assurance premium income fell by THB 225 million.

Other Operating Expenses TBANK and its subsidiaries recorded other operating expenses (exclusives of insurance/life assurance expenses)

of THB 21,877 million, rose by THB 5,054 million or 30.04 percent year-on-year due primarily to personnel expenses

and integration costs. Consequently, other operating expenses to net operating income ratio (cost to income ratio) was

at 62.5 percent.

Bad Debts, Doubtful Accounts, and Allowance for Impairment In 2011, TBANK and its subsidiaries incurred expenses of bad debt, doubtful accounts, and impairment

of securities investments of THB 2,504 million, an increase of THB 355 million. Provision to total loan ratio rose

to 0.53 percent from 0.47 percent of 2010 while coverage ratio was 69.75 percent and actual/required LLR required by

the Bank of Thailand was 104.27 percent.

CONSOLIDATED FINANCIAL POSITION

Consolidated Balance Sheet

December 31, 2011

December 31, 2010

(Unit: THB Million)

Change from 2010 Increase/ (Decrease)

Percent

Assets Cash

16,006

15,298

Interbank and money market items (with interest)

63,201

85,060

Investment-net

148,345

140,022

8,323

Loans and accrued interest receivables-net

609,903

581,525

28,378

6,762

7,851

(1,089)

(13.87)

(227)

(2.53)

Property foreclosed-net

8,759

8,986

Goodwill

Land, premises and equipment-net

15,750

15,750

Other assets

17,334

18,711

886,060

873,203

Total assets

708 (21,859)

0 (1,377) 12,857

4.63 (25.70) 5.95 4.88

0.00 (7.36) 1.47

Annual Report 2011 Thanachart Bank Public Company Limited

23


As of December 31, 2010, TBANK and its subsidiaries recorded net asset of THB 886,060 million, an increase of THB 12,857 million or 1.47 percent year-on-year, due primarily to an increase of loans and accrued interest receivables of THB 28,378 million. Ratio of retail loan to corporate loan and SME loan was 62 to 38.

Consolidated Balance Sheet

December 31, 2011

December 31, 2010

(Unit: THB Million)

Change from 2010 Increase/ (Decrease)

Percent

Liabilities and shareholders’ equity Deposits Interbank and money market items (with interest)

436,040

532,656

60,151

40,545

(96,617)

(18.14)

19,606

48.36

Liability payable on demand

2,131

3,127

Debt issued and borrowings

254,297

174,949

79,348

45.36

2,824

900

1,924

213.84

36,154

29,774

6,380

21.43

Provisions Insurance and contract liabilities Other liabilities Total liabilities Equity attributable to the Bank’s shareholders Minority interest Total liabilities and shareholders’ equity

(996)

(31.86)

18,931

18,859

71

0.38

810,526

800,809

9,717

1.22

74,848

72,183

2,665

3.70

685

211

475

225.49

886,060

873,203

12,857

1.47

As of December 31, 2011, TBANK and its subsidiaries posted total liabilities of THB 810,526 million, an increase of THB 9,717 million or 1.22 percent compared to the end of 2010. An increase was attributed to the following:

• Debt instruments and borrowings of THB 254,297 million, an increase of THB 79,348 million or 45.36 percent from last year. Most of debt instruments issued by TBANK were B/E as a mean to diversify customers’ investment portfolio and provide them an investment alternative with a better yield in light of Deposit Protection Agency Act which took effect since August 2011. The products were well accepted by TBANK customers. Meanwhile, deposits dropped by THB 96,617 million or 18.14 percent compared to the end of 2010.

• Interbank and money market was THB 60,151 million, an increase of THB 19,606 million.

Shareholders’ equity of TBANK and its subsidiaries as of December 31, 2011 amounted to THB 74,848 million,

an increase of THB 2,665 million or 3.70 percent from the end of 2010, most of which came from 2011 net profit.

ASSETS QUALITY Assets as reflected in the consolidated financial statements. 1. Loans, receivables and accrued interest receivables

As of December 31, 2011, TBANK and its subsidiaries’ net loans and accrued interest receivables in accordance

with the Notifications of the BOT amounted to THB 620,328 million, an increase of THB 17,079 million or 2.83 percent from the end of last year. During 2011, the Bank and its subsidiaries entered into various debt restructuring agreements in the form of reconditioning of the debt repayment, transferring assets and/or equity and/or reconditioning the terms and conditions of repayment. The total of THB 38,685 million of debts was restructured compared to THB 17,180 million outstanding balances before the restructuring. At the end of 2011, the Bank and its subsidiaries had entered into debt restructuring agreements with 53,922 debtors out of 1,382,206 total bank’s debtors. The total outstanding balance of loans and accrued interest from restructuring was of THB 38,816 million.

24

Annual Report 2011 Thanachart Bank Public Company Limited


LOAN CONCENTRATION At the end of 2011, 45.08 percent of loan portfolio was nominated by hire purchase loans, followed by 12.90 percent of manufacturing and commerce loans, 11.59 percent of housing loans, 9.20 percent of infrastructure and service loans, 7.55 percent of real estate and construction loans, and 13.68 percent of other loans respectively. LOANS CLASSIFIED BY BUSINESS TYPE IN 2010

LOANS CLASSIFIED BY BUSINESS TYPE IN 2011

13.68% Others

12.16% Others 45.08% Hire Purchase 16.05% Manufacturing and Commerce

39.48% Hire Purchase

7.55% Real Estate and Construction 9.20% Infrastructure and Service

8.64% Real Estate and Construction 12.79% Housing

12.90% Manufacturing and Commerce

11.59% Housing

10.88% Infrastructure and Service

2. Loan classification according to the BOT’s notification

As of December 31, 2011, TBANK and its subsidiaries’ loans and accrued interest receivables classified under the

BOT’s notification registered at THB 620,328 million, an increase of THB 17,079 million or 2.83 percent from the previous year. As of December 31, 2011, it set aside allowance for doubtful accounts of THB 24,417 million and additional allowances for doubtful accounts of THB 383 million. As a result, the total allowance for doubtful accounts amounted to THB 24,800 million. The ratio of total allowance for doubtful account to loans and accrued interest receivables, therefore, stood at 4.00 percent. LOANS CLASSIFICATION ACCORDING TO THE BOT’S NOTIFICATION

(Unit: THB Million) Debt Balance/Book Value(1)

Loans and Interest Receivables

Normal

December 31, 2011 December 31, 2010

542,456

531,104

40,447 7,031

doubtful doubtful of loss

Allowance for Doubtful Accounts December 31, 2011

December 31, 2010

3,970

2,082

36,539

722

2,249

6,663

3,870

2,898

11,763

12,620

7,507

8,277

18,631

16,323

8,348

8,199

620,328

603,249

24,417

23,705

Additional allowance for doubtful accounts

383

534

Total allowance for doubtful accounts

24,800

24,239

Ratio of total allowance for doubtful accounts to total loans

4.00

4.02

Special mention substandard

Total

and interest receivables (percent) Note:

(1)

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

Annual Report 2011 Thanachart Bank Public Company Limited

25


3. Non-Performing Loans (NPLs)

As of December 31, 2011, TBANK and its subsidiaries recorded an NPL in the amount of THB 37,677 million, an

increase of THB 818 million from the end of 2010, due primarily to changes of policies, strategies, and process of debt management and collections. Meanwhile, good performance of TS AMC helped improve quality of NPL transferred from SCIB. As a result, it achieved total NPL ratio of 5.58 percent.

NON-PERFORMING LOANS (Unit: THB Million) December 31, 2011

December 31, 2010

Non-performing loans (NPLs)

37,677

36,859

NPLs to total loans (percent)

5.58

5.60

17,787

16,336

2.64

2.48

NPL-net (Under the BOT’s regulation) NPL-net (percent)

NPLs CLASSIFIED BY BUSINESS TYPE

9.51% Hire Purchase Loans

11.91% Others

CLASSIFIED NPLs

18.79% Substandard

9.37% Housing Loans

14.74% Service

31.46% Doubtful 10.08% Real Estate and Construction

44.39% Manufacturing and Commerce

49.75% Doubtful of Loss

4. INVESTMENT IN SECURITIES

In 2011, TBANK and its subsidiaries’ total investments in securities stood at THB 148,345 million. Investments in

government and state enterprise securities accounted for 52.97 percent, followed by foreign debt securities, most of which were forward contracts to cover the foreign exchange risks for both foreign investments and accrued interests which accounted for 18.72 percent. After taking into consideration net revaluation surplus on investments in securities, TBANK recorded net investments in securities of THB 148,345 million in 2010, an increase from THB 139,933 million in 2010. The details of 2011 investment in securities are provided as follows:

26

Annual Report 2011 Thanachart Bank Public Company Limited


INVESTMENT IN SECURITIES CLASSIFIED BY TYPE OF INSTRUMENTS INVESTMENT CLASSIFIED BY TYPE

(Unit: THB Million) December 31, 2011

Percent

December 31, 2010

Percent

Debt securities Government and state enterprise securities • Trading securities

10,508

7.11

44

0.03

• Available-for-sale securities

40,877

27.67

52,685

37.92

• Held-to-maturity securities

26,876

18.19

36,138

26.01

4,770

3.23

21

18,389

12.45

9,898

7.12

6,592

4.46

5,874

4.23

642

0.43

3,015

2.17

25,516

17.27

12,704

1,500

1.02

5,705

Private debt securities • Trading securities • Available-for-sale securities • Held-to-maturity securities

0.02

Foreign debt securities • Trading securities • Available-for-sale securities • Held-to-maturity securities

9.14 4.11

Equity securities Listed securities • Trading securities • Available-for-sale securities

34

0.02

74

0.05

7,483

5.06

7,752

5.58

12

0.01

29

0.02

Unit trusts • Available-for-sale securities General investments Total investment in securities

4,549

3.08

4,993

147,748

100.00

138,932

Add (Less) Allowance for revaluation

641

Allowance for impairment

(44)

Total investments-net

148,345

3.59 100.00

1,098 (97) 139,933

LIQUIDITY At the end of 2011, TBANK and its subsidiaries’ cash flows received from financing activities amounted to THB 69,490 million while that of the investment activities was THB 10,216 million and cash flows used in operating activities stood at THB 78,998 million. The Bank’s cash and cash equivalents, therefore, increased by THB 708 million. At the end of 2011, the Bank’s outstanding cash and cash equivalent increased by THB 16,006 million with major items listed as follows: • Cash flows from financing activities included cash received from borrowings of THB 1,181,760 million while cash paid for borrowings was THB 1,103,304 million, cash paid for interest from borrowings was THB 6,759 million, cash paid for dividend was THB 2,205 million, and dividend paid to non-controlling interests of its subsidiaries was THB 2 million. • Cash flows from the investing activities included increase in investment in securities of THB 5,798 million, cash received from interests on investment of THB 4,534 million, cash received from dividend was of THB 824 million, and cash paid for purchase of equipment of THB 852 million. • Cash flows from operating activities included decrease of deposits in the amount of THB 96,617 million, cash received from increase of loans by THB 22,028 million, cash received from interbank and money market items of THB 23,211 million and profit from operation of THB 18,627 million respectively.

Annual Report 2011 Thanachart Bank Public Company Limited

27


(Unit: THB Million) Major Changes Iems

2011

2010

Cash flows from financing activities

69,490

91,746

Cash flows from investing activities

10,216

(35,165)

(78,998)

(45,003)

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

708

11,578

15,298

3,720

16,006

15,298

Relationship between sources and utilization of funds

In 2011, TBANK’s major sources of funds were from deposits and borrowings of THB 436,040 million and THB 254,297 million respectively. For the utilization of funds, THB 635,220 million was used for loans and THB 147,748 million was for investments respectively. The comparison between sources and utilization of funds based on maturity of financial instruments dated in balance sheet as of December 31, 2011 illustrated that the primary sources of funds were deposits with remaining maturity of less than one year which accounted for 36.19 percent of total sources of funds; followed by 31.50 percent of borrowings with remaining maturity of less than one year. On fund utilizing side, funds were used for loans with remaining maturity of more than one year which was accounted for 50.37 percent and loans with remaining maturity of less than one year accounted for 24.68 percent of total uses of funds. However, the maturity mismatch between sources and uses of funds was considered normal in commercial bank and financial institution business. This was due to the behavior of most depositors to extend their deposits after the maturity. Furthermore, the Bank had conducted risk management program that aimed at seeking for sources of funds that were most compatible with their uses through various financial instruments. This therefore enabled the TBANK to recognize in advance the signal of any adverse impacts that would occur to the sources and uses of funds. Details of key sources and uses of funds classified by maturity date of each item since the balance sheet date as of December 31, 2011 were as follows:

Type

At Call THB Million

Less Than 1 YR

Percent

THB Million

Percent

More Than 1 YR THB Million

Percent

Not Specified THB Million

Percent

Total THB Million

Percent

Sources of funds Deposits Borrowings

176,616

25.58 249,835

999 177,615

36.19

9,589

1.39

0

0.00 436,040

63.16

0.14 217,447

31.50 28,721

4.16

7,130

1.03 254,297

36.84

25.73 467,282

67.69 38,310

5.55

7,130

1.03 690,337 100.00

47,672

6.09 193,205

24.68 394,343

50.37

0

0.00 635,220

81.13

1

0.00 67,445

8.61 68,908

8.80 11,394

1.46 147,748

18.87

47,673

6.09 260,650

33.29 463,251

59.17 11,394

Total Sources of funds Uses of Funds Loans(1) Investments Total Uses of funds Note:

28

(1)

1.46 782,968 100.00

The outstanding balance of loans and debtors at call also included loans and debtors whose income recognition was put on hold

Annual Report 2011 Thanachart Bank Public Company Limited


MAINTENANCE OF CAPITAL ADEQUACY RATIO As of December 31, 2011, TBANK’s total capital registered at THB 91,093 million of which THB 61,638 million was Tier 1 capital and THB 29,455 million was Tier 2. The ratio of capital to risk weighted assets calculated under Basel II standards dropped from 14.75 percent at the end of 2010 to 13.72 percent, comprising 9.28 percent of Tier 1 capital, compared to 11.71 percent of 2010 due to goodwill expense from acquiring SCIB in the amount of THB 15,740 million and 4.44 percent of Tier 2 capital, compared to 3.04 percent of 2011 from subordinated debentures transferred from SCIB. This was carried out in accordance with a waiver granted by the Bank of Thailand which stipulated such consideration for capital after the completion of the entire business transfer (October 1, 2011). The capital ratio, however, remained well above the BOT’s minimum requirement at 8.50 percent. Details of ratio

of capital to risk weighted assets could be listed as follows:

CAPITAL ADEQUACY RATIO December 31, 2011 THB Million

December 31, 2010

Percent

THB Million

Percent

Tier 1 capital

61,638

9.28

71,335

11.71

Total capital

91,093

13.72

89,898

14.75

Thanachart Securities Public Company Limited A daily average trading value of Thanachart Securities Public Company Limited (TNS) in 2011 was THB 2,266 million,

dropped from THB 2,305 million of 2010. The market share was 4.43 percent, ranked number 10 in the industry. 77.4 percent of its trading volume was dominated by retail customers, followed by 21.0 percent of financial institutions and 1.6 percent of foreign customers respectively. For 2011, TNS recorded a net profit of THB 293 million, a decrease of THB 98 million or 25.0 percent year-on-year. Total income rose slightly by 3.7 percent year-on-year due to higher brokerage fees from derivative business which increased by THB 52 million, equivalent to 115.5 percent; interest income from margin loans increased by THB 51 million or 75.1 percent; and interest and dividend income rose by THB 35.7 million. Meanwhile, fees and service income dropped by 27.1 percent while total expense increased by 20.6 percent. TNS net liquid capital ratio stood at 149.1 percent which was substantially higher than the minimum requirement of the Securities and Exchange Commission (SEC) regulated level of 7.0 percent.

Annual Report 2011 Thanachart Bank Public Company Limited

29


Thanachart Fund Management

Company Limited

Thanachart Life Assurance Company Limited

At the end of 2011, Thanachart Fund Management

For 2011, Thanachart Life Assurance Company

Company Limited (TFUND)’s asset under management

Limited (TLIFE) recorded a net profit of THB 770 million,

recorded THB 96,351 million, an increase of THB 2,795

an increase of THB 82 million or 11.9 percent year-on-

million or 3.0 percent year-on-year.

Mutual fund asset

year. An increase was attributable to a growing customer

dropped by 1.8 percent year-on-year, yet, this was offset

base. Investment income grew by THB 202 million or 30

by an increase of provident fund and private fund asset of

percent year-on-year. Income from underwriting remained

76.7 and 4.6 percent respectively. Asset under management

the same as 2011. The capital ratio was 278 percent which

was divided into 81.3 percent of mutual fund, 9.2 percent

was well higher than the minimum requirement of the OIC

of provident fund, and the balance 9.4 percent of private

of 125 percent.

fund.

For 2011, TFND recorded a net profit of THB 89 million, a drop of THB 42 million or 32.2 percent year-on-

TS Asset Management Company Limited

year. This was due primarily to a drop of fee income in the

TS AMC Company Limited (TS AMC) was found on

amount of THB 35.97 million or 8.49 percent. However,

March 3, 2011, as part of the entire business transfer

TFUND put in place a plan to launch variety of new

project of SCIB to TBANK. NPLs and NPA were transferred

products to serve its clients’ needs in light of changing

to TS AMC in order to efficiently manage and restructure

interest rate trend and market environment.

the debts. For the year ended December 31, 2011, TS AMC

Thanachart Insurance Company Limited

recorded its total assets of THB 12,267 million and net profit of THB 180 million. THB 259 million of its income was generated from loans, THB 282 million reversals of

provision for doubtful accounts, and THB 33 million non-

For the year ended December 31, 2011, Thanachart

interest income. Allowance for impairment of property

Insurance Company Limited (TNI) recognized a net income

foreclosed was THB 12 million. Meanwhile, THB 85 million

of THB 435.88 million, achieving an increase of THB 83.74

of its expense was interest expense and THB 95 million

million or 23.8 percent year-on-year. The key factors

was operating expense.

contributing to its success included an increase of premium received through bancassurance channel and efficiency in claim management. The capital ratio at the end of 2011 was 505 percent, substantially higher than the minimum requirement of the Office of Insurance Commission (OIC) of 125 percent.

30

Annual Report 2011 Thanachart Bank Public Company Limited


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 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 Derivatives 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 Thanachart Bank (holding 75 percent of the total shares) and The Government Savings 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 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 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 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 an 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 an asset management business by receiving transfer of NPLs and NPAs from SCIB and TBANK.

Annual Report 2011 Thanachart Bank Public Company Limited

31


Supporting Business Group 1. Thanachart Management and Services Company Limite (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 and TLA under the process of liquidation. 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, 2011

Thanachart Capital Public Company Limited

Scotia Netherlands Holding B.V.

Commercial Banking Business

Asset Management Business

48.99% 50.96%

100.00%

Thanachart Bank Public Company Limited

NFS Asset Management Company Limited

83.44%

MAX Asset Management Company Limited

Supporting Business

Financial Business 100.00% Thanachart Securities Plc. Securities Business

100.00% Thanachart Management and Services Co., Ltd.

75.00% Thanachart Fund Management Co., Ltd.

100.00%

100.00% Thanachart Insurance Co., Ltd.

100.00% Thanachart Life Assurance Co., Ltd.

Insurance Business

Thanachart Broker Co., Ltd. 100.00%

100.00%

Thanachart Training and Development Co., Ltd. 100.00%

Siam City Life Assurance Co., Ltd. 100.00% Asset Management Business

100.00%

TS Asset Management Co., Ltd.

100.00%

SCIB Services Co., Ltd.

100.00% Thanachart Group Leasing Co., Ltd.

Leasing Business

65.18% Ratchthani Leasing Plc.

Note: 1. The above shareholdings include shares held by the related parties.

32

Thanachart Legal and Appraisal Co., Ltd.

2. TLA is in the process of entering into the dissolution and liquidation.

Annual Report 2011 Thanachart Bank Public Company Limited

National Leasing Co., Ltd.


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 50 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:

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

Business policies

adequate and appropriate internal control by establishing

procedures for business conducts, provision of services,

TCAP and TBANK are responsible for establishing

and operations. The Group also separates the duties and

annual key business policies of Thanachart Group. Each

responsibilities of each unit to allow internal examination

subsidiary is required to formulate business plans and

of each other, based on a check and balance system.

budgets for 3 - 5 years and submit them to the parent

In addition, it puts in writing the announcements as well as

company for consideration, in order to ensure that they

order mandates, rules and regulations covering key

are in alignment with the established key business policies.

business areas and operations, and this information was

The business plans and budgets are also subject to

also disclosed to all staff in such a way that they can

evaluation and review regularly. The objective is to ensure

always study them to gain a full understanding. A central

that the business plans and budgets are in line with

unit at TBANK is responsible for preparing and proposing

the changing business conditions.

the announcements, order mandates rules and regulations

Supervision of subsidiaries

of all member companies of the Group. As regard to the internal audit, the internal audit

The directors and high-ranking executives of TCAP

group is responsible for auditing the business operations of

and TBANK are assigned to be the members of the Board

all member companies of the Group, ensuring that they

of Directors of the subsidiaries. The arrangement not only

comply with the regulations and the established work

enables TCAP and TBANK to assist the subsidiaries in

systems. The internal audit group also assesses an

establishing their policies and in determining their future

adequacy and effectiveness of an internal control system in

direction, but also ensures the close supervision of the

operations to ensure the use of resources and properties

subsidiaries’ business operations. Importantly, the Chief

and prevention or reduction of errors, damages in order to

Executive Officers of the subsidiaries are required to

propose corrective measures for improvement. In addition,

present a monthly performance report to the Executive

the Thanachart Group has established a Compliance Unit

Committee and the matters in the Executive Committee

responsible for closely monitoring changes of laws,

Meeting are then reported to the Board of Directors of

notifications, and orders related to the Group’s business

TBANK.

affairs and operations and disseminating the information to

the staff. The Compliance Unit is also responsible for

Centralizing of support services

ensuring that the conduct of business affairs of the

member companies of the Group is in compliance with the

It is a policy of the Thanachart Group to centralize

legal requirements.

specific functions of the support services into one company which, then, is responsible for providing such services

Moreover, the Audit Committee of each member

to all other member companies of the Group. The purpose

company of the Group is responsible for governing,

is to maximize benefits within the existing resources

controlling, and auditing their respective business

including expertise of operations staff and various

operations. The Audit Committee is also allowed to carry

information technologies, and to reduce staffing costs. The

out its duties and give its opinions in an independent

centralized support services available now within

manner of the management of each company. The purpose

Thanachart Group included information technology, human

is to ensure that internal control and audit systems are

resource, systems and internal regulatory development,

effective and that the financial statements are properly

internal audit, operation control, business control,

reviewed.

Annual Report 2011 Thanachart Bank Public Company Limited

33


As regard to the corporate governance, the Boards 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 Boards of Directors and the level of various Committees. Independent directors are appointed to the Boards of Directors and the Committees to provide effective checks and balances on the powers of executive directors. The established scope of responsibilities of the Boards of Directors and the Committees are also in line with the principles of good corporate governance. In addition, the Boards 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 support from TCAP. The established risk management policy of the Thanachart Financial Conglomerate is in line with the guidelines given by the BOT.

Income structures of TBANK and its subsidiaries Income structures of TBANK and its subsidiaries based on the consolidated financial statements as of December

31, 2011, 2010 and 2009 are as follows;

A table of income structures of TBANK and its subsidiaries (the consolidated financial statements) Percentage of share held (inclusive of related parties)

Interest and dividend income Thanachart Bank Plc. Siam City Bank Plc. Thanachart Securities Plc. Thanachart Fund Management Co., Ltd.

2011 THB Million

2010

Percent

THB Million

2009

Percent

THB Million

Percent

29,351

63.48

21,318

50.73

20,282

61.21

99.98

12,996

28.11

12,186

29.00

-

-

100.00

121

0.26

76

0.18

104

0.31

75.00

5

0.01

2

0.01

2

-

Thanachart Insurance Co., Ltd.

100.00

93

0.20

56

0.13

68

0.21

Thanachart Life Assurance Co., Ltd.

100.00

710

1.54

589

1.40

384

1.16

Thanachart Group Leasing Co., Ltd.

100.00

112

0.24

206

0.49

356

1.07

65.18

175

0.38

-

-

-

-

TS Asset Management Co., Ltd.

100.00

264

0.57

-

-

-

-

Thanachart Broker Co., Ltd.

100.00

1

-

1

-

-

-

Thanachart Management and Services Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Law and Appraisal Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Training and Development Co., Ltd.

100.00

-

-

-

-

-

-

-

-

-

86

0.20

271

0.82

100.00

2

-

3

0.01

3

0.01

-

-

-

25

0.06

-

-

100.00

382

0.83

228

0.54

-

-

-

2

-

5

0.01

-

-

100.00

-

-

-

-

-

-

44,214 95.62

34,781

82.76

21,470

64.79

Ratchthani Leasing Plc.

T Leasing Co., Ltd. National Leasing Co., Ltd. Siam City Securities Co., Ltd. Siam City Life Assurance Co., Ltd. Siam City Asset Management Co., Ltd. SCIB Services Co., Ltd. Total interest and dividend income

34

Consolidated financial statements

Annual Report 2011 Thanachart Bank Public Company Limited


A table of income structures of TBANK and its subsidiaries (the consolidated financial statements) (Cont’) Percentage of share held (inclusive of related parties)

Interest Expense Thanachart Bank Plc.

Consolidated financial statements 2011 THB Million

2010

Percent

THB Million

2009

Percent

THB Million

Percent

14,298

30.92

7,329

17.44

6,734

20.33

99.98

5,475

11.84

4,233

10.08

-

-

100.00

5

0.01

2

-

1

-

75.00

-

-

-

-

-

-

Thanachart Insurance Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Life Assurance Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Group Leasing Co., Ltd.

100.00

-

-

-

-

-

-

65.18

20

0.04

-

-

-

-

TS Asset Management Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Broker Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Management and Services Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Law and Appraisal Co., Ltd.

100.00

-

-

-

-

-

-

Thanachart Training and Development Co., Ltd.

100.00

-

-

-

-

-

-

-

-

-

-

-

-

-

100.00

-

-

-

-

1

-

-

-

-

2

-

-

-

100.00

-

-

-

-

-

-

-

-

-

-

-

-

-

100.00

-

-

-

-

-

-

Total interest expense

19,798 42.81

11,566

27.52

6,736

20.33

Net interest and dividend income

24,416 52.81

23,215

55.24

14,734

44.46

Non-interest income

4,703

10.17

2,715

6.46

2,393

7.22

99.98

1,681

3.63

2,296

5.46

-

-

100.00

1,267

2.74

1,302

3.10

1,027

3.10 1.32

Siam City Bank Plc. Thanachart Securities Plc. Thanachart Fund Management Co., Ltd.

Ratchthani Leasing Plc.

T Leasing Co., Ltd. National Leasing Co., Ltd. Siam City Securities Co., Ltd. Siam City Life Assurance Co., Ltd. Siam City Asset Management Co., Ltd. SCIB Services Co., Ltd.

Thanachart Bank Plc. Siam City Bank Plc. Thanachart Securities Plc.

75.00

444

0.96

479

1.14

437

Thanachart Insurance Co., Ltd.

100.00

3,938

8.52

3,085

7.34

2,672

8.07

Thanachart Life Assurance Co., Ltd.

100.00

7,205

15.58

5,828

13.87

11,637

35.12

Thanachart Group Leasing Co., Ltd.

100.00

65

0.14

83

0.20

96

0.29

65.18

22

0.05

-

-

-

-

TS Asset Management Co., Ltd.

100.00

32

0.07

-

-

-

-

Thanachart Broker Co., Ltd.

100.00

60

0.13

56

0.13

57

0.17

Thanachart Management and Services Co., Ltd.

100.00

1

-

1

-

1

-

Thanachart Law and Appraisal Co., Ltd.

100.00

-

-

14

0.03

43

0.13

Thanachart Training and Development Co., Ltd.

100.00

-

-

-

-

-

-

-

-

-

11

0.03

37

0.11

Thanachart Fund Management Co., Ltd.

Ratchthani Leasing Plc.

T Leasing Co., Ltd. National Leasing Co., Ltd. Siam City Securities Co., Ltd. Siam City Life Assurance Co., Ltd. Siam City Asset Management Co., Ltd. SCIB Services Co., Ltd. Total non-interest income

100.00

-

-

1

-

3

0.01

-

110

0.24

235

0.56

-

-

100.00

2,255

4.88

2,637

6.28

-

-

-

32

0.07

65

0.15

-

-

100.00

5

0.01

2

0.01

-

-

21,820 47.19

18,810

44.76

18,403

55.54

46,236 100.0

42,025

100.0

33,137

100.0

Total interest and dividend income and non-interest income

Annual Report 2011 Thanachart Bank Public Company Limited

35


Income structures of TBANK based on separated financial statements for the year ended December 31, 2011, 2010 and 2009 were as follows;

A table of income structures of TBANK (the separated financial statements) The separated financial statement 2011 THB Million

2010

Percent

2009

THB Million

Percent

THB Million

Percent

Interest and dividend income

29,548 134.97

21,397

118.27

20,421

128.55

Interest expenses

14,959

68.33

7,375

40.77

7,863

49.50

Net interest and dividend income

14,589

66.64

14,022

77.50

12,558

79.05

Non-interest income

7,304

33.36

4,070

22.50

3,328

20.95

100.0 15,886

100.0

Total interest and dividend income and non-interest income

21,893

100.0 18,092

Nature of Business Operation of Each Business Group

Business Policy and Strategies of Thanachart Group In 2011, 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 of Thailand’s leading banks over the next three to five years. From our goal to become a fully integrated financial services group, Thanachart Group aims to become one of Thailand’s top five leading banks in the commercial banking industry. A result from merging with SCIB allows Thanachart Group to possess an asset size appropriate for business competition and gain an ability to diversify risks by expanding corporate loans to small-sized and medium-sized enterprises so as 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 as well as creating financial performance at the level equivalent to that of Commercial Bank industry’s average. Besides that, Thanachart Group also puts an emphasis on diversification of income sources in order to balancing interest income and fee-based income, by focusing more on fee-based transactions and cross-selling transactions. These aims have been communicated to all of our staff. In 2011, the Thanachart Group has set six Strategic Intents as follows:

36

Annual Report 2011 Thanachart Bank Public Company Limited


1. We intended to provide our customers with a superior experience by offering the best service and a total financial solution to their unique needs. 2. We intended to be the dominant market leader for Hire Purchase Business. 3. We intended to aggressively grow the housing loan portfolio to be the top-three in market share of the Commercial Banking Industry. 4. We intended to grow the loan portfolio (corporate and SME) higher than industry average. 5. We intended to increase the fee-based income proportion to be on par with industrial average. 6. We intended to enhance our services and support productivity with cost effectiveness. 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.

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 acts 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, 2011, TBANK had a total of 676 branches (excluding the headquarters or Tonson branch), 2,151 ATMs (Automatic Teller Machines), 57 CDMs (Cash Deposit Machines), 135 Passbook Update Machines, and 79 foreign exchange booths (35 in-branches, 43 stand-alone and 1 mobile car).

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

Group 1 Deposit Products

Characteristics

Deposit products are offered to customers, both individuals and corporates. There are 4 major types of deposit products which

are saving deposit, fixed deposit, current deposit and foreign currency deposit.

Competitive Strategies

In 2011, the merger of TBANK and SCIB had been scheduled to complete by October 1, 2011. Therefore databases of the customers and deposits of both TBANK and SCIB must be combined into one

to serve customer’s need perfectly after the merger. To do so, all resources were used to develop information systems and other necessary systems to be able to complete the merger within the timeline. Because of that, TBANK did not focus its effort on launching any new product to the market. Moreover with the rising trend of interest rate, TBANK changed strategy by: 1. Emphasizing on expanding customer base to both small-sized and medium-sized. 2. Expanding customer base especially on saving deposit and current deposit by launching new saving deposit product “Corporate Saving Plus” to broaden customer base. Owing to the success of the merger, TBANK can successfully

serve more than three million customers of both TBANK and SCIB through our 676 branches nationwide without any interruption.

Annual Report 2011 Thanachart Bank Public Company Limited

37


Products and Services

Characteristics

Group 2 Lending

Competitive Strategies

1. Personal Loans, consist of:

Products

TBANK placed emphasis on efficient service delivery and fully integrated products that fulfill to all customer needs. As well,

Home loans under

marketing promotion, which is in line with the situation and

the brand of “TBANK Home

competitive condition, is highlighted. The Retail Banking Department is

Loan”, Multi-purposed loans

responsible for developing products, terms and conditions, as well as

named “Home Cash” and

interest rates charged. The target customers are divided into four

“Mortgage Cash”, Education

groups, i.e. customers who needed home loans, customers who needed

Loans called “Scholar Loan”,

personal loans with houses as collateral, hire purchase customers with

Wish-list loans which are

good repayment records and customers who need to study further in

credit lines given to the

a higher level of education. The main distribution channel is personal

hire purchase customers

sales and marketing teams that are responsible for the sales target set

with good repayment records,

in the business plan. Moreover, branches are channels to advertise

new products of Credit

personal loans or new products to the customers.

Card under the name of

Thanachart “Drive Visa/

Master Card” given to the

hire purchase customers

with

repayment

records and the depositors.

good

2. Automobile SMEs

TBANK places emphasis on lending to car related entrepreneurs.

TBANK offeres this

The plan is set together between the Product Development team and

product to car related

Marketing team. Focus is given to a selection of the target customers,

entrepreneurs who have

with whom TBANK has their database and good relationships. Also,

short-term financial needs

TBANK continues placing an emphasis on promoting good relationships

with the proceeds of the

with its customers by providing the customers with advices on financial

loans to be used as their

and business planning. This is for maintaining the TBANK’s existing

working capital or for

customers. TBANK continues developing loan products that in

enhancing their liquidity

corporate other financial services, ensuring that the customers have

position as well as those

the credit line and products that matched their financial needs as

who have long-term financial

well as the financial structure that were appropriate to their business

needs with the proceeds of

operations. Loan approval authority was delegated by making use

the loans to be used for

of the credit scoring techniques as a main tool for screening and

business

or

approving applications for standard loan products. The main

reducing funding cost.

expansion

distribution channels were in Bangkok and its vicinity and in the

These included guarantee/

upcountry.

avals and trade finance.

38

Annual Report 2011 Thanachart Bank Public Company Limited


Products and Services

Characteristics

Competitive Strategies

3. Corporate Loans

In 2011, TBANK concentrates on maintaining its existing customer

In 2011, TBANK

base for SME customers by launching products for those with good

classifies its corporate

repayment records and also allowing loosen schemes for customers

finance customers into two

who are affected by flooding crisis. For corporate loan customers,

major groups as follows;

TBANK places an emphasis on lending programs that match their

1.)Large scale businesses

financial needs. Apart from the products, TBANK places an emphasis

which are those of annual

on improving work processes in order to be more efficient, yet flexible

sales revenue of over THB

while having a proper Internal control and a proper risk management

600 million; and 2.) Small-

system.

sized and Medium-sized

enterprises (SMEs) which

include

of

customers with annual

sales revenue of less than

THB 600 million.

the

group

4. Automobile Hire Purchase Loans

TBANK’s hire purchase loan services are provided across the country through car dealers and TBANK’s branches. In setting the

TBANK give hire

policy to offer a price, the Bank considers external factors such as

purchase loans for new and

a competition in the market and internal factors such as cost of fund

used cars. The Bank also

and loan risk. In addition, TBANK places an emphasis on sales

offeres sale and lease back

promotion activities with car dealers in each region, aiming to offer

services under the product

high purchase loan conditions that meet the need of regional dealers

named “Cash Your Car”.

and customers the most, as well as establishing relationships with the

This product is in response

automobile manufacturers in order to gain a larger market share of the

to hire purchase customers

automobile hire purchase business and promote the image of a leading

who need cash, with a

loan provider of automobile hire purchase. TBANK increases

selling point of higher

distribution channels, providing customer’s convenience by offering the

credit line than a personal

“Cash Your Car” product through TBANK branches.

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.

Annual Report 2011 Thanachart Bank Public Company Limited

39


Products and Services

Characteristics

Competitive Strategies

5. Trade Finance

The main factors that promote trade finance services to

TBANK provides a

customers are accuracy in services, convenience, competitive interest

full range of trade finance

rate and fees. The Bank took into consideration the customers’ needs

products

services

and the promotion of business transactions as the main concerns. For

including Import Letter of

the corporate clients, the Bank has the target to expand customer base

Credit (L/C), Trust Receipt,

to large scale businesses and SMEs. The Bank provides trade finance

Collection Agency of D/P

credit limit, liquidity supports, and specialist advices on trade finance

and D/A for oversea buyers,

documents for customers. TBANK also developes trade finance

Packing Credit, Export Bills

products and services to cater to customer needs. The global business

Purchased/ Discounted,

alliance network is useful for fast and convenience service which

Export Bills for Collection,

provides customers’ satisfactory on the Bank’s products and services.

and

Letter of Guarantee, Stand-

by L/C, and Oversea Money

Transfer.

6. Personal Loans TBANK

Products under unsecured personal loans defined competitive

provides

strategies on product development, marketing campaign, distribution

many types of unsecured

channel, and appropriate services to serve target customers’ needs.

personal

be

Thus TBANK provides a variety of products for customers to choose

accessible and responsive

appropriately by life stage and life style, These products have been

to cover a wide range of

designed in such a way that are easily understandable and practical

customer needs, therefore

for every day needs.

loans.

To

the purpose of loans may

or may not be specified.

Main competitive strategies of each product

TBANK’s personal loans

1. Personal Loan

are

serves

under

the

product names as follows:

- T-Loan

T-Loan

2. Revolving Credit Card is

a

Providing cardholders with a credit line to spend for any

multi-purpose loan providing

purposes. Customers can withdraw cash within a credit line as per

for general customers. The

their needs at ATM worldwide.

repayments are arranged in

3. Credit Card

equal installment monthly

and specified time.

needs for every purchase.

Wish-List loan

is an additional credit

line of loan provided to TBANK’s hire purchase customers who have good repayment record. - Special

for

Corporate Staff TBANK provides this loan specifically to customers whose companies have

a

campaign

Emphasizing on everyday needs of cardholders with simplified

and practical use of he card. Cardholders received benefits as per their

- Wish-List loan

with

TBANK

40

Providing a variety of product to carter to customer needs in

each group that fit their purposes.

Annual Report 2011 Thanachart Bank Public Company Limited


Products and Services

Characteristics

Competitive Strategies

- Scholar Loan

Scholar loan is

a loan for payment of tuition or any expenses for obtaining a master ’s or doctorate degree. - P e n s i o n

Secured Loan This is a special multi-purpose loan for government

employees

who receive monthly pension payment from the Comptroller

G e n e r a l ’s

Department. 7. 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. 8. Credit Card Services 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:

Annual Report 2011 Thanachart Bank Public Company Limited

41


Products and Services

Characteristics

Competitive Strategies

- T h a n a c h a t

“Drive” Credit Card :

For customers

who needed a credit card

with cash back for every

payment made at any gas

stations.

- T h a n a c h a t

Platinum Credit Card :

For customers

who are looking for exclusive

services

privilege

benefits in a view of luxury

and convenience.

and

Group 3

TBANK offers electronic

The strategy focuses on cross-selling and up-selling via bank

Electronic

products and services that

branches to both small and large scale companies. For individual

Products

enabled customers to make

customers who needed convenient transaction and safety for money

and Services

financial transactions at a

transfer, TBANK initiates the promotion campaign aiming at easy

better efficient manner.

accessibility and services. The money can be received on the same day

These services included

of a transfer. Branches have been available in shopping centers or

fund transfer, Automatic

nearby office areas for customers’ convenience.

Transfer Service (ATS),

online

In 2011, TBANK offered services as follows:

financial transactions through

1. Internet Banking Service. This service was for both individual

the Bank of Thailand’s

and corporate customers in order to broaden channels for customers to

Automatic High-Volume

facilitate their financial transactions.

Tr a n s a c t i o n

(BAHTNET),

settlement

for

Network

2. Financial Transaction Notification via SMS service. This 24-hour

automatic

service notified all transactions i.e. deposit, withdrawal and money

money transfers between

transfer via SMS to the customers’ mobile phone number registered

banks

with the Bank.

System),

Payment

3. An exclusive Cash Back Debit Card. The value of this service

service for goods and

was that customers receive cash back directly into their accounts for

services and a debit card.

every spending. The EMV technology provided an ultimate security to

To meet the customer

protect a card from data stealing.

needs, the Bank has also

developed

system through the Internet,

which are as follows:

-

(Bulk Bill

the

Payment

service

Thanachart i-Net

service -

Thanachart SMS

Alert service -

Cash Back Debit

Card

42

Annual Report 2011 Thanachart Bank Public Company Limited


Products and Services

Group 4 Other Products

Characteristics

Competitive Strategies

1. Foreign Exchange Services

TBANK has expanded its branch network and currency exchange booths to serve all business sectors and tourists nationwide. TBANK

TBANK’s services

also adjusts exchange rates by benchmarking with the movements of

include foreign exchange

the world’s currency market. As a result, its customers receives real

services in forms of; bank

time rates and fair prices.

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.

notes

and

2. Bill of Exchange (B/E)

TBANK has developed B/E service to be safer and more convenient to enhance customers’ confidence by using a B/E passbook

TBANK has expanded its bill of exchange services

that allow customers to review transaction lists and outstanding of investments in each bills of exchange.

to every branch nationwide resulting in more convenient

TBANK also facilitates its customers by transferring payments of

accessibility to customers.

principal and interest when the B/E reaches its maturity or transferring

The product is well accepted

a payment of interest of each period automatically to the customers’

by the customers.

saving accounts or current accounts as stated in each purchase order.

Target customers are those depositors both individuals and corporates

who have financial literacy and experience in investing in debt

instruments and are able to accept a certain level of the Bank’s credit

risk.

3. Securities Business Support Services

Besides acquiring Foreign Sub Custodian license from the SEC in order to serve Thai Funds which invest overseas, in 2011, TBANK

TBANK’s securities

applied and was granted a Registrar license from the SEC to support

business support services

customers transferred from SCIB and to fully offer all range of services

are, for example, Custodian,

to meet customer needs. TBANK continues to develop business by

Trustee, Fund Supervisor and

utilizing the Bank’s network along with providing securities business

Bondholder Representative.

support services to support the financial management of investment funds.

Annual Report 2011 Thanachart Bank Public Company Limited

43


Influential Factors of Constraints on Business Operation

3) Strengthen

financial

infrastructure,

by

enhancing the capability and tools for risk management,

improving the information system for risk management,

The economic outlook for the first nine months of

reviewing the financial laws that support risk management,

2011 was likely to expand moderately, although it was

strengthen the information technology (IT) infrastructure

slow down in the second quarter as the production sector

and capacity, and enhancing the capacity of human

faced supply disruption problems following Tsunami

resources.

disaster in Japan. In addition, exports of goods and

services in Asian Region was decelerated due to

After the Bank of Thailand (BOT) has launched new

uncertainty growth of the global economy in the last

policies encouraging Thai commercial banks to gain

quarter of the year, resulting from real estate problems,

strength from 2010 to 2011, the year of 2012 would be the

unemployment problem in the U.S., and the European

phase of promoting competition. Accordingly, BOT has

sovereign debt crisis. Besides, Thailand faced the

granted permission for foreign bank branches to open two

widespread floods’ impact across the country, especially in

additional branches and allowed any existing foreign bank

the central region such as Ayutthaya and Patum Thani

branches in Thailand to step up as a subsidiary that could

provinces, in which seven industrial estates were located.

have a maximum of 20 branches and 20 off-premise ATMs.

The total damages were amounted to THB 1,300,000

Thai commercial banks, therefore, need to improve their

million approximately. These circumstances affected all

capability to withstand their market share and compete in

sectors, especially productions and exports of hard disk

the system.

drive, automobile, electronic bulbs and parts, and electric appliances.

Industry Condition and Competition

Consequently, the economic growth in the fourth

At the end of 2011, the total number of commercial

quarter was dramatically contracted compared to the

banks in industry registered at 31, of which 16 were

previous year, and was forecasted to grow at an annualized

domestically registered banks, and 15 were foreign bank’s

rate of 1.8 to 2.0 percent approximately. The expenditure

branches.

of the government’s investment budget was reduced

as the capital expenditure disbursement under the Thai

The outstanding amount of deposits in the

Khem Khang: TKK 2012 program was declined. However,

commercial banking industry at the end of 2011 stood at

private sector investment remained sound.

THB 7,990,823 million, of which THB 7,367,485 million or

92.2 percent of total deposits were at the domestically

Apart from economic factors, the commercial banks

registered banks, and THB 623,338 million or 7.8 percent

needed to divert to ensure that they are properly prepared

of total deposits were at foreign bank’s branches. The total

for entering the ASEAN Economic Community (AEC)’s 2015

deposits of domestic banks increased 6.69 percent from

Financial Sector Master Plan Phase II, implementing

the same period of the last year.

process between 2010 – 2014. This circumstance had

drawn plenty of attention and awareness from commercial

In terms of net loans of the commercial banking

banks during the past years. The Financial Sector Master

industry, the total amount was THB 9,782,193 million.

Plan phase II’s main policies could be categorized into

From the total net loans of industry, of which THB

three key pillars:

8,732,797 or 89.27 percent of total net loans came from

1) Reduce system-wide operating costs, including

domestic banks and THB 1,049,396 or 10.73 of total net

regulatory costs and costs of legacy non-performing

loans came from foreign bank’s branches. Comparing to

assets, in order to enhance the efficiency of financial

the previous year, the total net loans increased 11.63

institutions system.

percent due to a real growth of an economic sector of the

2) Promote competition and financial access by increasing of new service providers, as well as expanding business scope of existing service providers. This will

country. Besides the competition within the commercial

help induce competition in price and service quality, as well

banking industry, commercial banks also faced with other

as the opportunity for boarder financial access. Accordingly

competitions from non-bank institutions such as non-

the efficiency of overall economy will increase.

banks, financial and capital market, as well as the

44

Annual Report 2011 Thanachart Bank Public Company Limited


government’s specialized banks, resulted from changes in

leadership of hire purchase industry, TBANK purchased and

the regulators’ rules and regulations. The changes allowed

held 65.81 percent of Ratchathani Leasing’s shares.

for more flexibility and prepared the industry for the

Ratchthani Leasing has a strong emphasis on commercial

financial liberalization in the future. The increase of

cars (trucks and taxi), second-hand cars, and large-sized

competitions has caused the commercial banks to increase

motorcycles (Big Bikes).

competitive advantages by developing differentiations, called non-price strategies. The strategies are as follow: developing a more diverse range of financial products to

Trends in Competition

meet the needs of specified customers (Customer

According to economic forecasts from domestic and

Segmentation), increasing more distribution channels to

international research houses and financial institutions,

cover potential customers across the nation such as

economic indicators signaled an improvement. In 2012,

increasing of branches in department stores, ATM booths,

the Thai economy is expected to grow at 4.5 to 5.5 percent

Electronic corner (ATM + CDM + UDP), etc., improving

from the previous year, driven mostly by economic

quality of service by using Customer Experience

restoration after the flood in 2011 which is expected to

Management, making a good impression on customers by

begin in the first quarter of 2012, as well as government

using Customer Data Analysis in order to offer suitable

stimulus policies employing various measures such as a

products and services that meet the customers’ needs, and

rice pledging scheme, increase in the minimum wage and

establishing business alliances and merger in the financial

corporate income tax reductions, and a low base of 2011

industry. The objectives are to provide customers with

economic figures. Yet, the weak of global economy

greater convenience and to cater to customers’ all financial

continues to be a major factor that could undermine Thai

needs. Moreover, the commercial banks placed a strong

economy and must be closely watched. As for the economy

emphasis on creating a corporate image through

of the United States, although the unemployment rate

advertising media, public relations, and an establishment

declined in the fourth quarter of 2011 yet it remained high,

of a greater corporate social responsibility. In addition to a

the real estate sector has not yet recovered, while public

competition in interest rate, non-price strategy would help

debts stood at high level. Meanwhile, the debts crisis in

commercial banks substantially to differentiate their

Europe, especially in Greece was ongoing and began to

competitive positioning leading to competitive advantages

spread into the financial sector of the Eurozone while no

in the future.

solid solution has been reached. These may be the key

factors to cause Thailand’s exports in 2012 to slow down.

Regarding the interest rate trend, the most recent

Nonetheless, the inflation rate in 2012 is estimated to be

meeting of the Monetary Policy Committee (MPC) on

similar to the previous year. The 2012 headline inflation is

November 30, 2011 presented a resolution to decrease

expected to be at 3.2 percent, caused by rising fuel prices

policy interest rate by 0.25 percent (from 3.50 percent to

and lower demand for commodities as a result of the

3.25 percent), which was the first reduction of policy

global market downturn while domestic production costs

interest rate of the year (since the beginning of the year

grow higher than minimum wage, higher transportation

2011, interest rate policy has been continuously risen, by

costs from levy to oil fund, and higher rice price from rice

1.50 percent). The causes were an increasing risk of

pledging scheme. Due to the continuous increase of the

the global economy downturn and the remaining weak

policy interest rate to 1.50 percent in 2011, it is therefore

confidence of private sector from the floods’ impact of 2011.

estimated that in 2012 BOT will adjust the policy interest

The Company’s Size Compared to Competitors In 2011, TBANK had accomplished in merger with

rate slightly. As BOT has promoted competition under the 2nd Phase of development plan which prepared for entering

Siam City Bank on October 1, 2011, allowing TBANK to

the AEC, it prompted Thai commercial banks to be more

enhance its potential and competitive edge. Presently,

enthusiastic and more competitive. The competition trend

TBANK have 676 branches in total. It had THB 886,060

in the Thai commercial banking industry in 2012 will be a

million in its total assets, increased by THB 12,857 million

service development under the Customer Centricity

from the previous year or 1.47 percent. The Bank’s ROAA

especially on Universal Banking and also the restructuring

was at 0.89 percent, ROAE was at 10.61 percent, total

of branches to serve customers more effectively which

loans were THB 635,220 million, increased by THB 28,367

enhances the Fee Based Income and increase efficiency of

million or 4.67 percent from 2010. In addition, the Bank

the services such as Internet Banking and Mobile Banking.

had 2,151 ATM booths. Moreover, to maintain market

Moreover, the quality improvement and business service in

Annual Report 2011 Thanachart Bank Public Company Limited

45


Trade Finance and Cash Management will also build the banks’ interest this year. Building the Strategic Alliances

Securities Business

with other businesses to expand the network and

Products and Services

extending business potentials will also allow the

commercial banks to better serve their target customer

TNS operates two key areas of business, brokerage

versatile. The strategy should also be complemented by

business and investment banking and advisory business.

the Bundling Product and Cross-selling within the bank’s

As of December 31, 2011, the company had a total of 36

own business group such as the Bancassurance in the life

branches and offered the following services:

assurance and insurance businesses.

1. Brokerage Business covers brokerage services

For risk factors in 2012, the global economic

which included a service of securities dealing, securities

recovery is a critical issue that must be monitored closely,

trading, and giving investment advices to investors

especially the economic recovery in the U.S. where its

whether individual, retail, institutional, local or foreign, to

labor market got a better signal at the end of 2011 and the

make decision on their investment.

public debt issue in Europe is intensifying and extending to other countries’ economies. France, Italy and Spain will

2. Derivative Business covers trading services for future contracts and derivatives.

therefore need to exercise strict Fiscal Consolidation while

3. Securities Borrowing and Lending (SBL) covers

they are still lack of solid measures to solve this problem.

services of borrowing or lending securities for customers

Not only economic problems in the U.S. and Europe, the

who has a desire to borrow or lend securities.

Asian economies that are tied to the global economy,

4. Investment Advisory covers services of seeking

especially on the export sector, started to slow down at the

or issuing new financial products, whether local or foreign,

end of the year. Furthermore, political uncertainty in

in order to satisfy the customers’ needs. This also includes

Thailand and performance of government in the fourth

providing customers with investment planning and

quarter of 2011, along with unclear guidelines for

investment diversification by prioritizing customer’s

sustainable water management to prevent the flood in the

suitability and investment objectives for each customer.

long run may affect the confidence of consumers and

Such investment covers various types of instruments.

investors in both inside and outside the country.

Products of Securities Business and Fund Management Business

5. Investment Unit Dealer covers services of sale support and provided fund facts and related information on mutual funds of various asset management companies that TNS represents. 6. Financial Advisory and Securities Underwriting

Securities Business is provided to customers

Services covered financial advisory business, underwriting

through TNS. The company was granted a full license to

service of debt and equity securities both as a role of lead

operate a full range of securities businesses including

underwriter, co-underwriter, and dealer.

securities brokerage (inside and outside Thailand),

7. Securities Registrar covers three types of

securities underwriting, investment advisory service,

services, namely, a securities issuance registrar, securities

securities borrowing and lending service, financial advisory

holder registrar and a registrar for the Employee Stock

service, mutual fund management, private fund

Option Program (ESOP).

management, venture capital management, securities

registrar, and derivatives business Sor 1. Also, the

Competition and Market Outlook

company is engaged in other related businesses that

supported the securities business. As for Fund

1. Brokerage business in 2011 was relatively

Management Business, this service is provided through

volatile, especially in the second half of the year. The stock

TFUND who operates mutual funds, private funds,

market in August 2011 reached its peak level in 15 years

provident fund management businesses and investment

at 1,148 points and later in September 2011 dropped

advisory businesses.

sharply due to a number of negative factors, both domestic

and international such as economic disruption due to

the flood and the debts crisis in euro-zone economies, especially in the PIIGS. In 2011, trading volume reached THB 7.19 trillion, the highest volume since 1975. Retail client transactions captured the highest volume at 55

46

Annual Report 2011 Thanachart Bank Public Company Limited


percent of the market while foreign clients’ transactions

business sector, therefore, become more popular among

returned to a net sales value of THB 5,290.42 million. In

financial institutions who try to enhance their service

terms of mobilization of the number of initial public

potential in the future. Beside domestic competitors, there

offering (IPO) in 2011, there were a total of 12 new IPOs

is competition from foreign private banks, which focus on

(5 companies in SET and 7 companies in MAI). In 2011,

offering investment alternatives in various types of

the SET index closed at 1,025.32 points, 7.44 points lower

instruments in order to create a satisfactory return to

than 2010 while the average daily trading volume was at

major customers in Thailand.

THB 29,473.29 million, the highest volume for SET and the

4. In financial advisory and securities underwriting

second highest behind Singapore Securities. TNS

services, competition was aggressive, especially in

developed new financial products such as the SBL products

mergers & acquisitions, IPOs and fund raising. Though

for trading of foreign securities (offshore securities), so

competition focuses on price, the key competitive factor,

that investors can diversify the risks of investing in a full

thus, remains on service quality, expertise on providing a

range of securities. TNS’s total trading value in 2011 was

customer with relevant advice and solutions to a problem,

THB 553,069.59 million, accounted for 4.43 percent

having a wide network, as well as product innovation,

market share, ranked number 10 out of 35 companies in

which can create value-added and greater benefits to

the industry.

customers of TNS.

2. Currently, there are a total of 41 members in the Thailand Future Exchange (TFEX), of which 36 are general securities companies and 6 are gold-trading

Fund Management Business

members. In 2011, total trading volume was 10,027,116

Products and Service

contracts, or a daily average of 41,145 contracts, an

increase of 120 percent from a daily average of 18,676

TFUND put importance and emphasis on a great

contracts in 2010. As of December 30, 2011, there were

range of retail mutual funds marketing strategies, in order

56,452 outright contracts, a decrease of 28 percent from

to fully cover all needs of investors in every group and

77,955 outright contracts in 2010. The key contributing

level. The company utilized many types of distribution

factor was the popularity of Gold Futures trading which

channels for sales, such as TBANK’s branches and other

almost tripled in trading volume from 971,423 contracts in

investment unit distributors licensed by SEC. The TFUND’s

2010 to 3,989,278 contracts in 2011, with a daily average

staffs are qualified by law and are strictly required to

of 16,350 contracts, valued at THB 11,037 million as the

adhere to related laws and regulations. For greater

gold price has continued to rise to a peak of over USD

convenience, TBANK, acting as investment unit distributor,

1,900 per ounce in the third quarter, as a consequence of

has been supporting sale and redemption of investment

volatility of gold prices in conjunction with the extension of

units offered by TFUND as well as other investment

TFEX’s trading hours to 10.30 pm. since June 2010

management companies it represents through electronic

onwards. TNS trading volume accounted for 2.52 percent

channels.

market share, ranking number 18 out of all members in TFEX.

Competition and Market Outlook

In 2011 there were 62,883 TFEX trading accounts,

an increase of 50 percent from 41,880 accounts in 2010.

As of December 30, 2011, there were a total of

The proportions of the most active investors were domestic

23 fund management companies, with total assets under

individual investors which accounted for 60 percent of the

management of THB 1,750,824.95 million (excluding

market while foreign investors accounted for 33.6 percent

Vayupak Fund, Foreign Funds, Property Fund for Resolving

and domestic institutional investors accounted for 6.4

Financial Institution Problem and Property and Loan Fund),

percent respectively.

an increase of 2.75 percent from 2010. During 2011, there

3. Currently, an investment advisory service is

were 692 newly issued funds, accounting for THB

being offered only by the top-rank securities companies

1,086,169.61 million of net assets. Among the newly

and the large commercial banks which try to offer

issued funds, 228 were domestic and foreign investment

customers with complete and more integrated financial

funds fixed-income funds investing in debt securities with

services. The current major customers focus their priority

maturity not exceeding 1 year, which accounted for THB

on the allocation of investment and diversification of

536,033.50 million of net assets or 49.35 percent of total

financial products to get a better return on investment and

net assets of the newly issued funds during 2011.

to be more efficient in financial management. This

Annual Report 2011 Thanachart Bank Public Company Limited

47


As of December 30, 2011, TFUND had THB

into consideration a fair premium rate to customers.

96,350.78 million assets under management from which

Furthermore, the company constantly adjusted its

retail mutual funds accounted for THB 78,372.94 million,

progressive competitive strategy to be coherent with ever-

private funds accounted for THB 9,087.86 million, and

changing conditions, by ways of increasing sales channels,

provident funds accounted for THB 8,889.98 million.

expanding the customer base, and maintaining the existing

Insurance Business

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 selected automobile and fire

The Insurance business of Thanachart Group can

insurance and these customers mainly are the Bank’s

be divided into two key areas, namely non-life insurance

lending customers as well as customers from the

operated by TNI, which offers all types of non-life

company’s marketing campaigns.

insurance services, and life insurance operated by TLIFE, which offers life insurance services to institutional, corporate and individual customers.

Non-Life Insurance Business

Products and Services

This service is only offered to domestic customers. The customer group 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

TNI offers all types of insurance services e.g. fire,

relied on any customer group that accounted for more than

automobile, marine, and miscellaneous. In addition, the company also operates investment businesses.

30 percent of TNI’s total revenue. According to Thai Reinsurance Public Company

Competition and Market Outlook

Limited, the Thai economy is expected to continue growing

after 2011, but less than the growth in 2011 due to the

In 2011, non-life insurance business in Thailand

impact of the flood crisis in Thailand and also the

experienced a growth in direct premium income compared

complexity and uncertainty of climate, economic, social,

to 2010, and was expected to grow by 10.6 percent but at

and political conditions. These are key variable factors

a decreasing rate as compared to 2010 which had a growth

determining the direction of the non-life insurance industry

rate of 13.7 percent, primarily due to the effect of the

in Thailand. If economic growth is in line with assumptions,

Tsunami in Japan in April 2011, resulting in a slowdown of

the insurance industry would likely to experience a

domestic automobile manufacturing. Moreover, the flood

moderate expansion of 10 percent in premium received or

crisis in Thailand in October 2011 also affected the entire

a total of THB 151,819 million. Miscellaneous insurance

economy as well as domestic automobile manufacturing

received the highest growth rate 17 percent, followed by

which, in turn, directly affected the non-life insurance business.

automobile insurance with 10 percent, marine &

transportation and fire insurance with 6 and 3 percent,

As for the non-life insurance market structure in

respectively.

2011, automobile insurance received the highest share of the market with a total share of 59 percent, followed by miscellaneous insurance with 32 percent, fire and marine & transportation insurance with 6 and 3 percent, respectively. In 2011, The Office of Insurance Commission (OIC)

Life Insurance Business

Products and Services TLIFE offers life insurance and saving, which can

issued stricter rules and regulations, especially on Risk-

be divided into two key categories, individual and group

Based Capital Requirement, minimum standards of risk

insurance. The license to operate the life insurance

management in non-life insurance businesses. To comply

business was granted by the Office of Insurance

with these rules, domestic non-life insurance companies

Commission (OIC) on 22 October 1997.

opted to emphasize on risk management and become more careful on insurance policy underwriting to avoid high risks.

Competition and Market Outlook

TNI focuses on a standard of products, service

TLIFE operates its business with a multi-distribution

quality, productivity, efficiency and honesty, as well as

channel strategy, in order to satisfy various needs of the

development of new products in order to offer new policies

customers by offering products and services suitable for

which are more coherent with economic and social

each customer group. The company has utilized various

conditions and responsive to customer needs, by taking

channels, such as, the bancassurance channel, corporate

48

Annual Report 2011 Thanachart Bank Public Company Limited


network channels, insurance brokers, cooperatives, and

The Individual Life Insurance Product has a

other agents. TLIFE is customer centric, developing new

variety of products such as saving products and annuity

products and offering services suited to the needs of

products. The products with the highest sales figures are

customers and appropriate marketing channels. As TLIFE

as follow:

is a part of the Thanachart Group, the company’s

customers included savings deposit customers, automobile

Speedy Saving 10/2, it is a short-term savings

hire purchase customers, mortgage loan customers, SME

product with premiums due for only 2 years, yet providing

loan customers, as well as customers from other

10 years of life insurance coverage and a cash back policy

corporates, co-operatives and companies through other

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

distribution channels.

second year to-10 that the rate of 6 percent, and on

maturity date at the end of the 10th year at a lump sum

In the 10-month period of 2011, the life insurance

rate of 200 percent, equivalent to a total cash return

industry captured a total market share of THB 263,317 million representing an increase of 12.12 percent. The main market sector went to individual and group insurance as follows:

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

Individual insurance received a total premium of

-eighth year at 10 percent, the ninth to -twelfth year at

THB 221,246 million which accounted for 84.02 percent of

the rate of 12 percent, and on maturity at the end of the

the market and a 15.38 percent increase, due to new

12th year at a lump sum of 660 percent, equivalent to

product innovations which are more coherent with the

total cash return benefit of 780 percent.

economic trends, interest rates, target customers’ need

as well as sales promotions and marketing staff skills.

Thanachart Annuity 85/60 (Tax Deductible

Benefit) has premium payments until 59 years of age and

Group insurance received a total premium of THB

coverage period until 85 years of age. While providing

30,587 million which accounted for 11.62 percent of the

benefit of 12 percent annuity between 60-85 years of age,

market, yet, this represented a 3.20 percent decline. The

totaling 312 percent cash benefits with guaranteed annuity

main source of premiums, 53.59 percent, came from

over 20 years. For this plan, insurance premiums can be

Group Mortgage. In the 10-month period of 2011,

used for an income tax shield up to a maximum of THB

mortgage insurance experienced a declining growth at

300,000 per year.

15.02 percent due to a lack of tax incentives on property

transfer fees and mortgage registration fees to encourage

Thanachart Annuity 90/5 (Tax Deductible

consumers to complete housing transfers as in 2010.

Benefit) is a new life insurance products with a coverage

Moreover, the flood occurring in many areas during the

period until 90 years of age and a short period of premium

fourth quarter of 2011 has slowed consumer buying

payments of only 5 years with an annuity benefit of 12

decisions due primarily to the cost of flood evacuation and

percent between 60 to 90 years of age, totaling 372

provision for the cost of home repairs after the flood.

percent cash benefits. For this plan, insurance premiums

Meanwhile, consumers postponed their decisions to buy a

can be used for an income tax shield up to a maximum of

new housing in order to determine the locations safe from

THB 300,000 per year.

the flood. The cumulative 10-month of automobile market

reported sales volume of 713,842 units, 13.6 percent

Group Insurance provided appropriate products

increase compared to the same period of the previous

to each distribution channel, comprising of Thanachart

year. The passenger vehicle market saw a growth of 17.5

Smile Car Plus+ and Thanachart Smile Car Extra which

percent and the commercial vehicle market of 10.6 percent

cover all liabilities of car loans through car hire purchase,

due to strong purchasing power of consumers as well as

Thanachart Smile Home and Thanachart Smile Home Plus

growth in investment and consumption and the continuing

which cover all liabilities of home loans through mortgage

popularity of new vehicles for the first three quarters of

loan, Thanachart Smile SME which covers liabilities of SME

2011. However, the premium from auto hire purchase

loans for enterprises through SME loans. Moreover, the

loans may be subdued due to the impacts of the great

Company also provides group insurance for cooperatives,

flood on the domestic automobile industry.

other companies and organizations.

Currently, the life insurance industry consists of 24

There are many factors to support life insurance

insurance companies. In 2011, the company occupied a

business trend in 2012; to name a few are government’s

total premium of THB 5,791 million, or a 2.20 percent of

rehabilitation plan for the flood disaster in early 2012, Thai

the market share and ranked 10th in the industry.

people’s concern over uncertainty of natural disaster that

Annual Report 2011 Thanachart Bank Public Company Limited

49


motivated them to be aware of and give importance to life

through website of TNS and the other channels to reach

insurance in order to mitigate risk for themselves and their

the target customers as much as possible.

families. As a result, customers purchased more life insurances while insurance companies have developed new

Products and Services Management

policies of various life insurance products that are more consistent with the economic conditions and that expand

Sources of fund

distribution channels to meet customers’ needs. To provide

accessibility, a services provider system has been

One source of TBANK’s fund was the its capital,

developed, prior to and after sale service, training for

comprising of issued and paid-up capital in the amount of

insurance brokers and banks that are life insurance agents.

THB 55,137 million in 2011, including legal reserve and

In addition, the OIC has announced a policy to promote

retained earnings. Another two key sources of fund which

savings and awareness about savings through life

were;

insurance by giving an additional benefits of THB 200,000 income tax shield from life insurance annuities. A number of life insurance companies, therefore, have developed

1. Deposits which by the end of 2011 were in the amount of THB 436,040 million. 2. Borrowings which were in the amount of THB

a variety of life annuity policies to support the diverse

254,296 million, of which THB 218,492 million were short-

structure of the aging population targeting at those over

term B/E since TBANK provided B/E as another saving

60 year old, in order to get a regular income after

alternative for its customers and THB 35,804 million were

retirement. For the aforementioned, it is estimated that

long-term borrowings.

the life insurance business will continue its growth at increasing rate in 2012.

Assets Management Business

Funding or lending to related parties At the end of 2011, TBANK extended loans to

Products and Services

subsidiaries and related companies in Thanachart Group as

follows;

Assets Management Business operates by TS AMC Company Limited (TS AMC) which was established on

1. TGL (subsidiary of TBANK)

TBANK extended loans to TGL for hire purchase

March 3, 2011. The license to operate the assets

business for all types of automobile, in line with the

management business was granted by the BOT and under

business direction of Thanachart Group. In 2011, loan

the Emergency Decree on the Asset Management

outstanding balance was THB 353 million, a decrease from

Corporation BE 2543 (1998), the asset management

THB 934 million at the end of 2010.

company Registration No. 001/2554 dated April 12, 2011. It received the transfer of non-performing assets from

2. National Leasing (subsidiary of TGL)

TBANK extended loans to National Leasing for

SCIB and TBANK, including both non-performing loans and

property hire purchase business as well as property

non-performing assets, in order to conduct debt

leasing. In 2011, loan outstanding balance was THB 22

restructuring with the debtors, hence, allow them to repay

million, a decrease from THB 52 million at the end of 2010.

the debts at their real debt-service capacity and turning

3. Ratchthani Leasing (subsidiary of TBANK)

non-performing assets back to becoming the performing

ones.

TBANK extended loans to Ratchthani Leasing for

hire purchase business for all types of automobile, in line

Competition and Market Outlook TS AMC operates its business with a primary

with the business direction of Thanachart Group. In 2011, loan outstanding balance was THB 7,867 million. 4. TS AMC (subsidiary of TBANK)

TBANK extended loans to TS AMC for asset

objective to manage and restructure the non-performing

management business by receiving transfer and managing

assets received from SCIB and TBANK. To divest or sell

of NPLs and NPAs, in line with the business direction of

those non-performing assets (NPA) to third parties who are

Thanachart Group. In 2011, loan outstanding balance was

interested in real estate market, TS AMC hires a

THB 9,822 million.

professional advisory in assets sales to determine the

selling price and manage the assets in such a way that

Loan outstanding balance of Thanachart Group, as

creates the highest value. It also appoints a professional

aforementioned, totaled to THB 18,064 million, accounted

asset selling agent as well as collaborates with the related

for 2.84 percent of total loans at the end of 2011. All

group of companies to expand sales channels, such as

lending and borrowing activities were transacted under the

brokers or auction agents as well as cross-selling and

permission of the BOT.

50

Annual Report 2011 Thanachart Bank Public Company Limited


RISK MANAGEMENT AND RISK FACTORS An Overview of the Risk Management Thai economy grew marginally by only 0.1 percent in 2011 compared to 7.8 percent of 2010, attributed to a combined effect of several risk factors including world economy slowdown, European sovereign debt crisis, Japan’s Tsunami disaster in the second quarter as well as the devastating floods in Thailand in the last quarter of the year which posed substantial impact on agricultural and industrial sectors in a large area. Consequently, export, private consumption, and private investment became contracted in the last quarter of the year. It is, however, forecasted that Thai economy will start to rebound by mid 2012. GDP will grow within a range of 5.5 to 6.5 percent, driven primarily by government’s flooddamage restoration measures and policies that stimulate domestic spending. Yet, there remain a number of risk factors such as uncertainty over the world economic crisis, fluctuation of capital flows, pressure from inflation, and the government’s minimum wage policy, which may adversly affect business operations. Caution must be given in business management in order to cope with uncertainties and to be ready to compete in the global arena, in particular in the year 2015 when Thailand will step into the ASEAN Economic Community (AEC). TBANK and Thanachart Group have realized the importance of risk management. In the year 2011, TBANK continually developed 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. 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.

Annual Report 2011 Thanachart Bank Public Company Limited

51


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, 2011

Board of Directors

Risk Management Committee

Risk Management

Audit Committee

Executive Committee

Internal Audit

Compliance Risk Management Policy and Capital Market

Credit Analysis I & II

Chief Executive Officer and President

Asset and Liability Management Committee

Risk Control Investment Portfolio Committee

Deputy Chief Executive Officer Office of Executive Committee and CEO

Credit Committee

IT Security Management Committee

• 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.

52

Annual Report 2011 Thanachart Bank Public Company Limited


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. 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.

Annual Report 2011 Thanachart Bank Public Company Limited

53


Table of credit status As of December 31, 2011 compared to December 31, 2010 classified by business types was as follow:

Business type

2011 Debt balance (THB Million)

2010 Percent

Debt balance (THB Million)

Percent

Agricultural and mining

10,830

1.71

10,957

1.81

Manufacturing and commerce

81,967

12.90

97,384

16.05

Real estate and construction

47,972

7.55

52,406

8.64

Public utilities and service

58,441

9.20

66,047

10.88

Housing loans

73,636

11.59

77,636

12.79

2,236

0.35

2,683

0.44

286,361

45.08

239,611

39.48

73,777

11.62

60,127

9.91

635,220

100.00

Margin loans for securities business Hire purchase Others Total loans and accrued interest receivables

606,851 100.00

The overall credit data revealed that TBANK’s lending on hire purchase business grew moderately from 39.48 percent as of December 31, 2010 to 45.08 percent of total loans and accrued interest receivables as of December 31, 2011. 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.

Table of the NPLs Ratios As of December 31, 2011 compared with those of December 31, 2010 were as follow:

Loan classification Substandard

2011 Debt balance (THB Million)

2010 Percent

Debt balance (THB Million)

Percent

7,026

18.65

6,649

18.04

Doubtful

12,059

32.01

13,948

37.84

Doubtful of loss

18,592

49.34

16,262

44.12

Total

54

Annual Report 2011 Thanachart Bank Public Company Limited

37,677 100.00

36,859 100.00


TBANK and subsidiaries’ non-performing loans increased from THB 36,859 million as of December 31, 2010 to THB 37,677 million as of December 31, 2010. From the credit overview, the non-performing loans were accountable for 5.93 percent of total loans and interest receivables, dropped from 6.07 percent as of December 31, 2010. The nonperforming loans could be classified by types of business as follow:

Table of Non-Performing Loans Classified by Type of Business

Type of Business Agricultural and mining Manufacturing and commerce

2011 Debt balance (THB Million)

2010 Debt balance (THB Million)

Percent

Percent

347

0.92

401

16,588

44.03

14,924

1.09 40.49

Real estate and construction

3,767

10.00

4,745

12.87

Public utilities and service

5,510

14.62

5,981

16.23

Housing loans

3,501

9.29

2,807

7.62

306

0.81

1,339

3.63

Margin loans for securities business Hire purchase

3,553

9.43

3,977

10.79

Others

4,105

10.90

2,685

7.28

36,859

100.00

Total loans and accrued interest receivables

37,677

100.00

As of December 31, 2011, TBANK and its subsidiaries, under the BOT’s supervision, had no credit risk from non-performing loans that collateral did not fully cover the remaining loan amounts after deducting provision for loan loss. This was due to the fact that 100 percent provision was allocated on such loans by the Bank in compliance with the International Accounting Standards No. 39 (IAS39).

Table of Non-Performing Loans

(Unit: THB Million)

2011

2010

Change

Non-performing loans (NPLs)

37,425

35,606

Loans not fully covered by collateral

19,585

19,184

401

Provision for loan loss

19,725

19,374

351

Loans not fully covered by collateral after loan loss provision

-

-

-

383

534

General provision for loan loss

1,819

(151)

Annual Report 2011 Thanachart Bank Public Company Limited

55


Table of Troubled Debt Restructuring

(Unit: THB Million)

2011

2010

Number of debtors (persons)

53,922

20,194

Outstanding principal and accrued interest receivables

38,816

28,230

Loans not fully covered by collateral

14,558

12,009

382

460

636,183

607,775

6.10%

4.64%

Revaluation allowance for debt restructuring Total loans and accrued interest receivables Restructured debts to total loans (percent)

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, 2011, the outstanding principal and the accrued interest receivables of the restructured debt amounted to THB 38,816 million or 6.10 percent of total loans and accrued interest receivables. The net restructured debt (less collateral) amounted to approximately THB 14,558 million.

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 Risk 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.

56

Annual Report 2011 Thanachart Bank Public Company Limited


As of December 31, 2011, TBANK and its subsidiaries’ obligations in the form of avals and guarantees for loans amounted to THB 26,752 million or 3.02 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 available-for-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. As of December 31, 2011, TBANK and its subsidiaries’ trading investments and available-for-sale securities classified by type of investment were as follow:

Table of trading investments and available-for-sale securities classified by type of investment Fair Value (THB Million) 2011

2010

Trading investments Government and state enterprise securities

10,479

45

Private debt securities

4,758

21

Foreign debt securities

637

3,023

38

80

15,912

3,169

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

41,003

52,604

Private debt securities

18,533

10,064

Foreign debt securities

25,425

12,920

7,983

8,530

92,944

84,118

108,856

87,287

Domestic marketable equity securities Total available-for-sale investments Total trading and available-for-sale investments

Annual Report 2011 Thanachart Bank Public Company Limited

57


TBANK and its subsidiaries have invested more in debt securities, thus, the value of trading and available-forsale investments have increased. As a result, the price risk of TBANK and its subsidiaries are higher than the previous year.

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. Details of financial assets and liabilities as of December 31, 2011, 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:

Table of Financial Assets and Liabilities (Unit: THB Million)

Items

Period of interest rate repricing or due date At call

0-3 months

3 - 12 months

1 - 5 years

Over 5 years

No interest

Total

Financial assets Cash Interbank and money market items

-

-

-

-

-

16,006

16,006

23,000

29,523

2,655

-

-

8,137

63,315

-

-

-

-

-

1,536

1,536

12

14,772

46,447

57,851

16,781

13,308 149,171

316,891

22,243

15,445 212,320

68,113

208 635,220

-

-

-

-

-

25

25

-

-

-

-

-

858

858

339,903

66,538

64,547 270,171

84,894

Derivatives Investments Loans Receivables from clearing house Receivables from purchase and sale securities and derivatives Total financial assets

40,078 866,131

Financial liabilities Cash

174,608

169,399

77,929

8,404

-

5,700 436,040

20,877

32,220

5,379

217

-

1,458

Liabilities payable on demand

-

-

-

-

-

2,131

2,131

Derivative liabilities

-

-

-

-

-

2,886

2,886

133,517 103,060

Interbank and money market items

Borrowings

999

60,151

16,700

21

-

-

-

-

-

306

306

-

-

-

-

-

851

851

196,484 335,136 186,368

25,321

21

Payables to clearing house

- 254,297

Payables from purchase and sale securities and derivatives Total financial liabilities

58

Annual Report 2011 Thanachart Bank Public Company Limited

13,332 756,662


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, 2011, 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.

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 Banks’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:

Table of Capital Funds Classified by Source (Unit: THB Million)

2011 Deposits Domestic interbank and money market items Foreign interbank and money market items Borrowings Total

Percent

2010

Percent

436,040

58.10

532,656

70.27

50,851

6.78

33,251

4.39

9,300

1.24

7,294

0.96

254,297

33.88

174,949

23.38

750,488

100.00

748,150

100.00

Annual Report 2011 Thanachart Bank Public Company Limited

59


Table of Capital Fund Classified by Maturity (Unit: THB Million)

2011

Percent

2010

Percent

Less than 1 year

701,284

93.44

680,818

91.00

More than 1 year

49,204

6.56

67,332

9.00

750,488

100.00

748,150

100.00

Total

As of December 31, 2011, deposits and borrowings of TBANK and its subsidiaries amounted to THB 750,488 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, 2011 classified by maturity date were as follow:

Table of the Financial Assets and Liabilities (Unit: THB Million)

Items

The maturity date of financial instruments Less than More than 1 year 1 year

At call

Not specified

Total

Financial assets

Cash

Interbank and money market items

Derivatives

Investments

Loans

Receivables from clearing house

-

25

-

-

25

Receivables from purchase and sale securities and derivatives

-

858

-

-

858

Total financial assets

16,006

-

-

-

16,006

8,368

54,827

120

-

63,315

-

1,536

-

-

1,536

1

67,445

68,908

12,817 149,171

47,672 193,205

394,343

- 635,220

72,047 317,896 463,371

12,817 866,131

Financial liabilities

Cash

Interbank and money market items

Liabilities payable on demand

Derivative liabilities

Borrowings

Payables to clearing house

-

306

-

-

306

Payables from purchase and sale securities and derivatives

-

851

-

-

851

200,827 506,613

42,074

Total financial liabilities

176,616 249,835

9,589

- 436,040

21,081

35,306

3,764

-

60,151

2,131

-

-

-

2,131

-

2,886

-

-

2,886

999 217,447

28,721

7,130 254,297

7,130 756,662

Off-balance sheet items

Avals to bills and guarantees of loans

Obligation under unmatured import bills

Letter of credits

1

1,572

43

-

1,616 1,105

624

481

-

-

86

2,540

-

-

2,626

Other commitments

41,732

6,138

2,061

2

49,933

Total off-balance sheets

42,443

10,731

2,104

2

55,280

60

Annual Report 2011 Thanachart Bank Public Company Limited


4. Operational Risk

aspect of data and technology. A particular focus is given

to the prevention of damages from unauthorized access to

The operational risk is the risk that arises

the Bank’s information.

from the damage that occurs from lack of good corporate

governance within the organization. Risk may also arise

• Formulate the Business Continuity Plan

from the inadequate efficiency of the internal audit and

which consists of an emergency plan, a plan for backup

internal control systems which could be relating to internal

systems and a business recovery plan to prevent

operation process, personnel, systems or external events.

disruption in business operation. In addition, the drills are

This also includes legal risks such as litigations,

essential to test for the readiness and to consistently

exploitation by the government and also damage from

improve the plans for its effective implementation.

settlements outside the courtroom. Such risks can pose adverse impact on other risks, especially strategic risk and

TBANK also employs the services of the third party to operate some group activities as per the direction

reputation risk.

of the work operations of financial institutions at present

TBANK

has

established

policies

and

and in the future. TBANK determines policies in order

guidelines to ensure the prevention and monitoring of this

to manage the risk that may occur from outsourcing.

type of risk. As the internal control system is an important

These policies have to also be subject to regulations

tool in controlling and preventing potential risk that may

of BOT and must be beneficial to the internal control

occur, TBANK has implemented an efficient internal control

of the Bank as well.

system as follow:

In the measurement and assessment

• Regarding the organization of the Bank’s

of operational risk, TBANK determines a principle, form

structure, TBANK has specified the roles, the scope of

or condition of the process used in the measurement and

duties and responsibilities for each position, based on a

assessment of risk in TBANK. In the determination of this

system of check and balance. The front office where all the

process, TBANK considers the circumstantial factors

transaction takes place is separated from the middle office,

such as supervising guidelines of the government units

comprised of the Risk Control Department and the back

associated with the Bank, state and complexity of

office who record all items in the transactions.

the business, the capability of the Bank in accepting risk,

probability, likelihood or frequency as well as the impact

• Establish the transaction-supporting units

or severity of risk that has happened or may happen.

which are independent and have expertise in their

As per BOT specification for commercial bank to maintain

respective fields of work such as information technology

the funds to risk-weighted assets in credit, market and

unit, legal and appraisal unit in order to prevent any

operation according to Basel II guidelines, TBANK has

possible errors that may arise

employed the Basic Indicator Approach to calculate

• Put operational procedures and regulations

operational risks.

related to all types of transaction, staff manuals as well as

In addition, to monitor operational risk,

the authority ranks for approval in writings as a guideline

TBANK determined a policy for executives of each

to set the same standards for all internal operations within

department to have the responsibility of monitoring the

the organization

risk and consider a part of their regular duties. This will

help promptly inform all of the risk and problems that

• Establish the Audit Committee and the Risk

occur and to respond to the changes in each time period in

Management Committee to control, monitor and assess the

an appropriate and timely manner, not damaging to the

risks of TBANK. The committees are responsible for

Bank. Nevertheless, to inform of the result of business

examining and correcting the pitfalls in order to create

operations and problems that occur, as well as trends and

soundness and efficiency in the Bank’s operation.

chages in information of risk factors, TBANK organized

a filing and reporting of the information associated with

• Improve the management of the information

operational risk management such as information on data

technology system and information security system in

loss, key risk indicatiors and important risk points to be

order to enhance its potential to accommodate business

continually and regularly reported to the Board of

expansion and gain credibility from the customers in the

Directors, the Risk Management Committee and the

Annual Report 2011 Thanachart Bank Public Company Limited

61


executives to use in the determination of policies,

7. Risk from Capital Inadequacy

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

TBANK calculates its capital to cushion any possible risks, in accordance with Basel II criteria as follow:

• Credit risk by means of the Standardized This type of risk arises from the inappropriate

Approach

formulation of strategies, business planning and

implementation which are not compatible with internal setups and external environment, resulting in an adverse

• Market risk to explore status of market risk by means of the Standardized Approach

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

• Operational Risk by means of the Basic Indicator Approach

or in the case of an external event that may impact the

In addition, TBANK has assessed its future

achievement of the Bank’s business goals. The Executive

capital adequacy based on budget and 3-year business

Committee is responsible for regular monitoring and

plan. The risk calculated is capped with risk limit in which

evaluating the performance of the work units upon the

the Risk Management Division monthly reports the

established targets stated in the annual operation plan.

adequacy of capital to the Executive Committee and the

6. Regulatory Risk

Board of Directors to ensure that TBANK has sufficient capital after risk capital allocation to support sustainable business’ growth as planned.

The regulatory risk arises from amendments

or changes in regulations, laws or requirements of the

As of December 31, 2011, TBANK’s total

authorities especially the BOT. Changes in the authority’s

capital registered at THB 91,093 million of which THB

policy may affect the strategies and business operations

61,638 million was Tier I capital and THB 29,455 million

of TBANK and its subsidiaries.

was for Tier II. The BIS ratio amounted to 13.72 percent

which exceeded the BOT’s minimum requirement at 8.50 In 2011, most changes in regulations and

percent. This level of capital should be sufficient in

requirements from the related authorities have

accommodating any potential risks as well as the Bank’s

concentrated on the improvement of measures to promote

future business expansion.

corporate governance of financial institutions, more efficient risk management and improved consumer protection. These measures therefore posed no significant impact on the strategies and business operation of the Bank. And throughout, TBANK has constantly improved and developed the internal operation system as well as customer service standard. This has also been an important mission for the Bank that the business operation has to also comply with authorities’ rules and regulations.

62

Annual Report 2011 Thanachart Bank Public Company Limited


CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES Corporate social responsibility Thanachart Group is an organization that adheres to the principles of corporate social responsibility both in its conduct of business affairs and its participation in other social activities. The objectives are to create sustainability and the well-being of society and people living in communities as well as to protect the environment. In addition, our employees are encouraged to participate in CSR-related activities.

CSR-in-Process This type of corporate social responsibility (CSR) 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. We treat all our groups of stakeholders including shareholders, customers, consumers, and business counterparts in a fair and equitable manner. Recognizing the importance of good corporate governance, we also place strong emphasis on transparency in information disclosure. With the support of Chulalongkorn University’s Continuing Education Center, we regularly and continuously organize training activities for our staff on good corporate governance. In regard to our employees, we have promoted and fostered good relations with our staff by offering competitive remuneration, excellent welfare benefits, and a stimulating work environment. In addition, as part of our energy conservation policy, Thanachart Group encourages staff to participate in activities aimed at conserving electricity and other energy sources and using less paper, thus preserving the environment. In 2011, many provinces of Thailand were severely hit by the floods. In response, Thanachart Group introduced

a number of measures aimed at helping both corporate and individual customers who were flood victims. These included

a grace period of up to 90 days for hire purchase loans as well as extension of the repayment period for up to 12 months. As for home loans, borrowers could suspend repayment of principal amounts for up to 12 months. As well, a total of

THB 5 billion was set aside for loans to small-and-medium-sized enterprises (SMEs) with the principal repayment period extended by up to one year. In regard to ATM and debit cards, fees for all cash withdrawals and transfers thru

TBANK’s ATMs, including all inter-region withdrawals and transfers were waived. Moreover, the fees for inter-bank cash withdrawals as well as cash transfers between bank accounts with TBANK which were tied to the same card were also waived. As well, annual fees and fees for issuing replacement cards lost or damaged during the flood were waived for customers who were flood victims. Holders of Thanachart Drive Credit Cards and FLASH Cards could request a grace period, lower monthly repayments, or extension of their repayment period until the situation returned to normalcy.

CSR-after-Process This type of corporate social responsibility (CSR) covers any activities other than those undertaken in the ordinary course of business. Thanachart Group has been involved in these types of activities for a long time. However, since 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 have also been supported by the regional hubs concerned. In this connection, the CSR Committee is responsible for approving the programs and financial support for all activities. After the approval is granted, the Bank’s staff and members of Thanachart Group in each regional hub will start implementing the CSR activities together. Their customers and trading partners, as well as people living in communities, will also be encouraged to participate in the activities. As a guideline for the implementation of the activities, the organization has established a framework of social issues to be addressed. They can be divided into four main groups as follows:

Annual Report 2011 Thanachart Bank Public Company Limited

63


1. Development activities for disadvantaged children and youth

from the kindergarten level to Prathomsuka 3, which participated in the project. The activities have been

2. Community health and hygiene

implemented over the past five years, during which time,

3. Conservation of culture and national identity

28,800 safety helmets for children were given to various

4. Assistance to people who are adversely affected

schools. The Bank will continue implementing its activities

by natural disasters

which include the delivery of safety helmets to children

Thanachart’s public concern– motorcycle helmets for kids This project was initiated in 2007 by the regional hub based in Hat Yai. The main objective was to give

as well as the campaigns aimed at inculcating in adults

the importance of the safety helmets.

Thanachart initiates and fulfils Thai identity project

motorcycle helmets to young students who rode

The activities of the project place emphasis on

motorcycles to their schools in Hat Yai District and Muang

promoting the country’s unique identity and beautiful

District in Songkhla Province. During the period from

culture by encouraging young people to read Thai out loud

2008 - 2010, the project’s coverage areas were extended

with correct pronunciation and to learn about good

to include Nakhon Sawan, Phitsanulok, Nakhon Pathom

manners in Thai culture, which they can adopt in daily life.

and Udon Thani Provinces. TBANK recognizes the

This is an extension of SCIB’s previous project entitled

importance of reducing the number of casualties caused by

“Siam City Bank conserves Thai identity” which was

accidents in which small children are involved, principally

continuously implemented for over 39 years. The project

when they sit at the rear of motorcycles without wearing

consists of two main activities including reading aloud

helmets. But this will only happen when parents become

contests and Thai manners contests. First rounds of the

more concerned with children safety and the standard

contests to select qualified candidates are organized in four

helmets for young children become less expensive. There

regions including North, North East, South and Central

are far fewer manufacturers of motorcycle helmets for

(including Bangkok). Educational institutions are provided

children than those producing helmets for adults. The

with an opportunity to send students from Prathomsuksa 1

project also helps inculcate into parents and children the

to the university level as their representatives to

importance of wearing safety helmets every time they ride

participate in the contests to compete for H.R.H. Princess

motorcycles from home to school and vice versa. The

Maha Chakri Sirindhorn’s Cups, honourable shields and

project has been continuously implemented and has

certificates of honour, as well as scholarships. In 2011, the

received very good responses from the parents and their

Bank organized a contest to decorate a traditional Thai

children participating in the project. It is also in line with

pedestalled tray (or Phan in Thai) which contained candles

the Bank’s CSR policy aimed at creating a motorcycle

and joss sticks. The objective was for the young people to

safety culture which encourages children who sit at the

come up with creative ideas to decorate beautifully a set of

rear of motorcycles to wear safety helmets. As well, it is in

Thai style altar tables. The project was supported by

line with the Bank’s campaign aimed at promoting safe

qualified experts from the Office of the Permanent

driving habits. The related activities help mitigate

Secretary of the Ministry of Culture, the Department of

casualties caused by accidents in which the victims do not

Cultural Promotion of the Ministry of Culture, the Office of

wear safety helmets.

the National Broadcasting and Telecommunication Commission

On the occasion of His Majesty the King’s

(NBTC), the Royal Institute, the National Identity Office, 84 th

and Phra Tumnuk Suankularb School, as well as experts on

Birthday Anniversary in 2011, the Bank organized activities

each region’s culture, who served as panel judges for the

under the project entitled “Thanachart’s concern–motorcycle

contests.

helmets for kids to wear, 84th birthday and 84 schools”

in honor of His Majesty the King. As well, it launched a

The project was first initiated in 1972 in the form of

campaign aimed at promoting traffic knowledge and

a contest organized on “Thai Manners” under the auspices

discipline as well as the culture of ensuring that both

of Bangkok Metropolitan Bank. Later in 1980, the first

parents and children wear safety helmets every time they

“Reading Aloud Contest by Bangkok Metropolitan Bank”

sit at the rear of motorcycles. As part of the activities,

was organized. In 1995, it humbly requested that H.R.H.

20,000 helmets whose standards were certified by the Thai

Princess Maha Chakri Sirindhorn graciously give royal cups

Industry Standards Institute (TISI) were given to students

to top winners of the two contests. In 2002, Bangkok

studying at 84 government and private schools nationwide

Metropolitan Bank merged with SCIB and the name of the

64

Annual Report 2011 Thanachart Bank Public Company Limited


identity”. Recently in 2011, SCIB merged with TBANK, the

Sapan Boon Project (Bridge-togood deeds Project)

project then has been sustained with the name changed to

project was changed to “Siam City Bank conserves Thai

The Bank provides holders of TBANK ATM cards

“Thanachart initiates and fulfils Thai identity project”.

with the convenience of making merit via its ATMs.

The intention to preserve Thai identity is the

Customers can donate money to several charitable

inspiration behind the project. The activities of the project

organizations via the TBANK’s ATMs free of charge. The

include reading Thai aloud and adopting Thai manners in

Bank serves as a bridge for its customers to make

daily life. The objective is for Thai people to preserve the

donations to many organizations that dedicate themselves

unique values and prevent their disintegration over time as

to solving problems in Thai society. In doing so, the Bank

a result of western values which are influencing young

serves as a channel for raising funds to support charitable

people to move away from their culture. Moreover, the

foundations and organizations. Moreover, the Bank

project also helps inculcate in Thai youths the love of Thai

supports the Foundation for Slum Child Care (FSCC) under

culture. This will make them cherish the culture and help

the Royal Patronage of H.R.H. Princess Galyani Vadhana

sustain it for Thai society. Both the Thai language and

Krom Luang Naradhiwas Rajanagarindra. In 2011, it gave

Thai manners are internationally recognised as unique

the Foundation THB 1,170,000 which was sourced from

characteristics of Thai identity.

charity collection boxes placed in 680 branches of the Bank

nationwide. The donations were made by customers and

In 2011, over 3,000 students from 980 educational

staff of Thanachart Group for paying living expenses,

institutions nationwide participated in the ‘Thanachart

education and enhancing the quality of life of children so

initiates and fulfills Thai Identity’ project. The students

that in the future they will grow up to become responsible

were divided into five groups according to their

youths and good citizens of the country. The activities have

educational levels, including the first level of primary

been continuously supported by TBANK for over 10 years.

education (Pathomsuksa 1 - 3), second level of primary

education (Pathomsuksa 4 - 6), lower secondary education (Mathayomsuksa 1 - 3), upper secondary education (Mathayomsuksa 4 - 6), and the university level. The contests were held during the period from July to September 2011.

1

2

3

4

Pictures 1 - 2: Royal Kathin Robes Thanachart Group offered Royal Kathin robes to

Wat Pa Pradu, Muang District, Rayong Province, and

with member companies of Thanachart Group, their

customers, trading partners, executives, and staff

as well as members of the general public all jointly

donated THB 7,977,422.27 in good faith to the

temple as part of the funds to be used for

constructing a new sermon hall. Picture 3: Financial Support to Slum Children TBANK gave THB 1,170,000 to the Foundation for

Slum Child Care (FSCC) under the Royal Patronage

of H.R.H. Princess Galyani Vadhana Krom Luang

Naradhiwas Rajanagarindra. The money was sourced

from charity collection boxes placed in 680 branches

of the Bank nationwide. The donations were made

by customers and staff of Thanachart Group. Picture 4: Thanachart joined hands to help flood victims

in 2011 Member companies of Thanachart Group jointly gave

5,000 survival bags to the Royal Thai Navy based in

Bangkok, for distribution to flood-hit people living in

Wat Tuk Community, Wat Bote and Phra Nangklao

Community, Nonthaburi Province, which were difficult

to access. The money for buying the survival bags

were donated by TBANK and member companies of

Thanachart Group as well as their executives and staff.

Annual Report 2011 Thanachart Bank Public Company Limited

65


Project supporting Thai Red Cross Society

still the only commercial bank with a booth in the Annual Red Cross Fair at Suan Amporn Park. The net income

gained from selling Red Cross lotteries as well as proceeds

• Participation in the Annual Red Cross

from the Bank’s participation in the fair were humbly

Fair

presented to H.R.H. Princess Maha Chakri Sirindhorn, Both TBANK and SCIB always participated in the

Annual Red Cross Fair. In 2011, the 35th anniversary fair

Executive Vice-President of the Thai Red Cross Society, annually for the benefit of the Thai Red Cross Society.

was held from 30 March to 7 April 2011 at Suan Amporn Park, under the theme entitled “On

84 th

• Blood donation in honor of the Royal

Birthday

Anniversary of Great King, follow His footsteps with Red

Father

Cross helping Thai people in honor of His Majesty the

This activity has been implemented by the

King”. The event was organized in celebration of the 84th

TBANK’s Khon Kaen Hub for seven consecutive years. The

Birthday Anniversary of His Majesty the King, the patron of

activity involves a campaign aimed at encouraging both

the Thai Red Cross Society. On this occasion, the Bank

members of the public and staff to donate blood in honor

humbly presented a donation of THB 5.2 million to benefit

of His Majesty the King. Donating blood not only helps

the Thai Red Cross Society as part of its participation in

save the lives of victims of emergent accidents but also

the Fair 2011 with Her Majesty Queen Sirikit as president

alleviate blood shortage during treatment. The activity has

of the Society.

been well supported by the Faculty of Medicine, Khon Kaen

Unviersity, who facilitates the blood donations. Moreover,

The participation in the annual fair could be traced

the Bank also gives financial health check-up to those who

back to the year 1976 when Bangkok Metropolitan Bank

participate in the activity. Tree seedlings are also

was invited to join the Red Cross Fair. It was the only

distributed to the participants, as part of the fight global

participating commercial bank at the fair, using the name

warming campaign. The objective is also to instill into

of ‘Bangkok Metropolitan Bank’s Booth’. Later in 2002

people cooperation in preserving the environment.

when Bangkok Metropolitan Bank merged with SCIB, SCIB

In 2011, 1,164 people donated 480,050 cc of blood to the

participated in the fair, using the name of ‘SCIB’s Booth’. In

Thai Red Cross Society.

2011 when SCIB merged with TBANK, their name at the

fair was changed to ‘Booth of TBANK and SCIB’. Today, it is

The first blood donation event took place in 2004

5

6

7

8

Pictures 5 - 6: Thanachart’s concern – motorcycle helmets for

kids, 84th birthday anniversary and 84 schools TBANK gave 20,000 helmets to student representatives

from 84 schools that participated in the project

named “Thanachart’s concern – motorcycle helmets

for kids, 84th birthday anniversary and 84 schools”.

The activity was part of the campaign aimed at

promoting safe driving habits. Pictures 7 - 8: Thanachart initiated and fulfilled Thai identity

project TBANK granted scholarships to the youths who won

the reading aloud contests and Thai manners contests.

Top winners were awarded H.R.H. Princess Maha

Chakri Sirindhorn’s Cups under the “Thanachart

initiates and fulfills Thai identity” project. First rounds

of the contests to select qualified candidates were

organized in four regions of the country. The

objective was to encourage Thai youths to preserve

their culture through the language and to learn

about correct ways of behaving in line with Thai

manners.

66

Annual Report 2011 Thanachart Bank Public Company Limited


with Khon Kaen Hub serving as a prototype for the blood

victims of the earthquake and Tsunami in Japan by opening

donation activity nationwide. This CSR activity has been

a bank account for customers nationwide to contribute to

organized twice annually on the occasions of the birthday

and making available collection boxes to accept donations

anniversaries of His Majesty the King and Her Majesty

from customers, staff and branches of the Bank. In this

Queen Sirikit respectively. Later, the coverage areas for the

connection, a total of THB 2,840,913.38 was donated and

event were extended to include those covered by

delivered to the Ministry of Foreign Affairs to help Japanese

Ayutthaya Hub, Nakhon Si Thammarat Hub, Saraburi Hub,

disaster victims.

Udon Thani Hub, Thon Buri Hub and Rajchadapisek Hub.

behind the project. The objective is also to encourage

• Thanachart joined hands to help disaster victims in the South The activities organized by Nakhon Si Thammarat

executives, staff, customers as well as members of the

Hub were aimed at helping victims who were adversely

general public to make merit together to help alleviate the

affected by floods. Survival bags were given to the victims

plight of fellow human beings in the case of emergencies

in Tambon Tonhong and the disaster evacuation centers in

or blood shortages.

Amphur Nop Pi Tum, Soi Pratu Kao Community, Tambon

The intention to do good deeds in honor of His Majesty

the King and Her Majesty Queen Sirikit is the inspiration

Groups of schools receiving continuous support from TBANK

Thepraj and Tambon Chalong, Amphur Sichon, Tambon Bang Rakam, Amphur Pakpanang, and the District Office of Amphur Pi Poon, Nakhon Si Thammarat Province. Surat Thanai Hub also gave survival bags and drinking water to

• Reuse Project entitled ‘Pi Chai Ngan

flood victims in Surat Thanai Province. As well, Phuket Hub

Nong Chai Rien’ (Senior use them for work, junior use them for learning)

gave assistance to flood victims in Tambon Khao Pranom,

The activity is based on the idea that materials can be reused. The TBANK reused structural materials and all decorative materials (such as desks, tables,

Amphur Khao Pranom, Krabi Province. • Thanachart joined hands to help flood

victims in 2011

bookshelves, educational materials and light bulbs) at its

Many provinces of Thailand including Bangkok

booths at Money Expo 2011 to build a multipurpose facility

were severely hit by recent devastating floods. The

and a library for Pak Dan Temple School in Sichon District,

disasters inflicted serious damage and caused a lot of

Nakhon Si Thammarat Province, which was adversely

people to suffer. As a result, the Bank and Thanachart

affected by southern floods. The Bank also provided the

Group organized activities aimed at helping the flood

school with sports equipment and school supplies to give

victims through a project named “Thanachart joins hands

moral support for the children education and shape the

to help flood victims in 2011”. The activities included

better future for them.

the following:

Projects to support disaster victims

1. TBANK opened a bank account using the name of “Thanachart joins hands to help flood victims in

These CSR activities are continuously implemented

2011”, to accept donations for flood victims. It used the

every year and place emphasis on rehabilitating victims

donated money to pay for 5,000 survival bags containing

affected by natural disasters. In 2011, TBANK gave

consumer goods worth THB 1,020,410.25 in total. The

assistance to victims of natural disasters through its

Bank teamed up with the Royal Thai Navy in distributing

various activities as follows:

the survival bags to flood victims in Wat Tuk Community,

Wat Bote and Phra Nangklao Community, Nonthaburi

• Thanachart Group members joined

Province. It also paid THB 973,905.83 for 5,000 medicine

hands to help Tsunami victims in Japan

sets together with boxes of cooked food. It also paid THB

The natural disasters that hit Japan hard in 2011

267,773.03 for 1,000 survival bags together with 1,000

represented a great tragedy that inflicted the heaviest

dozen bottles of drinking water. The Bank teamed up with

casualties and damage in the country for more than a

the Royal Thai Army in distributing them to flood victims in

century. Both TBANK and SCIB joined hands to help

the areas of Bang Plat, Taling Chan, Bang Yai, Bangbuathong, Don Muang, and Rangsit.

Annual Report 2011 Thanachart Bank Public Company Limited

67


2. Drinking water was distributed to flood

7. Thanachart Insurance Company Limited

victims at the temporary evacuation center inside Thammasat

made a financial contribution worth THB 100,000 to buy

University Rangsit Campus, Maha Chulalongkorn

survival bags for flood victims through the project named

Ratchawithayalai evacuation center in Wang Noi District in

‘Thanachart joins hands to help flood victims in 2011’.

Ayutthaya Province and the evacuation center at Valaya Alongkorn Rajabhat University under the Royal Patronage. Each center received 9,000 bottles of drinking water.

Project for Buddhism

Regiment (King’s Guards), the Security Forces Command,

• Activity to maintain and support Buddhism through the offering of ‘royal Kathin robes’

with financial assistance, an amount of THB 50,000 to buy

TBANK organizes annually the offering ceremony

3. The Bank provided the Security Forces

cleaning supplies for flood victims.

of Royal Kathin robes. In 2011, the Bank offered the Royal Kathin robes, graciously bestowed by His Majesty the King,

4. The Bank provided Wat-Sing Kindergarten in

to Wat Pa Pradu, Muang District, Rayong Province. In this

Chainat Province with 120 pairs of student desks and

connection, the Bank together with member companies of

chairs. In an effort to rehabilitate the kindergarten, the

Thanachart Group, their customers, trading partners,

Bank also helped repaint school fences and buildings to

executives, and staff as well as members of the general

make them look beautiful again. The objective was to

public jointly donated THB 7,977,422.27 in good faith to

enhance the quality of educational life. Moreover, in

the temple as part of the funds to be used for constructing

collaboration with Thanachart Foundation for Thai Society,

a new sermon hall.

the Bank plans to give additional pairs of student desks

and chairs in the first quarter of 2012 to about 20 schools

The offering ceremony of Royal Kathin robes,

which were hit by floods. A budget of about THB 6 - 7

graciously bestowed by His Majesty the King, was first

million is being allocated for this purpose.

organized in 2006. The Royal Kathin robes were offered to

Wat Keaw Gro Wa Ram Temple in Krabi Province. Since 5. Thanachart Securities Public Company

then, TBANK has been organizing the offering ceremony of

Limited made a financial contribution worth THB 100,000

Royal Kathin robes every year. The purpose of this CSR

to buy survival bags for flood victims, through the project

activity is to maintain and support Buddhism, royal

named “Thanachart joins hands to help flood victims in

temples, and sanctuaries so that they remain intact as

2011”. The company also provided TBANK’s CSR working

long as the nation exists. In addition, the Bank grants

group with 999 medicine sets worth THB 49,950. The

scholarships to financially needy students with good grades

money was donated by executives, staff and customers of

and good behavior.

Thanachart Securities Public Company Limited. The

medicine sets were distributed later to the flood victims.

6. Thanachart Life Assurance Company Limited made a financial contribution worth THB 700,000 to buy survival bags for flood victims. The survival bags were distributed to the victims through the Royal Thai Navy and the Royal Thai Army. As well, some of the company’s executives and staff volunteered to visit the flood-hit areas to distribute the bags themselves. The purpose was to alleviate the plight of flood victims under the project named “Thanachart joins hands to help flood victims in 2011”.

68

Annual Report 2011 Thanachart Bank Public Company Limited


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, 2011 which is in compliance with the generally accepted accounting principles and relevant rules and regulations.

(Mr. Banterng Tantivit)

(Mr. Somjate Moosirilert)

Chairman

Chief Executive Officer and President

Annual Report 2011 Thanachart Bank Public Company Limited

69


Report of the Audit Committee

The Audit Committee of Thanachart Bank Public Company Limited consisted of three qualified and experienced

independent directors. The composition was as follows; 1. Mr. Kiettisak Meecharoen

Chairman of the Audit Committee

2. Assoc. Prof. Dr. Somjai Phagaphasvivathana Member of the Audit Committee 3. Mr. Sataporn Jinachitra Member of the Audit Committee 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 Bank of Thailand (BOT) as stated in the charter stipulated by the Board of Directors. In 2011, the Audit Committee convened 13 meetings in total with the management, top level executives of the related business units and auditors; whereas 11 meetings were regular meetings and 2 meetings were extraordinary meetings 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 auditors and TBANK management 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. The professionals were engaged to assess and analyze an appropriateness of the organization structure, work force and capability of the internal auditors in order to further develop the effectiveness and efficiency of audit system.

70

Annual Report 2011 Thanachart Bank Public Company Limited


The

• Connected Transactions or Conflict of Interests The Audit Committee reviewed connected

• Regulatory Compliance Audit Committee reviewed the performance

of Compliance Unit’s to as certain that the Bank’s businesses

transactions and transactions where there might be conflict

were conducted in compliance with related rules and

of

regulations imposed by authorities such as the Bank of

appropriate disclosure of information before giving an

Thailand (BOT), Office of the Securities and Exchange

opinion to the Board of Directors.

interests

based

on

rationale,

transparency

and

Commission of Thailand (SEC), Stock Exchange of Thailand

(SET), the Office of Insurance Commission (OIC) and

The Audit Committee views that the Bank has

Anti-Money Laundering Office (AMLO). The Audit Committee

disclosed financial reports and financial statements properly

also acknowledged changes of any rules or regulations

and in accordance with the accounting standards. The

that affected operation and ensured the adjustment of

internal control, internal audit and risk management have

operation in response to those changes.

been appropriate, effective, and in compliance with laws

and regulations. Independent auditor was independent to

perform duties. Connected transactions and conflict of

• 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

interests have been disclosed appropriately.

to

ensure an adequacy and effectiveness of TBANK’s risk management system.

(Mr. Kiettisak Meecharoen) Chairman of the Audit Committee

• 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 qualification, the independence, performance and remuneration of the auditor. In addition, it also advised on the appointment and suitable remuneration of auditors to the TANK’s Board of Directors.

Annual Report 2011 Thanachart Bank Public Company Limited

71


Report of Independent Auditor

To the Shareholders of Thanachart Bank Public Company Limited I have audited the accompanying consolidated statement of financial position of Thanachart Bank Public Company Limited and its subsidiaries as at 31 December 2011, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and have also audited the separate financial statements

of Thanachart Bank Public Company Limited for the same period. These financial statements are the responsibility

of the management of the Bank and its subsidiaries as to their correctness and the completeness of the presentation.

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in

the financial statements. An audit also includes assessing the accounting principles used and significant estimates made

by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides

a reasonable basis for my 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 2011, and the results of their operations and cash flows for the year then ended in accordance with generally accepted accounting principles. Without qualifying my opinion on the aforementioned financial statements, I draw attention to Note 4 to

the financial statements. During the current year, the Bank and its subsidiaries adopted a number of revised and

new accounting standards as issued by the Federation of Accounting Professions, and applied them in the preparation

and presentation of the financial statements. The consolidated financial statements of Thanachart Bank Public Company Limited and its subsidiaries and the separate financial statements of Thanachart Bank Public Company Limited as at 31 December 2010 and for the year then ended were audited in accordance with generally accepted auditing standards by another auditor of our firm who expressed an unqualified opinion on those statements, under her report dated 24 February 2011. However, the Bank has restated the consolidated financial statements regarding the allocation cost of business combination from the purchase of investment in a subsidiary company within the period for measurement allowed by the related accounting standard as described in Note 2.3 to the financial statements. I have audited the adjustment and believed that it is correctly and appropriately recorded.

Phuphun Charoensuk

Certified Public Accountant (Thailand) No. 4950

Ernst & Young Office Limited Bangkok: 23 February 2012

72

Annual Report 2011 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 2011 and 2010 (Unit: Thousand Baht)

Note

Consolidated

Separate

financial statements

financial statements

2011

2010

2011

2010

(Restated) Assets Cash

16,005,678

15,298,105

16,004,051

3,733,489

Interbank and money market items - net

8

63,201,206

85,060,091

62,963,184

28,427,950

Derivatives assets

9

1,536,490

3,117,370

1,532,331

927,751

Investments - net

10

148,344,800

140,021,676

114,540,693

49,758,732

11

1,423,339

2,177,314

40,841,867

73,121,367

675,021,253

639,320,239

654,451,435

358,727,116

962,799

923,792

924,925

272,080

675,984,052

640,244,031

655,376,360

358,999,196

(39,801,128)

(32,469,290)

(37,738,871)

(32,178,121)

13

(25,897,903)

(25,789,301)

(12,485,712)

(7,431,429)

14

(381,719)

(459,963)

(381,719)

(37,741)

Investments in subsidiary and associated companies - net Loans to customers and accrued interest receivables

12

Loans to customers 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

609,903,302

581,525,477

604,770,058

319,351,905

90,531

72,156

90,531

-

Property foreclosed - net

16

6,761,904

7,850,667

3,653,106

639,782

Land, premises and equipment - net

17

8,758,841

8,986,185

8,365,341

1,690,163

Intangible assets - net

18

4,709,082

4,804,990

4,650,449

485,475

Goodwill

19

15,749,643

15,749,643

15,739,527

-

858,326

2,870,279

64,929

1,732,965

1,019,680

6,730

1,011,958

-

Receivables from purchase and sale of securities and derivatives Prepaid corporate income tax Reinsurance assets Other assets - net Total assets

20

2,573,393

532,773

-

-

5,123,388

5,129,331

3,825,298

2,193,641

886,059,603

873,202,787

878,053,323

482,063,220

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

Annual Report 2011 Thanachart Bank Public Company Limited

73


Statements of FINANCIAL POSITION (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of financial position (continued) As at 31 December 2011 and 2010 (Unit: Thousand Baht)

Note

Consolidated

Separate

financial statements

financial statements

2011

2010

2011

2010

(Restated) Liabilities and equity Deposits

21

436,039,579

532,656,130

471,617,573

242,791,035

Interbank and money market items

22

60,150,845

40,544,594

59,282,708

29,705,720

2,130,716

3,126,945

2,130,716

2,326,457

Derivatives liabilities

Liability payable on demand 9

2,885,848

941,073

2,876,790

434,206

Debt issued and borrowings

23

254,296,521

174,948,957

257,503,221

132,092,201

90,531

72,156

90,531

-

24

2,823,534

899,690

2,620,953

113,284

851,388

4,053,940

267,638

1,733,060

Banks' liability under acceptances Provisions Payable from purchase and sale of securities and derivatives Insurance contract liabilities

25

36,154,060

29,773,671

-

-

Other liabilities

26

15,103,017

13,792,197

10,778,836

6,130,602

810,526,039

800,809,353

807,168,966

415,326,565

59,346,193

59,346,193

59,346,193

59,346,193

55,136,649

55,136,649

55,136,649

55,136,649

Total liabilities Equity Share capital

27

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

2,100,694

2,100,694

2,100,694

2,100,694

28

612,902

1,147,783

211,106

169,512

29

989,326

655,945

989,326

655,945

16,008,739

13,141,827

12,446,582

8,673,855

74,848,310

72,182,898

70,884,357

66,736,655

685,254

210,536

-

-

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

75,533,564

72,393,434

70,884,357

66,736,655

886,059,603

873,202,787

878,053,323

482,063,220

-

-

-

-

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

Directors

74

Annual Report 2011 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 2011 and 2010 (Unit: Thousand Baht except earnings per share expressed in Baht) Consolidated

Separate

financial statements Note

2011

financial statements

2010

2011

2010

Profit or loss Interest income

32

44,213,744

34,781,263

29,547,478

Interest expenses

33

(19,797,303)

(11,565,745)

(14,958,709)

(7,375,390)

24,416,441

23,215,518

14,588,769

14,022,068

3,857,939

3,368,918

2,904,042

2,030,464

Net interest income Fees and service income Fees and service expenses Net fees and service income

(499,958)

(518,588)

(144,272)

21,397,458

(45,055)

34

3,357,981

2,850,330

2,759,770

1,985,409

35

890,895

569,670

563,565

144,001

36

712,193

313,838

59,843

147,524 -

Gains on trading and foreign exchange transactions Gains (loss) on investments Share of profit from investments accounted for under equity method Insurance/Life insurance income Dividend income Brokerage fee from securities/derivatives Income on supporting service Other operating income Total operating income Insurance expenses Net operating income

156,064

206,711

-

12,853,319

11,186,879

-

-

707,542

461,284

1,590,458

575,941

1,167,668

1,407,762

-

-

44,708

55,984

1,062,319

278,092

1,430,155

1,239,248

1,135,592

868,822

21,760,316

18,021,857

45,736,966

41,507,224

(10,725,745)

(8,834,326)

35,011,221

32,672,898

21,760,316

18,021,857

10,735,944

8,458,418

6,626,964

3,855,982

43,223

44,866

26,888

17,891

3,474,246

3,148,053

1,833,460

1,531,862

898,439

618,432

406,770

181,826

6,725,454

4,553,979

4,776,988

3,142,638

21,877,306

16,823,748

13,671,070

8,730,199

2,504,008

2,148,604

1,421,636

1,279,692

10,629,907

13,700,546

6,667,610

(2,948,049)

(4,548,121)

7,681,858

9,152,425

6,667,610

(355,528)

688,370

41,594

(180,370)

204,123

-

(535,898)

892,493

41,594

10,044,918

6,709,204

-

Other operating expenses Employee's expenses Directors’ remuneration

37

Premises and equipment expenses Taxes and duties Other expenses Total other operating expenses Impairment losses of loans and debt securities

38

Profit before income tax Income tax

39

Profit for the year Other comprehensive income

-

8,011,966 (2,293,437) 5,718,529

40

Gains (losses) on changes in value of available-for-sale investments Share of other comprehensive income (loss) of associates Total other comprehensive income (loss) Total comprehensive income

7,145,960

(44,182) (44,182) 5,674,347

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

Annual Report 2011 Thanachart Bank Public Company Limited

75


Statements of ComPREHENSIVE INCOME (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of comprehensive income (continued) For the years ended 31 December 2011 and 2010 (Unit: Thousand Baht except earnings per share expressed in Baht) Consolidated

Separate

financial statements Note

financial statements

2011

2010

2011

2010

7,671,425

8,776,543

6,667,610

5,718,529

10,433

375,882

7,681,858

9,152,425

7,136,544

9,664,436

6,709,204

5,674,347

Profit attributable to: The Bank Non-controlling interests

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

Earnings per share of the Bank

9,416

380,482

7,145,960

10,044,918

1.39

1.92

1.21

1.25

5,513,664,903

4,562,521,270

5,513,664,903

4,562,521,270

41

Basic earnings per share Profit attributable to the Bank (Baht per share) Number of ordinary shares (shares)

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

76

Annual Report 2011 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 2011 and 2010 (Unit: Thousand Baht) Consolidated

Separate

financial statements 2011

financial statements

2010

2011

2010

6,667,610

8,011,966

Cash flows from operating activities Profit before income tax

10,629,907

13,700,546

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

1,715,216

1,309,796

768,191

573,110

Impairment losses of loans and debt securities

2,504,008

Increase (decrease) in provisions

(156,064)

(206,711) 2,148,604

1,421,636

1,279,692

(346,472)

102,912

1,195,615

2,569

364,504

561,197

(65,751)

(24,224)

Amortisation of premiums (discounts) on investment in debt securities

(69,123)

94,827

Gain from disposal of investments in subsidiary companies Gain from disposal of investment in an

(22,276)

-

-

(21,625) -

associated company Increase (decrease) in allowance for impairment of investments

(40,978)

(20,549)

4,463

(18,037)

49,226

6,065

1,825

3,428

443,562

(40,387)

29,079

13,762

Increase in allowance for change in value of investments Increase (decrease) in allowance for impairment of property foreclosed Increase (decrease) in allowance for impairment of land, premises and equipment

93,470

60

-

26,843

-

24,816

(1,190)

Increase in allowance for impairment of intangible asset

-

Interest income and other income from the assets transferred for debt repayment Loss (gain) on disposal of equipment

(1,967)

(16,618)

(1,967)

(16,618)

(7,923)

4,033

(2,632)

4,353

Loss from written-off of other assets

-

5,469

-

-

Gain from written-off of other liabilities

-

(9,315)

-

-

Unrealised (gain) loss on exchange

(1,536,625)

647,046

(1,536,625)

(153,991)

(2,011)

(57,982)

Decrease in allowance for impairment of other assets Increase in other income receivable Decrease in fees and rental received in advance Decrease in deferred income Increase (decrease) in accrued expenses Amortisation of discounts on long-term borrowings Net interest income Dividend income

(270,482)

(32,059)

(156,200)

(108,922)

(75,977)

(9,002)

(46,437)

(42,592)

(46,437)

(42,592)

(4,708) 1,077,288

(5,703) (142,045)

(4,708) 1,453,301

(5,699) 132,628

810

6,288

-

767

14,248,951

17,842,891

9,827,056

9,790,366

(24,781,755)

(23,783,003)

(14,519,646)

(14,117,662)

(707,542)

(461,284) 31,108,643

(1,590,458) 27,553,999

(575,941)

Cash received from interest income

40,114,752

19,673,174

Cash payment for interest expenses

(11,936,018)

(7,944,427)

(8,303,265)

(4,492,833)

Cash paid for corporate income tax

(3,555,117)

(4,331,947)

(1,970,980)

(2,432,349)

13,383,271

12,430,873

10,996,706

7,844,755

Income from operating activities before changes in operating assets and liabilities

The accompanying notes are an integral part of the financial statements. Annual Report 2011 Thanachart Bank Public Company Limited

77


Statements of CASH FLOWS (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of cash flows (continued) For the years ended 31 December 2011 and 2010 (Unit: Thousand Baht) Consolidated

Separate

financial statements

financial statements

2011

2010

2011

2010

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

23,183,890

42,647,210

33,785,015

(12,792,593)

3,010,869

(4,780,207)

2,094,487

(680,785)

300,643

35,579,111 688,682 869,688

(22,441,973)

(50,543,824)

(52,904,541)

(49,502,317)

3,963,047

4,493,962

3,403,850

4,064,796

and derivatives

2,011,953

(1,602,244)

1,677,045

(1,423,075)

Reinsurance assets

(2,040,620)

(101,158)

-

Property foreclosed Receivables from purchase and sale of securities

Other assets

(220,462)

-

1,686,656

2,693,151

(431,483)

(96,616,551)

(41,943,638)

(27,141,638)

(23,936,288)

9,892,160

(22,028,919)

18,330,999

7,526,302

Increase (decrease) in operating liabilities Deposits Interbank and money market items Liability payable on demand Derivatives liabilities

(996,229)

120,125

(973,984)

214,645

652,276

245,789

661,248

(24,228)

Payable from purchase and sale of securities and derivatives Liabilities under insurance/ life insurance Other liabilities Net cash flows used in operating activities

(3,202,552)

2,298,262

6,380,389

4,217,902

(1,963,750) (78,713,257)

745,696 (45,003,224)

(1,465,422) (2,982,791) (18,399,926)

1,423,172 456,684 (16,649,556)

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

-

-

(39,253,886)

-

4,964,042

19,603,730

(10,547,385)

9,631,746

(59,291,064)

(2,681,425)

(68,835,299)

Decrease (increase) in investments in securities held for investment Cash paid for acquire investment in subsidiaries

(16,446)

Cash received from disposal of investments in subsidiary companies

366,304

212,756

-

212,766

113,750

-

-

-

-

-

16,922,510

4,671

4,533,638

4,301,842

1,984,309

1,803,609

824,488

602,433

1,590,487

576,466

(852,070)

(579,042)

39,767

17,713

(42,588)

(33,516)

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 Cash paid for dividend to non-controlling interests Net cash flows from (used in) investing activities

9,930,885

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

78

Annual Report 2011 Thanachart Bank Public Company Limited

(35,165,148)

674,382

(262,296)

4,106

7,940

-

-

(31,306,902)

(56,860,397)


Statements of CASH FLOWS (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of cash flows (continued) For the years ended 31 December 2011 and 2010 (Unit: Thousand Baht) Consolidated

Separate

financial statements 2011

financial statements

2010

2011

2010

Cash flows from financing activities Cash received from issued additional share capital

-

35,790,456

-

35,790,456

1,181,760,489

525,897,163

990,764,061

460,836,327

(1,103,304,035)

(465,956,560)

(920,720,557)

(419,681,093)

Cash paid for interest from borrowings

(6,758,720)

(2,901,428)

(5,860,648)

(2,338,590)

Cash paid for dividend

(2,205,466)

(1,083,387)

(2,205,466)

(1,083,387)

Cash received from borrowings Cash paid for borrowings

Cash paid to non-controlling interests for capital refund Net cash flows from financing activities Net increase in cash

(2,323)

-

-

-

69,489,945

91,746,244

61,977,390

73,523,713

707,573

11,577,872

12,270,562

13,760

Cash at beginning of the year

15,298,105

3,720,233

3,733,489

3,719,729

Cash at end of the year

16,005,678

15,298,105

16,004,051

3,733,489

3,307,890

3,941,135

3,137,524

3,812,704

159,024

139,067

112,184

33,884

1,479,108

1,181,569

618,108

593,531

Supplemental cash flows information Non-cash transactions Transfer of properties foreclosed 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 2011 Thanachart Bank Public Company Limited

79


80 Annual Report 2011 Thanachart Bank Public Company Limited

STATEMENTS OF CHANGES IN EQUITY Thanachart Bank Public Company Limited and its subsidiaries Statements of changes in equity For the years ended 31 December 2011 and 2010 (Unit: Thousand Baht) Consolidated financial statements Other components of equity Surplus from

Share of

business

Surplus on

other comprehensive

fully paid-up

combination under

changes in value

income (loss)

Appropriated -

common control

of investments

of associates

statutory reserve

share capital

Share premium

Balance as at 1 January 2010

19,346,193

2,100,694

Increase in share capital (Note 27)

35,790,456

-

-

-

-

-

-

Dividend paid (Note 31)

Retained earnings

Issued and

(123,379)

Non-controlling

264,125

119,144

370,019

-

-

-

-

-

-

-

-

-

-

-

Unappropriated

interests

5,734,597 (1,083,387)

Total

60,691

27,872,084

-

35,790,456

-

(1,083,387)

Decrease in non - controlling interests of the subsidiaries

-

(230,637)

(230,637)

Transfer of retained earnings to statutory reserve (Note 29)

-

-

-

-

-

285,926

-

-

-

-

-

683,770

204,123

-

8,776,543

380,482

10,044,918

Balance as at 31 December 2010

55,136,649

2,100,694

(123,379)

947,895

323,267

655,945

13,141,827

210,536

72,393,434

Balance as at 1 January 2011 -

55,136,649

2,100,694

(123,379)

947,895

323,267

655,945

13,141,827

208,955

72,391,853

Total comprehensive income for the year

(285,926)

as previously reported The allocation of cost of business combination adjustment (Note 2.3) Balance as at 1 January 2011 - as restated

-

-

55,136,649

2,100,694

(123,379)

-

-

-

-

1,581

1,581

947,895

323,267

655,945

13,141,827

210,536

72,393,434

Cumulative effect of change in accounting policy for employee benefits (Note 4) Dividend paid (Note 31)

-

-

-

-

-

-

(2,265,666)

-

-

-

-

-

-

(2,205,466)

-

-

-

-

-

-

-

333,381

(6,472) -

(2,272,138) (2,205,466)

Increase in non - controlling interests of the subsidiaries

-

471,774

471,774

Transfer of retained earnings to statutory reserve (Note 29) Total comprehensive income for the year Balance as at 31 December 2011

-

-

-

-

-

-

55,136,649

2,100,694

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

(123,379)

(354,511)

(180,370)

593,384

142,897

-

-

-

7,671,425

(333,381)

9,416

7,145,960

989,326

16,008,739

685,254

75,533,564


STATEMENTS OF CHANGES IN EQUITY (CONTINUED) Thanachart Bank Public Company Limited and its subsidiaries Statements of changes in equity (continued) For the years ended 31 December 2011 and 2010 (Unit: Thousand Baht) Separate financial statements Other components of equity Issued and

Surplus on changes

fully paid-up share capital

Share premium

Balance as at 1 January 2010

19,346,193

2,100,694

Increase in share capital (Note 27)

Retained earnings

in value of

Appropriated -

investments

statutory reserve

Unappropriated

370,019

4,324,639

26,355,239 35,790,456

213,694

Total

35,790,456

-

-

-

-

Dividend paid (Note 31)

-

-

-

-

(1,083,387)

(1,083,387)

Transfer of retained earnings to statutory reserve (Note 29)

-

-

-

285,926

(285,926)

-

Total comprehensive income for the year Annual Report 2011 Thanachart Bank Public Company Limited

-

-

-

5,718,529

5,674,347

Balance as at 31 December 2010

55,136,649

2,100,694

169,512

(44,182)

655,945

8,673,855

66,736,655

Balance as at 1 January 2011

55,136,649

2,100,694

169,512

655,945

8,673,855

66,736,655

Cumulative effect of change in accounting policy for -

-

-

-

(356,036)

(356,036)

Dividend paid (Note 31)

employee benefits (Note 4)

-

-

-

-

(2,205,466)

(2,205,466)

Transfer of retained earnings to statutory reserve (Note 29)

-

-

-

333,381

(333,381)

-

Total comprehensive income for the year Balance as at 31 December 2011

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

-

-

41,594

-

6,667,610

6,709,204

55,136,649

2,100,694

211,106

989,326

12,446,582

70,884,357

81


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Thanachart Bank Public Company Limited and its subsidiaries Notes to consolidated financial statements For the years ended 31 December 2011 and 2010 1.

General 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 676 operational branches (2010: 256 operational branches). All subsidiaries are registered limited or public limited companies under Thai laws and operate their businesses in Thailand. The subsidiaries businesses include commercial bank, non-performing assets management business, securities business, leasing and hire purchase

business,

non-life

insurance

business,

life

insurance

business,

fund

management business and others. 2.

Thanachart Bank’s project to purchase Siam City Bank Plc.’s ordinary shares with the purpose of transferring Siam City Bank’s entire business to the Bank

2.1

The purchase of the ordinary shares of Siam City Bank Plc. from the Financial Institutions Development Fund On 11 March 2010, Thanachart Bank entered into a share purchase agreement with the Financial Institutions Development Fund (“FIDF”) to purchase 1,005,330,950 shares of Siam City Bank Plc. (“SCIB”), or 47.58 percent of the total issued and paid-up share capital, at a price of Baht 32.50 per share, or for total of Baht 32,673 million. On 9 April 2010, Thanachart Bank paid FIDF for SCIB’s shares, with the approval of the 2010 Annual General Meeting of the Bank’s shareholders, and the Bank of Thailand (“BOT”). The BOT also approved the Bank to hold the shares of SCIB in accordance with certain specified conditions, i.e. SCIB is to continue operating as commercial bank but has to return its banking license within 31 December 2011, the requirements on capital funds calculation, the structure of the financial business group, and holdings in companies in the financial business group.

82

Annual Report 2011 Thanachart Bank Public Company Limited

1


The Share Purchase Agreement between Thanachart Bank as “the Purchaser” and the FIDF as “the Seller”, dated 11 March 2010, states that the obligations, guarantees, liabilities or indemnities of the Seller to SCIB under any arrangements, agreements or documents in connection with the merger between SCIB and Bangkok Metropolitan Bank Public Company Limited (“BMB”) (the “Seller’s Obligations”) including funds deposited in accounts opened and maintained with SCIB to compensate for any losses or damages suffered or incurred by SCIB arising out of or in connection with the merger between SCIB and BMB will continue in full force and effect after completion of the sale and purchase of SCIB’s shares. Rights and obligations of SCIB related to the Seller’s Obligation, including funds deposited in the accounts opened and maintained with SCIB, will be transferred to and/or assumed by Thanachart Bank, with effect from the completion date of the entire business transfer from SCIB to Thanachart Bank. In addition, in case of the liquidation of the Seller, the Seller’s Obligations will be transferred and/or assumed by another government agency. 2.2

Additional tender offer for common shares of SCIB in 2010 During June 2010, Thanachart Bank made an additional tender offer to the minority shareholders of SCIB, at the same price as it paid to purchase shares of SCIB at auction from FIDF. Other shareholders sold 1,091,439,949 shares, or for a total of Baht 35,472 million, or 51.66 percent of the issued and paid-up shares of SCIB as a result of the tender offer, and combined with its existing holding, Thanachart Bank shareholding in SCIB reached 99.24 percent. During November 2010, Thanachart Bank acquired 14,907,658 additional shares of SCIB for a total of Baht 484 million, increasing its shareholding to 99.95 percent of the issued and paid-up shares of SCIB. The Stock Exchange of Thailand announced the voluntary delisting of SCIB’s shares on 13 December 2010.

2

Annual Report 2011 Thanachart Bank Public Company Limited

83


2.3

Allocating the cost of business combination Thanachart Bank acquired 47.58 percent of SCIB’s shares in April 2010 and on the same day, management of Thanachart Bank were assigned as directors of SCIB in a number that gave Thanachart Bank voting control over SCIB. Because Thanachart Bank had control over SCIB through shareholding and management, it has treated SCIB’s shares as investment in a subsidiary company since then. As a result of purchasing of additional shares to increase its shareholding in SCIB to 99.24 percent in June 2010 and 99.95 percent in November 2010, the total cost of investment in SCIB was Baht 68,801 million in the consolidated financial statements (including expenses in business combination and after deducting intercompany transactions). On 9 April 2010, Thanachart Bank’s management preliminarily estimated the fair value of each asset and liability of SCIB for the purpose of allocating the cost of business combination and recognised the difference between the cost of business combination and the fair value of assets, liabilities, contingent liabilities and intangible assets in proportion to its shareholding as goodwill from business combination in the consolidated financial statements. However, after the purchase, Thanachart Bank adjusted the estimated fair value of the assets and liabilities because of additional information that was received. This is in line with the related financial reporting standard that allows the purchaser to adjust the fair value for up to one year from the purchase date. The revised fair values of assets and liabilities are as follows: 1.

Assets and liabilities in SCIB and its subsidiaries’ accounts were valued and noted that the fair value of assets and liabilities as at investment payment date were totaled of Baht 48,635 million, which was Baht 4,264 million higher than book value.

2.

Intangible assets are assets that will generate future economic benefits. Thanachart Bank estimated the fair value of the intangible assets of SCIB at Baht 4,100 million, comprised of (a) Core Deposit Intangibles which are evaluated using the incremental cash-flows from low cost deposit, and considering the cost saving from current and saving deposits; and (b) Customer Relationships which are valued on the base of future revenues that will be earned from SCIB’s existing customers.

3.

For liabilities specify at acquisition date and contingent liabilities, Thanachart Bank estimated these and concluded that no additional contingent liabilities need to be recognised.

3

84

Annual Report 2011 Thanachart Bank Public Company Limited


Differences between the cost of business combination and the fair value of assets, liabilities, contingent liabilities and intangible assets in proportion to the shareholding, amounting to Baht 15,740 million, are recognised as goodwill from business combination in the consolidated financial statements. The Bank has retrospectively adjusted the comparative financial information in the previous year’s financial statements as if the accounting records for business combination had completed since the acquisition date. The fair value of the assets and liabilities of SCIB and its subsidiaries and the carrying value of each significant account as at the date Thanachart Bank assumed control over SCIB are as follow: (Unit: Million Baht) Fair value Book value Intangible assets

Previous balance

Revised

293

4,393

4,393

Other assets

435,702

437,016

439,966

Total liabilities

391,495

391,495

391,495

129

129

129

44,371

49,785

52,735

Cost of business combination

68,801

68,801

Goodwill

18,688

15,740

Non-controlling interests of the subsidiaries Net assets value

In allocating the purchase price, Thanachart Bank did not recognise deferred tax liabilities of Baht 2,466 million arising from the adjustment of assets to fair value (If the Bank recognised deferred tax liabilities on the date of business combination, the balance of such liabilities as at 31 December 2011 would be decreased to Baht 1,644 million, calculated using the tax rates enacted at the year-end date), and did not recognise the employee benefits of SCIB and its subsidiaries payable under labour law, amounting to Baht 1,804 million, since the two relevant accounting standards are not yet effective for the year of business combination. Since the fair value adjustment of assets and liabilities mentioned above and the recalculation of goodwill, Thanachart Bank has retrospectively adjusted the comparative financial information in the previous year’s financial statements as if the Bank has completely accounted for the business combination on the acquisition date, resulted in the following revisions to the consolidated comparative financial statements as of 31 December 2010:

4 Annual Report 2011 Thanachart Bank Public Company Limited

85


(Unit: Million Baht) 31 December 2010

31 December 2010

Before adjustment

After adjustment

137,959

140,022

Properties foreclosed

6,964

7,850

Intangible assets

4,805

4,805

18,698

15,750

209

210

Net investment

Goodwill Non - controlling interests of the subsidiaries

2.4

Key operation after the tender offer for SCIB’s shares in 2011 On 10 March 2011, BOT approved Thanachart Bank’s proposed plan for an entire business transfer of SCIB’s business to the Bank. The significant conditions of such approval are that SCIB must complete the entire business transfer and return the banking licenses and banking authorisations to the Ministry of Finance within 31 December 2011, and promptly proceed with the liquidation process, and that obligations between the Bank and FIDF are to comply with the Share Purchase Agreement dated 11 March 2010. On 7 April 2011, the 2011 Annual General Meeting of the Shareholders of SCIB and Thanachart Bank passed resolutions approving the transfer of SCIB’s entire business to Thanachart Bank, and the BOT has already approved this transaction. The Meetings also delegated the related authorities to SCIB’s Board of Directors and Thanachart Bank’s Board of Directors for further arrangement. On 30 June 2011, a meeting of the Bank’s Board of Directors passed a resolution to perform the entire business transfer from SCIB to the Bank on 1 October 2011 (EBT date). 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 commitment of SCIB as of 1 October 2011 and/or contingent liabilities that may arise in the future, with the parties agreeing a transfer price of Baht 50,134 million. The transfer price was set in accordance with the guidelines for setting transfer prices of financial assets among companies in the Thanachart group, and an independent financial advisor opined that it was fair value. SCIB recognised gain on the entire business transfer of Baht 5,299 million which has been eliminated in the consolidated financial statements.

5

86

Annual Report 2011 Thanachart Bank Public Company Limited


Significant guidelines of the transfer price of assets and liabilities are as follows: -

Loans: The transfer values were based on the outstanding loan balances net of related allowance for doubtful accounts.

-

Investments: The fair values of marketable securities were based on the latest bid price, the fair value of debt securities were determined using the yield rate quoted by the Thai Bond Market Association, and the fair values of other investments were determined from expected future cash flows, expected dividend to be received or net book value.

-

Property foreclosed: The fair values were based on the values appraised by independent appraisers in accordance with BOT guidelines, after deduction of a discount determined on the basis of past selling experience.

-

Deposit/debt issued and borrowings: Almost of deposits and short-term borrowings have floating interest rate and therefore the fair value is deemed to be closed to the book value. Long-term deposits and borrowings have interest yields that approximate market interest rate, and therefore fair value is deem to be closed to the book value.

-

Other assets/liabilities: The fair value approximates the book value.

-

Off-balance items and commitments under various exchange contracts are transferred at book value.

Significant assets and liabilities at the transfer date are as follow: (Unit: Million Baht) Interbank and money market items - net

67,649

Net investment

47,852

Loans to customer and accrued interest receivables - net

236,689

Property foreclosed

3,303

Land, premises and equipment

7,830

Other assets Deposits

17,754 255,968

Debt issued and borrowings

58,366

Other liabilities

16,609

Entire business transfer price - net

50,134

6

Annual Report 2011 Thanachart Bank Public Company Limited

87


Effective 1 October 2011, SCIB discontinued its operations. On 1 November 2011, the Board of Directors of SCIB passed a resolution to pay an interim dividend at Baht 7.50 per shares to its shareholders, totaling Baht 15,846 million. In November 2011, Thanachart Bank purchased additional shares of SCIB from the minority shareholders, to give those minority shareholders a chance to sell their shares before SCIB’ dissolution. Minority shareholders sold a total of 696,865 shares, at Baht 16 million, Thanachart Bank therefore holds 2,112,375,422 shares, or 99.98% of the total shares in issue. On 6 December 2011, the Extraordinary Meeting of SCIB’s shareholders approved the change of Siam City Bank’s name to “SCIB Plc.”. On 8 December 2011, SCIB returned its banking license and banking authorisations to the Ministry of Finance, and registered the change in its company’s name as “SCIB Plc.”. SCIB registered the company’s dissolution on 9 December 2011. 2.5

Transfer business of subsidiaries in the group Siam City Securities Co., Ltd. On 28 October 2010, the Boards of Directors of Thanachart Bank and SCIB passed resolutions to approve a plan for a business combination between Thanachart Securities Plc. (“Thanachart Securities”) and Siam City Securities Co., Ltd. (“SCIB Securities”), which is a subsidiary in the Group, by means of a partial business transfer of the assets of SCIB Securities to Thanachart Securities. The price of the transfer was to be not less than the book value, with reference to the latest adjusted book value before the transaction date. In November 2010, an extraordinary meeting of SCIB Securities’ shareholders approved the partial business transfer. On 30 December 2010, SCIB Securities entered into agreements to transfer assets relating to the securities business and obligations relating to the investment banking business, amounting to Baht 11 million, effective from 31 December 2010, while transfers of claims under agreements appointing an agent and/or broker for securities trading, including securities business receivables and payables with a net balance of Baht 206 million, and cash collateral for settlements amounting to Baht 216 million, were effective on 1 January 2011. SCIB Securities also transferred certain employees to Thanachart Securities on the same day. SCIB Securities temporary discontinue of its operations since 1 January 2011. The Annual General Meeting of the shareholders of SCIB Securities, held on 27 April 2011, approved the reduction of the registered and paid-up share capital of SCIB Securities from Baht 2,000 million to Baht 900 million. SCIB Securities registered the shares reduction on 7 June 2011.

7

88

Annual Report 2011 Thanachart Bank Public Company Limited


In August 2011, SCIB disposed investment in common shares of SCIB Securities at a price of Baht 168 million and recognised gains on the disposal of Baht 40 million in the consolidated financial statements of Thanachart Bank. This disposal was in accord with the approval by the Board of Directors of SCIB on 23 June 2011. Siam City Asset Management Co., Ltd. On 27 January 2011, the Board of Directors of SCIB passed a resolution to approve an offer to purchase and/or to sell shares of Siam City Asset Management Co., Ltd. to Government Pension Fund, a former shareholder. During May 2011, SCIB disposed all of its shares to the purchaser at a price of Baht 198 million and recognised gain on the disposal of Baht 26 million in the consolidated financial statements of Thanachart Bank. Siam City Bank Plc./ TS Asset Management Co., Ltd. During the year 2011, SCIB and TS Asset Management Co., Ltd. (“TS”) (The new company, which was licensed by the Bank of Thailand, set up to receive the transfer of SCIB’s non-performing assets including non-performing loans and property foreclosed, for further management) entered into an agreement to transfer rights in loan receivables and property foreclosed from SCIB to TS as follows: Fair value (Million Baht) -

Non-performing loans

9,062

-

Property foreclosed

3,083

The transfer of such financial assets was treated as a true sale in both financial statements of the transferee and the transferor since the transferor surrendered control over the assets. The selling prices were mutually agreed among companies in Thanachart Group with reference to what in the opinions of a financial advisor were fair values. Compensation for this transfer will be considered the fair value when recognising the selling price and the values of the transferred assets, which are as follows: -

For non-performing loans, the fair values are referred to the outstanding loan balance net of related allowance for doubtful accounts.

-

For property foreclosed, the fair values are referred to the value appraised by independent appraisers in accordance with the BOT guidelines, after deduction by an amount determined on the basis of past selling experience.

Annual Report 2011 Thanachart Bank Public Company Limited

8

89


Under the conditions of the agreement, the transferee is entitled to claim compensation if conditions specified in the agreement are breached within the specified period. However, gains (losses) from transfers of assets and the intercompany balances are eliminated when preparing the consolidated financial statements of Thanachart Bank because the transfers are intercompany transactions. Siam City Insurance Co., Ltd. On 27 July 2011, the Board of Directors of SCIB passed a resolution approving the disposal of investment in common shares of Siam City Insurance Co., Ltd. to other party. SCIB subsequently sold all the shares to purchasers on 19 August 2011 at a total price of Baht 113.75 million. 3.

Basis of preparation of the financial statements

3.1

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. Hence, the Bank reclassified certain items of the comparative financial statements. The financial statements in Thai language are the official 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.

90

Annual Report 2011 Thanachart Bank Public Company Limited

9


3.2

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

Percentage of holding

by the Bank

by the subsidiaries

2011

2010

2011

2010

Subsidiaries directly held by the Bank SCIB Plc.

99.98

99.95

-

-

Thanachart Securities Plc.

100.00

100.00

-

-

Thanachart Insurance Co., Ltd.

100.00

100.00

-

-

Thanachart Life Assurance Co., Ltd.

100.00

100.00

-

-

75.00

75.00

-

-

Thanachart Broker Co., Ltd.

100.00

100.00

-

-

Thanachart Group Leasing Co., Ltd.

100.00

100.00

-

-

Thanachart Management and Services Co., Ltd.

100.00

100.00

-

-

Thanachart Legal and Appraisal Co., Ltd.

100.00

100.00

-

-

Thanachart Training and Development Co., Ltd.

100.00

100.00

-

-

TS Asset Management Co., Ltd.

100.00

-

-

-

65.18

-

-

-

100.00

-

100.00

100.00

-

-

-

99.79

100.00

-

100.00

100.00

-

-

-

60.00

100.00

-

100.00

100.00

(Formerly known as “Siam City Bank Plc.”)

Thanachart Fund Management Co., Ltd.

Ratchthani Leasing Plc. Subsidiaries indirectly held by the Bank National Leasing Co., Ltd. Siam City Securities Co., Ltd. Siam City Life Assurance Co., Ltd. Siam City Asset Management Co., Ltd. SCIB Service Co., Ltd.

10

Annual Report 2011 Thanachart Bank Public Company Limited

91


b)

Total assets and total income of the subsidiaries that have significant impact to and are included in the consolidated financial statements as at 31 December 2011 and 2010 and for the years then ended, after eliminating significant intercompany transactions, are as follows: (Unit: Million Baht) Total income for the year

Total assets 2011

2011

2010

-

406,974

9,044

9,945

Thanachart Life Assurance Co., Ltd.

20,402

19,917

1,964

1,471

Siam City Life Assurance Co., Ltd.

11,195

11,008

Thanachart Insurance Co., Ltd.

7,176

5,189

1,975

1,523

Thanachart Securities Plc.

3,877

3,958

1,377

1,357

TS Asset Management Co., Ltd.

11,361

-

296

-

Ratchthani Leasing Plc.

12,033

-

175

-

SCIB Plc.

c)

2010

(89)

482

The Bank has additionally invested in TS Asset Management Co., Ltd. which was newly set up during March 2011, and holds 100 percent.

d)

In October 2011, the Bank received the investments in 437,250,000 ordinary shares of Ratchthani Leasing Plc. from SCIB for 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 also purchased 437,486,500 additional shares at Baht 1.52 per share, or for a total of Baht 665 million, resulting in the Bank’s shareholding increasing to 65.18 percent of the total shares in issued. The investment was therefore treated as investment in subsidiary. Such purchase of additional ordinary shares is deemed to be a step acquisition. Under the Financial Reporting Standard, the Bank had to assess the value of the investment at equity held on the date before the business combination, using the fair value at the purchase date, and the Bank realised the gain of Baht 33 million in profit or loss in the statements of comprehensive income.

11

92

Annual Report 2011 Thanachart Bank Public Company Limited


Amount (Million Baht) Fair value of investment at equity as at the purchase date before business combination

556

Less: Investment value at equity before business combination

(523)

Gain on revaluation of investment recognised in profit or loss

33

In addition, under the business combination, the Bank has to estimate the fair value of each asset and liability for the purpose of allocating the cost of business combination. The fair value of the assets and liabilities of Ratchthani Plc. (“THANI�) and the carrying value of each significant account as at the date the Bank obtained control over THANI is as follow: (Unit: Million Baht) Book value

Fair value

11,842

11,576

45

62

Other assets

1,502

1,512

Total liabilities

11,278

11,278

2,111

1,872

Loans Land, premises and equipment

Net assets value Cost of business combination

1,221

In allocating the purchase price, the cost of business combination does not differ from the net adjusted book value of the assets and liabilities at the purchase date, at the purchase portion, and thus no goodwill arose from this business combination. In addition, the Bank did not recognise deferred tax assets of Baht 72 million arising from the adjustment of assets to fair value since this accounting standard is not yet effective in the year of business combination. However, if the Bank had applied such standard on that date, deferred tax assets as at 31 December 2011 would be decreased to Baht 48 million (effect from the tax rates enacted at the year-end date). Therefore, the consolidated financial statements of the Bank included the statement of financial position of Ratchthani Leasing Plc. as at 31 December 2011, and the consolidated statements of comprehensive income included income and expenses from such company from 1 November 2011 (the date that Thanachart Bank assumed control) to 31 December 2011. The Bank recognised net loss from THANI totaling Baht 27 million from the date that the Bank assumed control based on its shareholding interest.

12

Annual Report 2011 Thanachart Bank Public Company Limited

93


For additional information to facilitate evaluation of the financial impact of the business combination, proforma consolidated total income and profit of the Bank and its subsidiaries for the year are presented below, inclusive of income and profit of Ratchthani Leasing Plc. as if business combination had occurred since the beginning of the year. (Unit: Million Baht) For the year ended 31 December 2011 Total income as if business combination occurred on 1 January 2011

66,947

Profit attributable to the Bank as if business combination occurred on 1 January 2011 (exclude elimination transactions before the purchase date)

e)

7,700

The consolidated statements of comprehensive income for the year ended 31 December 2010 include the operating results of SCIB and the subsidiaries held by SCIB from 9 April 2010 to 31 December 2010 because the Bank purchased the ordinary shares of SCIB and assumed control over SCIB in April 2010.

f)

In May 2011, SCIB disposed of investments in common shares of Siam City Asset Management Co., Ltd. to former shareholders for Baht 198 million. The gain on disposal of Baht 26 million was recognised in the consolidated financial statements. In addition in August 2011, SCIB disposed of investments in common shares of SCIB Securities Co., Ltd. for Baht 168 million, with gain on disposal of Baht 40 million recognised in the consolidated financial statements.

g)

The consolidated statements of comprehensive income for the year ended 31 December 2010 included the operating results of T Leasing Co., Ltd. from 1 January 2010 until 30 April 2010, the date of disposal of the investment, and the gain on such disposal of Baht 24 million was recognsied in the consolidated financial statements.

h)

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. However, the consolidated statement of financial position as at 31 December 2010 and the consolidated statements of comprehensive income for the years ended 31 December 2011 and 2010 did not include the financial position and operating results of a subsidiary company, Chada Thong Properties Co., Ltd., in which the Bank has indirectly held by SCIB at 70 percent, because that subsidiary has ceased its operations and is in the process of being liquidated. SCIB has already made a full allowance for impairment in the value of its investment in that subsidiary. However, during the third quarter of 2011, SCIB sold out all of its investment.

13

94

Annual Report 2011 Thanachart Bank Public Company Limited


i)

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.

j)

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.

k)

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.

3.3

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.

4.

Adoption of new accounting standards during the year During the current year, the Bank and its subsidiaries adopted a number of revised and new accounting standards, issued by the Federation of Accounting Professions, as listed below. Accounting standards: TAS 1 (revised 2009)

Presentation of Financial Statements

TAS 2 (revised 2009)

Inventories

TAS 7 (revised 2009)

Statement of Cash Flows

TAS 8 (revised 2009)

Accounting Policies, Changes in Accounting Estimates and Errors

TAS 10 (revised 2009)

Events after the Reporting Period

TAS 11 (revised 2009)

Construction Contracts

TAS 16 (revised 2009)

Property, Plant and Equipment

TAS 17 (revised 2009)

Leases

TAS 18 (revised 2009)

Revenue

TAS 19

Employee Benefits

TAS 23 (revised 2009)

Borrowing Costs

TAS 24 (revised 2009)

Related Party Disclosures

TAS 26

Accounting and Reporting by Retirement Benefit Plans 14

Annual Report 2011 Thanachart Bank Public Company Limited

95


TAS 27 (revised 2009)

Consolidated and Separate Financial Statements

TAS 28 (revised 2009)

Investments in Associates

TAS 29

Financial Reporting in Hyperinflationary Economies

TAS 31 (revised 2009)

Interests in Joint Ventures

TAS 33 (revised 2009)

Earnings per Share

TAS 34 (revised 2009)

Interim Financial Reporting

TAS 36 (revised 2009)

Impairment of Assets

TAS 37 (revised 2009)

Provisions, Contingent Liabilities and Contingent Assets

TAS 38 (revised 2009)

Intangible Assets

TAS 40 (revised 2009)

Investment Property

Financial reporting standards: TFRS 2

Share-Based Payment

TFRS 3 (revised 2009)

Business Combinations

TFRS 5 (revised 2009)

Non-current Assets Held for Sale and Discontinued Operations

TFRS 6

Exploration for and Evaluation of Mineral Resources

Financial Reporting Standard Interpretations: TFRIC 15

Agreements for the Construction of Real Estate

Accounting Standard Interpretations: SIC 31

Revenue-Barter Transactions Involving Advertising Services

These accounting standards do not have any significant impact on the financial statements for the current year, except for TAS 19 “Employee Benefits�. TAS 19 Employee Benefits This accounting standard requires employee benefits to be recognised as expense in the period in which the service is performed by the employee. In particular, an entity has to evaluate and make a provision for post-employment benefits using actuarial techniques. The Bank and its subsidiaries previously accounted for such employee benefits when they were incurred.

15

96

Annual Report 2011 Thanachart Bank Public Company Limited


The Bank and its subsidiaries have changed this accounting policy in the current year and recognise the liability in the transition period through an adjustment to the beginning balance of retained earnings in the current year. The change has the effect of decreasing the beginning balance of retained earnings of the Bank and its subsidiaries by Baht 2,266 million (Separate financial statements: decreasing retained earnings by Baht 356 million). The cumulative effect of the changes in accounting policy has been presented in “Cumulative effect of change in accounting policy for employee benefits” in the statements of changes in equity. In addition, the change has the effect of decreasing the profit of the Bank and its subsidiaries for the year ended 31 December 2011 by Baht 184 million, or Baht 0.033 per share (Separate financial statements: decreasing profit by Baht 50 million or Baht 0.009 per share). 5.

New accounting standards issued during the year 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 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 Bank and its subsidiaries’ management believe 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”.

16

Annual Report 2011 Thanachart Bank Public Company Limited

97


TAS 12 Income Taxes This accounting standard requires an entity to identify temporary differences, which are differences between the carrying amount of an asset and liability in the accounting records and its tax base, and to recognise deferred tax assets and liabilities under the stipulated guidelines. At present, the management of the Bank and its subsidiaries is evaluating the impact on the financial statements in the year when this standard is adopted. 6.

Significant accounting policies

6.1

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 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.

17

98

Annual Report 2011 Thanachart Bank Public Company Limited


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. 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 companies cease 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 recognised as income/ expenses on the transaction date.

f)

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

18

Annual Report 2011 Thanachart Bank Public Company Limited

99


g)

Insurance/life insurance premium income Non-life insurance business Insurance premium income on insurance policies is recognised on the date the insurance policy comes into effect, after deducting premium ceded and refunded for insurance policies with coverage periods of up to 1 year. For long-term insurance policies with coverage periods of longer than 1 year, related revenues and expenses are recorded as unearned and prepaid items, and amortised to income and expenses over the coverage period. Insurance premium income is recognised after deducting unearned premium reserve. Reinsurance premium income is recognised when the reinsurer places the reinsurance application or statement of accounts. Life insurance business 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.

6.2

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 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. 19

100

Annual Report 2011 Thanachart Bank Public Company Limited


6.3

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 Bank and its subsidiaries do not treat investments in mutual funds, in which they hold not less than 20 percent of the units issued, as investments in subsidiary or associated companies 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 the fund manager in accordance with the details of each fund project and are under the supervision of the Securities and Exchange Commission. 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. The fair value of investments which have embedded derivatives was determined using an internal model because there is no active market. (2011: the fair value was determined using the fair value as estimated by the seller). 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.

20

Annual Report 2011 Thanachart Bank Public Company Limited

101


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. 6.4

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.

6.5

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.

21

102

Annual Report 2011 Thanachart Bank Public Company Limited


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. 6.6

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 and derivatives�.

6.7

Allowances for doubtful accounts a)

The Bank and its subsidiary companies that operate in banking and 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 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.

22

Annual Report 2011 Thanachart Bank Public Company Limited

103


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, as required by the BOT’s guidelines. Collateral values include values of vehicles under hire purchase and finance lease contracts. For nonperforming 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. b)

Subsidiaries engaged in securities business have 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.

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 of other receivables is 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 writes off hire purchase receivables when full allowance for doubtful accounts has been made for such receivables. For other loans, the Bank and its subsidiaries will be written off when the relevant criteria under tax law are met. Amounts written off as bad debts or bad debt recovery are deducted from or added to the allowance for doubtful accounts.

23

104

Annual Report 2011 Thanachart Bank Public Company Limited


6.8

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

6.9

Recognition and amortisation of customers’ assets Assets which customers have placed with the subsidiary companies 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 companies for internal control purpose. As at the reporting date, the subsidiary companies 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 companies.

24

Annual Report 2011 Thanachart Bank Public Company Limited

105


6.10 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 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 statements of comprehensive income. 6.11 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. c)

Land, premises and equipment are derecognised upon disposal or when no future economic benefits are expected from their use. 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 statements of comprehensive income.

6.12 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).

25

106

Annual Report 2011 Thanachart Bank Public Company Limited


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 statements 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. 6.13 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 statements of comprehensive income. 6.14 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 and when circumstances indicate that the carrying value may be impaired. 6.15 Receivables from/payable to Clearing House Receivables from/payable to Clearing House comprises 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.

26

Annual Report 2011 Thanachart Bank Public Company Limited

107


6.16 Securities purchased under resale agreements/securities sold under repurchased agreements The Bank and its subsidiaries enter 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. 6.17 Premium due and uncollected and allowance for doubtful accounts Premium due and uncollected is carried at its net realisable value. Subsidiary companies provide an allowance for doubtful accounts based on the estimated loss that may be incurred in the collection of the premium due, on the basis of collection experience and a review of current status of the premium due as at the financial reporting date. 6.18 Reinsurance assets and liabilities Reinsurance assets represent balances due from reinsurance companies, deposits placed for reinsurance and insurance reserve to recover from reinsurers. Insurance reserve to recover from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies, and are in accordance with the related reinsurance contracts. Reinsurance liabilities represent balances due to reinsurance companies and deposits for reinsurance held by the subsidiaries. The amounts payable on reinsurance are estimated in a manner consistent with the related reinsurance contracts.

27

108

Annual Report 2011 Thanachart Bank Public Company Limited


6.19 Unearned premium/life insurance premium reserve Non-life insurance contract The subsidiaries set up gross unearned premium reserve in accordance with the followings: Marine and transportation (cargo)

-

Net premium written for the last ninety days

Traveling accident with coverage of not more

-

than 6 months Others

Net premium written for the last thirty days

-

Monthly average basis (the one-twenty fourth basis)

In 2011, the Office of the Insurance Commission (“OIC�) has required that insurers allocate an additional gross unexpired risk reserve in an amount not less than the difference between gross unexpired risk reserve and unearned premium reserve, in cases where gross unexpired risk reserve is higher than unearned premium reserve. Gross unexpired risk reserve is calculated based on an actuarial method using a best estimate of expected claims over the remainder of the insured period, based on historical data. 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). 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 OIC’s notification regarding valuation of assets and liabilities of life insurance company (2011).

28

Annual Report 2011 Thanachart Bank Public Company Limited

109


6.20 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, in 2011, the OIC changed the method to be used for setting additional reserve for incurred but not reported (IBNR) claims. The reserve is calculated using an international standard actuarial method, based on the best estimated of claims expected to be paid in the future for losses occurring before or as at the financial statement date, including both reported and unreported claims, net of loss reserve already recorded (Formerly, the subsidiary set up additional provision for IBNR at the higher of the reserve calculated using actuarial method minus the recorded amount or outstanding claims, and 2.5 percent of total net premiums written in the previous twelve months). 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. 6.21 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. Lease not transferring a significant portion of the risks and rewards of ownership to the lessee are classified as operating leases. Advance payments made under operating leases is recorded as leasehold rights, and then amortise as expenses over the term of the leases on the straight - line basis. Moreover, payments made under operating leases are recognised as expenses over the term of the leases on the straight-line basis.

29

110

Annual Report 2011 Thanachart Bank Public Company Limited


6.22 Sales of commercial paper The Bank and its subsidiary company which operates in banking business recorded commercial paper with an aval by the Bank, or without an aval or acceptance which is sold with recourse, as a liability under the caption of “Liabilities under commercial paper sold”. Commercial paper sold at a discount with recourse, which is avaled by or has acceptance from a commercial bank or other finance company, is recorded by crediting the notes receivable account, and the obligations disclosed as part of “Contingent liabilities”. 6.23 Financial derivatives The Bank and its subsidiaries have entered into off-balance transactions involving derivative financial instruments in order to manage risk of the Bank and its subsidiaries and in response to customer needs. Forward foreign currency contracts which originated for trading purposes are recorded as off-balance 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. 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 exchange contracts are presented at the net amount in the statement of financial position. The subsidiaries record obligations in respect of futures contracts made for trading purposes as off-balance items. Gains or losses from changes in the fair value of financial derivatives contracts are recorded in profit of loss. Fair value is determined based on the daily settlement price quoted by Thailand Futures Exchanges Public Company Limited. If the fair value of financial derivatives cannot be determined with reference to market price, it is determined by a technical and valuation model, in which the variables used, will be derived from the observable markets.

30

Annual Report 2011 Thanachart Bank Public Company Limited

111


6.24 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. 6.25 Impairment of assets The Bank and its subsidiaries assess at each financial reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, 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.

31

112

Annual Report 2011 Thanachart Bank Public Company Limited


6.26 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.

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 recognized immediately in profit or loss. For the first-time adoption of TAS 19 Employee Benefits, the Bank and its subsidiaries elected to recognise the transitional liability, which exceeds the liability that would have been recognised at the same date under the previous accounting policy, through an adjustment to the beginning balance of retained earnings in the current year.

6.27 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 financial reporting date. Exchange gains and losses arising from trading or translation of foreign currencies are included in determining income.

32

Annual Report 2011 Thanachart Bank Public Company Limited

113


6.28 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. 6.29 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. 7.

Significant accounting judgments and estimates The preparation of financial statements in conformity with generally accepted accounting principles 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:

7.1

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.

7.2

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.

33

114

Annual Report 2011 Thanachart Bank Public Company Limited


7.3

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.

7.4

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.

7.5

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.

7.6

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 estimate useful lives and salvage values when there are any changes. In addition, the management is required to review impairment of land, premises and equipment on a periodical basis and record impairment losses in the period when it is determined that their recoverable amounts are lower than the carrying amounts. This requires judgments regarding forecast of future revenues and expenses relating to the assets subject to the review.

34

Annual Report 2011 Thanachart Bank Public Company Limited

115


7.7

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. In addition, the management estimates the useful life of those assets which have finite useful lives and revises such useful lives if there are any changes.

7.8

Finance lease/Operating lease When entering into lease agreement, the management is required to access and consider the scope of significant risk and rewards of ownership of the leased assets. Leases that transfer substantially all the risks and rewards of ownership to the leasee are classified as financial leases. In the other hand, leases not transferring a significant portion of the risks and rewards of ownership to the leasee are classified as operating leases.

7.9

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

7.10 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. Estimating these reserves requires management to exercise judgment, with reference made to historical data and current best estimates at that time.

35

116

Annual Report 2011 Thanachart Bank Public Company Limited


Life assurance policy reserve is calculated under an actuarial method, and adjusted upwards to reflect risk factors and deviations. The main assumptions used relate to policy termination or surrender rates, selling and administrative expenses, mortality rate, morbidity rate, longevity, expenses and discount rates. Estimating these reserves requires management to exercise judgments with reference made to historical data and current best estimates at that time. 7.11 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 calculating by 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. Estimating these reserves requires management to exercise judgment reflecting the best estimates available at that time. 7.12 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, mortality rate, and inflation rates, based on their best knowledge of current situation. 7.13 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 provide no provisions and contingent liabilities as at the end of reporting period.

36

Annual Report 2011 Thanachart Bank Public Company Limited

117


8.

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

2010

Term

Total

5,492

2,000

7,492

549

8,518

39

At call

Term

Total

4,821

26,000

30,821

9,067

854

21,022

21,876

8,238

8,277

42

14,545

14,587

197

22,618

22,815

150

16,079

16,229

6,277

41,374

47,651

5,867

77,646

83,513

Add: Accrued interest receivables

-

11

11

-

34

34

Less: Allowance for doubtful accounts

-

(193)

(193)

-

(162)

(162)

Domestic Bank of Thailand and Financial Institutions Development Fund Commercial banks Specialised financial institutions Other financial institutions Total

Total domestic items

6,277

41,192

47,469

5,867

77,518

83,385

1,449

13,470

14,919

776

169

945

Euro

119

-

119

119

-

119

Others

523

103

626

496

114

610

2,091

13,573

15,664

1,391

283

1,674

-

68

68

-

1

1

Total foreign items

2,091

13,641

15,732

1,391

284

1,675

Total

8,368

54,833

63,201

7,258

77,802

85,060

Foreign US Dollar

Total Add: Accrued interest receivables

37

118

Annual Report 2011 Thanachart Bank Public Company Limited


(Unit: Million Baht) Separate financial statements 2011 At call

2010

Term

Total

5,492

2,000

7,492

393

8,340

27

At call

Term

Total

3,178

12,000

15,178

8,733

109

10,820

10,929

8,200

8,227

30

-

30

196

22,769

22,965

115

1,570

1,685

6,108

41,309

47,417

3,432

24,390

27,822

Add: Accrued interest receivables

-

9

9

-

6

6

Less: Allowance for doubtful accounts

-

-

-

-

Domestic Bank of Thailand and Financial Institutions Development Fund Commercial banks Specialised financial institutions Other financial institutions Total

Total domestic items

(195)

(195)

6,108

41,123

47,231

3,432

24,396

27,828

1,449

13,470

14,919

347

70

417

Euro

119

-

119

7

-

7

Others

523

103

626

61

114

175

2,091

13,573

15,664

415

184

599

-

68

68

-

1

1

Total foreign items

2,091

13,641

15,732

415

185

600

Total

8,199

54,764

62,963

3,847

24,581

28,428

Foreign US Dollar

Total Add: Accrued interest receivables

As at 31 December 2011, the Bank had loan to a subsidiary company of Baht 150 million in the separate financial statements.

38

Annual Report 2011 Thanachart Bank Public Company Limited

119


9.

Derivatives As at 31 December 2011 and 2010, 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. (Unit: Million Baht) Consolidated financial statements 2011

2010

Fair value/Adjustment on an accrual basis

Notional

Liabilities

Assets

Fair value/Adjustment on

amount*

an accrual basis Assets

Notional

Liabilities

amount*

Type of risk Foreign exchange rate Derivatives for trading Derivatives for banking book

858

820

63,491

509

295

53,139

-

1,706

31,788

3

5

3,488

64

60

5,957

72

67

5,657

-

-

3,967

-

-

13,681

29

9

2,212

959

235

8,533

585

291

15,445

1,574

339

21,529

-

-

641

-

-

-

1,536

2,886

123,501

3,117

941

106,027

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

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

39

120

Annual Report 2011 Thanachart Bank Public Company Limited


(Unit: Million Baht) Separate financial statements 2011

2010

Fair value/Adjustment

Notional

Fair value/Adjustment

on an accrual basis Assets

Notional

on an accrual basis

Liabilities

amount*

Assets

Liabilities

amount*

854

811

63,491

109

90

20,853

-

1,706

31,788

3

5

3,488

64

60

5,957

-

-

-

-

-

3,667

-

-

12,532

29

9

2,212

-

-

-

585

291

15,445

816

339

13,479

1,532

2,877

122,560

928

434

50,352

Type of risk Foreign exchange rate Derivatives for trading Derivatives for banking book 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 and its subsidiaries have an obligation to pay

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 2011 and 2010. Consolidated financial statements Counterparties

Financial institutions Companies within Thanachart Group Third parties Total

Separate financial statements

2011

2010

2011

2010

Percent

Percent

Percent

Percent

80.01

73.91

79.83

86.29

-

-

0.89

-

19.99

26.09

19.28

13.71

100.00

100.00

100.00

100.00

40

Annual Report 2011 Thanachart Bank Public Company Limited

121


10.

Investments

10.1 Classified by type of investment (Unit: Million Baht) Consolidated financial statements 2011

Separate financial statements

2010

Cost/

2011

Cost/

Amortised

Amortised

cost

Fair value

cost

2010

Cost/

Cost/

Amortised Fair value

Amortised Fair value

cost

Fair value

cost

Trading securities Government and state enterprises 10,508

10,479

44

45

3,174

3,179

44

45

Private debt securities

securities

4,770

4,758

21

21

1,661

1,660

21

21

Foreign debt securities

642

637

3,015

3,023

642

637

-

-

34

38

74

80

-

-

-

-

15,954

15,912

3,154

3,169

5,477

5,476

65

66

Domestic marketable equity securities Add: Allowance for change in value

(42)

15 3,169

15,912

Net

(1)

1

5,476

66

Available-for-sale securities Government and state enterprises 40,877

41,003

52,685

52,604

38,431

38,554

15,764

15,708

Private debt securities

securities

18,389

18,533

9,898

10,064

13,529

13,600

2,945

2,981

Foreign debt securities

25,516

25,425

12,704

12,920

25,516

25,425

6,128

6,342

7,483

7,983

7,752

8,530

6,099

6,241

476

546

92,265

92,944

83,039

84,118

83,575

83,820

25,313

25,577

Domestic marketable equity securities

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

683

1,083 (4)

(4) 92,944

Net

245

84,118

264

-

-

83,820

25,577

Held-to-maturity debt securities Government and state enterprises 26,876

27,771

36,138

36,849

17,642

18,096

18,986

Private debt securities

securities

6,592

6,689

5,874

6,070

1,600

1,647

-

-

Foreign debt securities

1,500

1,488

5,705

5,720

1,500

1,488

4,800

4,819

12

12

29

29

12

12

-

-

35,960

47,746

48,668

20,754

21,243

23,786

24,245

Investment in receivables purchased

34,980

19,426

Other investment Investment in property fund

671

845

671

234

3,794

4,064

3,776

97

84

84

84

3

4,549

4,993

4,531

334

Domestic non-marketable equity securities Foreign non-marketable equity securities

Less: Allowance for impairment Net Total investment - net

(40)

(4)

(40)

(4)

4,509

4,989

4,491

330

148,345

140,022

114,541

49,759

41

122

Annual Report 2011 Thanachart Bank Public Company Limited


10.2

Classified by due date of debt securities (Unit: Million Baht) Consolidated financial statements 2011

2010

Due within

Due within

Over

Less than 1 year

1 - 5 years

20,031

20,828

Private debt securities

1,557

Foreign debt securities

19,021

Total

Less than

Over

Total

1 year

1 - 5 years

18

40,877

31,162

21,492

31

14,836

1,996

18,389

4,175

5,600

123

9,898

6,495

-

25,516

904

11,800

-

12,704

40,609

42,159

2,014

84,782

36,241

38,892

154

75,287

35

103

41

179

15

278

8

301

40,644

42,262

2,055

84,961

36,256

39,170

162

75,588

5 years

5 years

Total

Available-for-sale securities Government and state enterprises securities

Add: Allowance for change in value Net

52,685

Held-to-maturity debt securities Government and state enterprises 5,157

15,659

6,060

26,876

3,650

11,032

21,456

36,138

Private debt securities

securities

3,990

2,288

314

6,592

1,346

3,063

1,465

5,874

Foreign debt securities

1,500

-

-

1,500

4,800

905

-

5,705

8

4

-

12

18

11

-

29

Total

10,655

17,951

6,374

34,980

9,814

15,011

22,921

47,746

Total debt securities

51,299

60,213

8,429

119,941

46,070

54,181

23,083

123,334

Investment in receivables

(Unit: Million Baht) Separate financial statements 2011

2010

Due within

Due within

Over

Less than 1 year

1 - 5 years

Less than

5 years

Total

1 year

Over 1 - 5 years

5 years

Total

Available-for-sale securities Government and state enterprises 18,399

20,014

18

38,431

10,302

5,462

-

15,764

Private debt securities

securities

975

12,554

-

13,529

2,076

781

88

2,945

Foreign debt securities

19,021

6,495

-

25,516

602

5,526

-

6,128

Total

38,395

39,063

18

77,476

12,980

11,769

88

24,837

32

71

-

103

10

179

5

194

38,427

39,134

18

77,579

12,990

11,948

93

25,031

4,938

12,704

-

17,642

3,201

7,316

8,469

18,986

Private debt securities

800

650

150

1,600

-

-

-

-

Foreign debt securities

1,500

-

-

1,500

4,800

-

-

4,800

8

4

-

12

-

-

-

-

7,246

13,358

150

20,754

8,001

7,316

8,469

23,786

45,673

52,492

168

98,333

20,991

19,264

8,562

48,817

Add: Allowance for change in value Net Held-to-maturity debt securities Government and state enterprises securities

Investment in receivables Total Total debt securities

42

Annual Report 2011 Thanachart Bank Public Company Limited

123


10.3 As at 31 December 2011, the Bank and its subsidiaries have a revaluation deficit arising from transfers of investments in debt securities, of which the current balances of Baht 3 million in the consolidated financial statements and Baht 34 million in the separate financial statements. These are presented in equity caption. (2010: Revaluation deficit of Baht 71 million in the consolidated financial statements, and revaluation deficit of Baht 94 million in the separate financial statements). 10.4 As at 31 December 2011, investments in held-to-maturity debt securities included nontransferable promissory notes amounting to Baht 4 million, which were received as a result of the transfer of non-performing loans to Thai Asset Management Corporation (“TAMC�) (2010: Baht 296 million). However, the agreed transfer price received in the form of promissory notes could be revised up or down after TAMC reviews the price, assesses the collateral or adjusts the price. As at 31 December 2011, the Bank is still unable to assess the exact amount of such losses since TAMC has been dissolved and is in the process of liquidation. However, the Bank estimated the contingent losses arising from the management of non-performing assets at approximately Baht 89 million (2010: Baht 89 million). Such amount has been shown as a part of provisions for liabilities. In addition, the Bank also shares joint responsibility with TAMC for future profits or losses arising from TAMC’s management of the non-performing assets as mentioned in Note 46.2 to the financial statements. 10.5 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 2011 and 2010, 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: (Unit: Million Baht) Consolidated financial statements

Banking and finance sector

Separate financial statements

2011

2010

2011

2010

761

1,307

600

234

43

124

Annual Report 2011 Thanachart Bank Public Company Limited


The investments 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 availablefor-sale or other investments, based on their investment objectives. Separate financial statements

Consolidated financial statements 2010

2011

Securities

2011

2010

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

Baht

Baht

Net book Percentage

Baht

The Thai Business Fund 3

144

60.00

355

60.00

144

60.00

158

26.67

Sub Thawee Property Fund

36

56.00

76

56.00

36

56.00

76

56.00

278

67.33

278

67.33

278

67.33

-

-

62

27.79

60

27.79

-

-

-

-

50

22.63

50

22.63

-

-

-

-

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

11.

Investments in subsidiary and associated companies

11.1 Separate financial statements As at 31 December 2011 and 2010, investments in subsidiary companies and an associated company in the separate financial statements stated under the cost method, consist of investment in ordinary shares of the following companies:

44

Annual Report 2011 Thanachart Bank Public Company Limited

125


(Unit: Million Baht) Separate financial statements Value of investment

Company’s name

Nature of business

Paid-up

Percentage

share capital

of holding (Percent)

2011

2010

2011

under the

2010

Dividend income

cost method

for the years

2011

2010

2011

2010

Subsidiary companies SCIB Plc. (Formerly known as “Siam Dissolution

21,128

21,128

99.98

99.95

32,542

68,835

260

-

TS Asset Management Co., Ltd.

City Bank Plc.”)

Asset management

2,000

-

100

-

2,000

-

-

-

Thanachart Securities Plc.

Securities business

1,500

1,500

100

100

1,858

1,858

345

210 -

Thanachart Life Assurance Co., Ltd. Thanachart Insurance Co., Ltd. Thanachart Group Leasing Co., Ltd.

Life - insurance

500

500

100

100

936

936

250

Non-life insurance

740

740

100

100

867

867

300

-

Hire purchase

360

360

100

100

400

400

203

148

1,342

-

65.18

-

1,201

-

-

-

broker

100

100

100

100

104

104

65

65

Fund management

100

100

75

75

97

97

97

83

Dissolution

10

10

100

100

13

13

-

-

Services

6

6

100

100

6

6

-

12

Training services

5

5

100

100

5

5

12

12

Services

10

-

100

-

5

-

-

-

-

761

-

-

-

40,795

73,121

1,532

530

47

-

-

-

47

-

-

-

40,842

73,121

1,532

530

Ratchthani Leasing Plc.

Hire-purchase and

Thanachart Broker Co., Ltd.

Non-life insurance

leasing business

Thanachart Fund Management Co., Ltd. Thanachart Legal and Appraisal Co., Ltd. Thanachart Management and Services Co., Ltd. Thanachart Training and Development Co., Ltd. SCIB Service Co., Ltd. Siam City Life Assurance Co., Ltd.

Life - insurance

700

-

100

Total investments in subsidiary companies Associated company Siam Samsung Life Insurance Co., Ltd.

Life - insurance

500

-

25

-

Total investments in an associated company Total investments in subsidiary and associated companies - net

After the entire business transfer from SCIB to Thanachart Bank, the Bank recognised intangible assets arising from the business combination of Baht 3,613 million and goodwill arising from the business combination of Baht 15,740 million in the separate financial statements by deducting them from the cost of investment in SCIB. This presentation is to reflect the business combination transactions in the separate financial statements. In addition, the Bank received a partial of capital return on investment in the form of dividend income. The Bank additional invested in TS Asset Management Co., Ltd., which was established in March 2011, with a shareholding of 100 percent.

45

126

Annual Report 2011 Thanachart Bank Public Company Limited


In October 2011, the Bank received the transfer of 437,250,000 shares in Ratchthani Leasing Plc. from SCIB, for a total of Baht 536 million. The Bank also purchased 437,486,500 additional shares from THANI at Baht 1.52 per share or for a total of Baht 665 million. As a result, the Bank’s shareholding increased from 48.35 percent to 65.18 percent and the status of Ratchthani Leasing Plc. was changed from an associated company to a subsidiary company. 11.2 Consolidated financial statements As at 31 December 2011 and 2010, investments in associated companies in the consolidated financial statements consist of investments in ordinary shares of the following companies which operate in Thailand: (Unit: Million Baht) Share of income (loss) for the Paid-up share capital Company’s name MBK Plc. (operating in

Value of investment

Percentage of holding

Cost method

Dividend income

Equity method

for the years 2011

periods ended 31 December

2011

2010

2011

2010

2011

2010

2011

2010

2010

2011

2010

1,886

1,886

9.90

9.90

984

984

1,389

1,530

93

89

132

160

500

500

25.00

25.00

104

104

34

81

-

-

(46)

(24)

-

40

-

45.50

-

92

-

109

10

-

(8)

17

-

823

-

48.35

-

403

-

457

12

-

78

54

1,088

1,583

1,423

2,177

property rental, hotel and services business) Siam Samsung Life Insurance Co., Ltd. (operating in life insurance business) Siam City Insurance Co., Ltd. (operating in non-life insurance business) Ratchthani Leasing Plc. (operating in hirepurchase and leasing business) Total investments in associated companies

115

89

156

207

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 August 2011, SCIB disposed of all of investments in ordinary shares of Siam City Insurance Co., Ltd.

46

Annual Report 2011 Thanachart Bank Public Company Limited

127


11.3 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 year ended 31 December 2011 is as follows: (Unit: Million Baht) Cash flows from operating activities Profit before income tax

321

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 Interest income - net

(221) 12 (188)

Cash received from interest income

232

Cash paid for interest expense

(83)

Income from operating activities before changes in operating assets and liabilities

73

Increase in operating assets Loans

(8,010)

Property foreclosed

(3,093)

Other assets

(47)

Increase in operating liabilities Interbank and money market items Other liabilities Net cash flows used in operating activities

9,822 123 (1,132)

Cash flows from investing activities Cash received from interest income from investments

4

Net cash flows from investing activities

4

Cash flows from financing activities Paid-up share capital

2,000

Net cash flows from financing activities

2,000

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year

872 872

47

128

Annual Report 2011 Thanachart Bank Public Company Limited


11.4 Summarised financial information of associated companies a)

Summarised financial information of MBK Plc. as at 30 September 2011 and 2010 and for the years then ended are as follows: (Unit: Million Baht)

Paid-up share capital

Total assets

30 September

Total liabilities

30 September

2011

2010

1,886

1,886

2011 27,409

30 September

2010 28,752

Total income

Net income

for the periods ended

for the periods ended

30 September

30 September

2011

2010

2011

2010

2011

2010

13,916

14,006

8,582

8,548

1,338

2,477

The share of income of MBK Plc. recognised in the current year 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 2011 and 2010 and the statements of profit or loss for the years then ended as 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 2011 is not material different from that income for the year ended 31 December 2011. b)

Summarised financial information of Siam Samsung Life Insurance Co., Ltd., Siam City Insurance Co., Ltd. and Ratchthani Leasing Plc. as at 31 December 2011 and 2010 and for the periods then ended are as follows: (Unit: Million Baht) Paid-up share

Company’s name

capital

Total assets

Total liabilities

2011

2010

2011

2010

2011

2010

500

500

1,989

2,073

1,854

1,766

Siam City Insurance Co., Ltd.

-

40

-

932

-

Ratchthani Leasing Plc.

-

823

-

9,549

-

Siam Samsung Life Insurance

Total income

Net income (loss)

for the years

for the years

2011

2010

2011

2010

1,170

911

(184)

(98)

689

414

632

(17)

37

8,270

913

695

160

112

Co., Ltd.

Income, profit or loss and shares of profit (loss) of 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 to a subsidiary company.

48

Annual Report 2011 Thanachart Bank Public Company Limited

129


11.5 As at 31 December 2011 and 2010, the fair value of investments in associated companies which are listed in the Stock Exchange of Thailand is as follows (Unit: Million Baht) Company’s name MBK Plc.

2011

2010

1,649

1,887

-

616

Ratchthani Leasing Plc.

12.

Loans to customers and accrued interest receivables

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

Separate

financial statements

financial statements

2011

2010

2011

2010

23,358

24,562

23,358

3,243

271,129

275,232

250,290

58,324

Loans to customers Overdrafts Loans Notes receivable Hire purchase receivables

49,984

62,171

68,048

24,985

325,976

271,851

310,595

269,834

2,104

2,392

1,926

2,341

Financial lease receivables Others

234

Less: Deferred revenues

429

234

-

(39,801)

(32,469)

(37,739)

(32,178)

632,984

604,168

616,712

326,549

963

924

925

272

633,947

605,092

617,637

326,821

(25,197)

(23,917)

(12,102)

(7,056)

(396)

(534)

(383)

(375)

(382)

(460)

(382)

(38)

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 - BOT’s minimum requirement provision - Excess provision Less: Revaluation allowance for debt restructuring Loans to customer and accrued interest receivables - net

607,972

580,181

604,770

319,352

Securities business receivables Credit balances receivables

1,926

1,341

-

-

310

1,342

-

-

2,236

2,683

-

-

(1,338)

-

-

1,931

1,345

-

-

609,903

581,526

604,770

319,352

Other receivables Total securities business receivables

(305)

Less: Allowance for doubtful accounts Securities business receivables - net Loans to customer and accrued interest receivables - net

49

130

Annual Report 2011 Thanachart Bank Public Company Limited


12.2 Classified by currency and country (Unit: Million Baht) Consolidated financial statements 2011 Domestic Baht US Dollar

Total

Domestic

Foreign

Total

624,935

450

625,385

590,382

4,794

595,176

5,740

3,386

9,126

7,468

3,835

11,303

284

425

709

372

-

372

630,959

4,261

635,220

598,222

8,629

606,851

Other currencies Total*

Foreign

2010

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

Total

Domestic

Foreign

Total

602,308

450

602,758

322,533

380

322,913

7,282

5,853

13,135

2,803

800

3,603

395

424

819

33

-

33

609,985

6,727

616,712

325,369

1,180

326,549

Other currencies Total*

Foreign

2010

* Total loans net of deferred revenues

50

Annual Report 2011 Thanachart Bank Public Company Limited

131


12.3 Classified by type of business and loan classification (Unit: Million Baht) Consolidated financial statements 2011 The Bank and a subsidiary company which are financial institutions

Normal

Special

Sub-

Doubtful

mention

standard

Subsidiary

of loss

Doubtful

companies Consolidated

Total

Agricultural and mining

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

-

-

-

-

-

-

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

Personal consuming Housing loans Securities business Hire purchase Others

*

Total loans net of deferred revenues

(Unit: Million Baht) Consolidated financial statements 2010 The Bank and a subsidiary company which are financial institutions

Normal Agricultural and mining

Special

Sub-

mention

standard

Doubtful Doubtful

Subsidiary

of loss

Total

companies Consolidated

8,124

2,432

194

71

136

10,957

-

10,957

Manufacturing and commerce

73,796

8,663

1,697

8,459

4,768

97,383

1

97,384

Real estate and construction

45,690

1,958

1,549

644

2,552

52,393

13

52,406

Public utilities and services

55,570

4,490

1,210

1,659

3,112

66,041

6

66,047

72,939

1,890

581

813

1,413

77,636

-

77,636

-

-

-

-

-

-

2,683

2,683

218,478

15,416

782

606

2,589

237,871

1,740

239,611

15,474

842

428

169

909

17,822

54

17,876

Others

40,270

778

204

192

783

42,227

24

42,251

Total*

530,341

36,469

6,645

12,613

16,262

602,330

4,521

606,851

Personal consuming Housing loans Securities business Hire purchase Others

*

Total loans net of deferred revenues

51

132

Annual Report 2011 Thanachart Bank Public Company Limited


(Unit: Million Baht) Separate financial statements 2011 Special

Doubtful

Normal

mention

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

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

Personal consuming

Others

* Total loans net of deferred revenues

(Unit: Million Baht) Separate financial statements 2010 Special

Doubtful

Normal

mention

3,639

1

1

-

8

3,649

Manufacturing and commerce

20,751

193

65

130

450

21,589

Real estate and construction

18,434

104

254

163

439

19,394

Public utilities and services

18,110

17

8

197

77

18,409

Housing loans

4,998

466

162

107

285

6,018

Hire purchase

218,478

15,416

782

606

2,589

237,871

7,554

651

248

169

908

9,530

Others

10,064

25

-

-

-

10,089

Total*

302,028

16,873

1,520

1,372

4,756

326,549

Agricultural and mining

Substandard

Doubtful

of loss

Total

Personal consuming

Others

* Total loans net of deferred revenues

52

Annual Report 2011 Thanachart Bank Public Company Limited

133


12.4 Non-performing loans As at 31 December 2011 and 2010, the Bank and its subsidiaries (banking, securities and asset management) 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

2011

2010

2011

2010

17,989

35,520

17,989

7,648

Securities business

306

1,339

-

-

Asset management

19,382

-

-

-

Non-performing loans (excluding accrued interest receivables) Banking 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. Additionally, the Bank and its subsidiaries (banking and securities business) had loans for which income recognition under an accrual basis has been discontinued, as follows: (Unit: Million Baht)

Banking business Securities business

Consolidated

Separate

financial statements

financial statements

2011

2010

2011

2010

16,558

44,046

16,558

7,538

306

1,339

-

-

The subsidiary company engaged in the asset management business recognises income from loan on a cash basis.

53

134

Annual Report 2011 Thanachart Bank Public Company Limited


12.5 Debt restructuring During the years 2011 and 2010, the Bank and its subsidiaries have entered into debt restructuring agreements as follows: consolidated financial statements For the years ended 31 December

Number of Type of restructuring

debtors

Outstanding

Outstanding

loans balance

loans balance

Type of assets

assets to be

before

after

to be

transferred under

transferred

agreement

restructuring

(1)

restructuring

(1)

Million Baht

Million Baht

38,676

16,553

16,553

9

627

627

38,685

17,180

17,180

1

6

6

5,908

10,616

10,616

4

154

154

5,913

10,776

10,776

Fair value of

Million Baht

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

Land

190

2010 Transfer of assets

Land and premise

6

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

Land

127

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

54

Annual Report 2011 Thanachart Bank Public Company Limited

135


Separate financial statements For the years ended 31 December Outstanding

Outstanding

loans balance

loans balance

Type of assets

assets to be

before

after

to be

transferred under

transferred

agreement

Number of Type of restructuring

debtors

restructuring

(1)

restructuring

Million Baht

(1)

Fair value of

Million Baht

Million Baht

2011 Modification of repayment conditions

38,353

13,163

13,163

6

14

14

38,359

13,177

13,177

4,978

1,949

1,949

4

154

154

4,982

2,103

2,103

Transfer of assets and/or ordinary shares and/or modification of repayment conditions Total

Land

15

Land

127

2010 Modification of repayment conditions Transfer of assets and/or ordinary 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 2011 and 2010, are summarised below. Consolidated financial statements For the years ended 31 December 2011

2010 Outstanding

Periods

Outstanding

Number of

balances after

Number of

balances after

debtors

restructuring

debtors

restructuring

Million Baht Past due after restructuring

Million Baht

1,261

1,734

1,299

582

908

1,504

670

618

27,984

8,645

2,096

1,563

8,498

5,213

1,609

7,295

10 - 15 years

13

45

112

458

Over 15 years

21

39

127

260

38,685

17,180

5,913

10,776

Due within the year Less than 5 years 5 - 10 years

Total

55

136

Annual Report 2011 Thanachart Bank Public Company Limited


Separate financial statements For the years ended 31 December 2011

2010 Outstanding

Periods

Outstanding

Number of

balances after

Numb