KK : Annual Report 2005 by ar.kiatnakin ar.kiatnakin

KIATNAKIN BANK PUBLIC COMPANY LIMITED ANNUAL REPORT 2005

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

www.kiatnakin.co.th

KIATNAKIN BANK

Content

Table of Contents Financial Highlights

Message from the Chairman

Report from the Audit Committee

General Information

Nature of Business

Risk Factors

Shareholding and Management Structure

Good Corporate Governance Policy

Related Party Transactions

Analysis of the Bankûs Financial Situation and Operating Performance

Financial Statements

55-124

Kiatnakin Bank Public Company Limitedû†Branches

125

Kiatnakin Securities Company Limitedû†Branches

126

List of Information Required by The Office of Securities Exchange Commission

128

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Annual Report 2005 3

Vision : To become a reputable commercial bank in our area of expertise with the goal of providing highest quality service to our customers through in depth knowledge of customers businesses and industries as well as through development of innovative products while adhering to the principles of good corporate governance.

Value : Our values are as follows : Discipline : being determined to perform our job in an orderly manner Integrity : being honest and adhering to the code of ethics Expertise : being determined to acquire great knowledge and skills Team Work : being determined to work as a team Entrepreneurship : being determined to drive the business and contribute to the bottom line. Dynamic : being adaptable to changes

KIATNAKIN BANK

KIATNAKIN BANK Financial Highlights Unit : Million Bath Consolidated

Operation Results

2003

2004

Bank

2005

2003

2004

2005

Total Assets

42,671 57,454 68,051 41,142 58,077 68,658

Total Loans

24,304 38,042 46,122 22,949 37,436 45,554

Total Liabilities

29,805 42,971 51,842 28,307 43,623 52,489

Total Deposits*

19,748 34,418 43,420 19,780 35,624 44,556

Shareholders没Equity

12,866 14,483 16,209 12,835 14,455 16,170

Total Revenue

6,340

5,889

7,123

5,654

5,237

6,860

Total Expenses

4,270

3,678

4,684

3,589

3,029

4,424

(5)

(2)

(3)

2,065

2,208

2,436

2,065

2,208

2,436

745

406

473

745

406

473

Minority Interest, NET Net Profit (Loss) Unrealized loss in Financial Claim Recorded in Shareholders没Equity

Consolidated

Bank

Financial Ratio 2003

2004

2005

2003

2004

2005

Return on Equity (%)

18.11

16.15

15.87

18.16

16.18

15.91

Return on Asset (%)

5.13

4.41

3.88

5.24

4.45

3.84

Earning per share (Bath)

5.74

4.77

4.95

5.74

4.77

4.95

Book Value (Bath)

34.21

30.74

32.68

34.13

30.68

32.60

Tier 1 and Tier 2 Capital Ratio (%)

32.10

25.80

24.61

32.10

25.80

24.61

2.25

Dividend (Bath) *

Under Condieration

Include Interbank and Money Market Item

Bill. Bath

Net Profit

Total Liabilities

Total Assets

2.4 51.8

68.1 57.5

2.1

2.2

2003

2004

43.0

42.7 29.8

2003

2004

2005

2003

4 Annual Report 2005

2004

2005

Annual Report 2005 5

Message from the Chairman The year 2005 was the most successful year for the Company since the beginning of our operation. Having been selected as one of three finance companies qualified to be upgraded to a commercial bank clearly demonstrated that the Bank’s staffs’, managers’ and directors’ level of capability, loyalty and honesty are acceptable to the customers, general public, and related government offices.

For the past year, the economic condition was effected by various issues that occurred almost simultaneously, namely the Tsunami disaster in the South, the drought throughout the country, the historically high oil prices, the recurrence of the bird flu epidemic, the on-going violence in the three deep Southern provinces of Thailand, the rapid increase in interest rate, and the multitude of political conflicts that caused government instability. All of these issues negatively affected the overall Thai economy and broadly impacted the agricultural sector, tourism sector and real sector. However, due to the strong economic foundation and good cooperation between the government and private sectors in resolving these issues seriously and rapidly, the Thai economy in 2005 had a reasonably good growth rate of 4.50%, albeit it’s lower than the expectations set at the beginning of the year. Thailand’s financial position last year indicated a total outstanding loans growth of 8.10% or Baht 5,710.3 billion and a total deposits growth of 8.40% or Baht 5,956.6 billion. The 14 days repurchase interest rate, which is the official interest rate, increased from 2.0% pa at the end of 2004 to 4% pa at the end of 2005. The expansion of the loans continuously reduced financial system liquidity, and as a result, the loan to deposit ratio dropped to 91%. At the beginning of 2005, the SET index was at 668.1, but when the economy was hit by the previously mentioned issues, the SET index fluctuated and plummeted to 638.31. However, since the economic foundation was still strong and these issues had already been resolved at a preliminary level, the market was able to rebound and close at 713.73 at the end of 2005, an increase of 6.82% from 2004. The operating results of Kiatnakin Bank in 2005 were considered excellent with positive and continuous developments. The key results can be summarized as follows: The Bank’s total assets were at Baht 68,051 million, less than the initial goal of Baht 80,000 million. This was mainly due to the economic slow down and the policy to focus on selling assets properly while maintaining appropriate profit margin. At the end of 2005, the Bank had increased its asset by 18% and had a total outstanding loans of 45,536 million, equivalent to a rise of 22%, due to the general expansion of the Bank’s core lending operations, which can be summarized as follows:

Hire purchase loans totaled Baht 23,556 million, which represented a 30% growth or an increase of Baht 5,459 million.

Residential project loans totaled Baht 15,733 million, which represented an 18% growth or an increase of Baht 2,407 million.

Commercial loans totaled Baht 6,247 million, which represented a 4% growth or an increase of Baht 253 million.

Revaluation of investments in financial claims totaled Baht 10,154 million, which represented a declining growth of Baht 1,347 million or 12%. This was the result of the progress made in debts restructuring, which caused the investments in financial claims that has not been restructured to reduce from previous years of Baht 8,950 million to Baht 8,161 million.

KIATNAKIN BANK

KIATNAKIN BANK Total Property Foreclosed with fair value amounted to Baht 5,969 million, which represented a rise of Baht 1,019 million or 21%. This was attributed to the progress made from restructured debts whose collaterals were called on and realized to repay the debts. Total liabilities were at Baht 51,842 million, equivalent to an increase of Baht 8,871 million or 21%. The major portions consisted of borrowings and deposits in the form of savings accounts, Time deposits and debentures, which was worth a total of Baht 49,855 million, which represented a growth of Baht 9,002 million or 22%. Shareholder’s equity amounted to Baht 16,170 million, which rose by Baht 1,715 million or 12% due to the Bank’s financial performance and the warrants exercised by some shareholders. This has increased the number of shares in the registered capital to be 495.97 million shares, which represented a growth of 24.87 million shares or 5% when compared to 2004. Operating results in 2005 indicated that the Bank made net profits of Baht 2,436 million, which was higher than the 2004 results of Baht 2,208 million by Baht 228 million or 10%. The highlight of the Bank’s key financial figures are Non performing loans rose to 12.72% from 11.10% in 2004. Return on equity declined to 15.87% from 16.15% in 2004 despite the rise in net profit by 10% due to the 12% increase in the number of shareholders. Return on assets declined to 3.88% from 4.41% in 2004. Earnings per share rose to Baht 4.95 from Baht 4.77 in 2004. The Bank revised the organization structure in order to raise the efficiency and to be in line with the commercial bank’s system. The Bank appointed Mr. Tawatchai Sudtikipisan to be the Bank’s President and Mr. Pravit Varutbangkul to be the Director and Vice chairman The Bank maintained its “A-” credit rating from Thai Rating and Information Services Ltd. (TRIS) which reflected our highly secure financial position. The Bank opened one new branch in the greater Bangkok metropolitan area, namely the Asoke Branch at CIMIC Tower, which brings the total number of branches to 16 when including all the regional braches. The Board of Director authorized the payment of interim dividend of 1 Baht per share to ordinary shareholders based on the financial results from 1 January to 30 June 2005. When combined with the interim dividend the Board authorized in the amount of 1.30 Baht per share based on the financial results from 1 July to 30 December 2005, the total dividend for the year is 2.30 Baht per share. The Thai economy in 2006 is expected to grow reasonably well, due to exports and expansion of the tourism industry together with the strong government and private investments as the main driving factors. It is expected that inflation rate will remain under control and the interest rate will rise. The liquidity will also likely to be reduced based on the assumption that the world economy will continue to expand and the oil prices will stabilize. However, the risk factors for the Thai economy will depend on the resolution of the domestic political issues, the trade imbalance, and the fluctuation of the US currency. In 2006, the competition among commercial banks is expected to intensify, especially in obtaining deposits, commercial loans, and hire purchase loans. The Bank’s operation will depend on how well we manage cost of capital, control loan quality, and expedite the sales of asset obtained from borrowers as loan repayment. This year the Bank issued a policy to carefully expand its assets, while focusing on hire purchase lending, residential project lending, and targeted commercial lending in order to maintain our competitiveness. The Bank is also emphasizing on adding value for customers, balancing the liquidity management, and having high capital fund and sufficient bad debt reserve. The Bank is confident that our economic forecast and policy to carefully expand will enable the Bank to continuously grow and generate profits. On behalf of the Board of directors, we would like to extend our sincere appreciation to all our shareholders for placing your trust in us and for providing on-going support.

Supol Wattanavekin Chairman

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Annual Report 2005 7

Report from the Audit Committee Dear shareholders, The Audit Committee was appointed as per the Board of Director’s resolution (when it was managing the business as a finance company) at 10/45 meeting on 15 November 2002. Each member has a three-year term. Recently, the Audit Committee received approval from the Board of Directors at 8/48 meeting on 27 October 2005, which is in line with the guideline by the Stock Exchange of Thailand. The Audit Committee operated according to the Charter which clearly describes the power and the limitations of the Board of Directors in order to encourage good corporate governance, efficient and effective work practices. Such procedures consisted of the appointment of three independent directors and a senior executive in the Internal Audit Office who is also the Secretary of the Audit Committee. The committee is required to meet at least once every quarter; however, additional meetings can be held as necessary. The Audit Committee has the responsibility to report to the Bank’s Board of Directors regarding the audit procedures and to provide accurate, complete and reliable disclosure of financial information and reports. Other responsibilities of the committee are to propose of the name and remuneration of an external auditor to the Board of Directors in order to obtain approval for an appointment at the Annual Shareholders meeting; to ensure that work practice has been conducted in accordance to the relevant laws and regulation; to coordinate with the Risk Management Committee to make sure that the operations adhered to Bank’s Risk Management Policy; to make certain that there are no conflicts of interest; to supervise, provide recommendations and observations on the Internal Audit Office’s work practice; and to consider and approve to the Internal Audit Office’s annual audit inspection plan. The Audit Committee held a total of three meetings during 2005 and had three additional meetings with the external auditor. The committee placed great emphasis to the audit of loan operations and risk management operations as per the Bank of Thailand’s recommendation. Following the change of status from a finance company to a commercial bank in 2005 as per the Bank of Thailand’s and the Ministry’s plan to develop financial institutions, the Audit Committee reviewed the information and made relevant preparations in accordance to the Bank of Thailand’s regulations. The Audit Committee considered and proposed the name of the auditor to present to the Bank’s Board of Directors and the shareholders at the Annual Shareholders meeting. During 2005, the Audit Committee conducted audits and reviews on the work practices of various departments with respect to the following areas: the internal control system; the compliance with laws, regulations and announcements; and the review of financial reports. At the same time the Audit Committee has started soliciting feedbacks to receive complaints and suggestions on ways to improve the Bank’s services and facilitate efficient work management. Such steps have enabled the Bank to prevent losses from incorrect work practices. The Bank’s performance in 2005 was satisfactory. No irregular activities or areas which required significant modification were found. The Audit Committee’s quarterly reports were prepared for the Board of Directors and are disclosed in the Bank’s annual report.

Ms. Nawaaporn Ryangskul Chairman of the Audit Committee

KIATNAKIN BANK

KIATNAKIN BANK 1. General Information 1.1 General Information / Other References Company

Kiatnakin Bank Public Company Limited

Nature of Business

Banking

Registration Number

172

Address

12th Floor, Amarin Tower, 500 Ploenchit Road, Pathumwan, Bangkok 10330 Tel. 0-2680-3333 Fax 0-2680-3000, 0-2256-9933 www.kiatnakin.co.th

No. of ordinary shares sold

495,973,285 shares as of December 31, 2005

Registrar

Thailand Securities Depository Company Limited Capital Market Academy Building 2/7 Moo 4 [North Park Project], Vibhavadi Rangsit Road, Tungsonghong Laksi, Bangkok 10210 Tel. 0-2596-9000 Fax. 0-2832-4994-6 Call center : 0-2229-2888

Auditor

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

Legal Adviser None Consultant / Manager under None None Contract Audit Committee

8 Annual Report 2005

Annual Report 2005 9

1.2 Companies in which Kiatnakin Bank Public Company Limited holds 10% or more of the total registered shares (as of 31 December, 2005)

Business Type

% Shares owned by the bank

1. Chiengmai Yarnyon 1993 Company Limited 244/1 Wuaalaai Road, Haiya, Amphur Muang, Chiang Mai 50100 Tel. 0-5328-1836 Fax. 0-5320-2815

Car Dealer

6,500

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

Leasing

600,000

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

Hire purchase

800,000

4. Kiatnakin Securities Company Limited 7th Floor, Amarin Tower, 500 Ploenchit Road, Pathumwan, Bangkok 10330 Tel. 0-2680-2222 Fax. 0-2256-9787

Securities

99.99

65,000,000

5. Kiatnakin Fixed Income Fund Tisco Asset Management Company Limited 9th Floor, Tisco Tower, 48/16-17 North Sathorn, Sathorn, Bangkok 10120 Tel. 0-2633-777 Fax. 0-2633-7300

Fund Management

10.33

7,233,532

6. Asia Recovery 1 Fund Thai Farmers Asset Management Company Limited 31st Floor, Maungthai-Patra Tower 1, 252/38-41 Rachadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.95

125,947,412

7. Asia Recovery 2 Fund Thai Farmers Asset Management Company Limited 31st Floor, Maungthai-Patra Tower 1, 252/38-41 Rachadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.59

187,239,308

Name and Address

No. of ordinary shares issued

KIATNAKIN BANK

KIATNAKIN BANK Name and Address

Business Type

% Shares owned by the bank

No. of ordinary shares issued

8. Asia Recovery Fund 3 Thai Farmers Asset Management Company Limited 31st Floor, Maungthai-Patra Tower 1, 252/38-41 Rachadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund Management

99.97

190,832,895

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

Fund Management

98.91

78,698,484

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

Fund Management

99.50

24,418,404

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

Fund Management

98.77

93,340,500

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

Fund Management

74.61

6,797,427

13. Kiatnakin- K-ASSET Equity Fund Thai Farmers Asset Management Company Limited 31th Floor, Muangthai-Patra Tower 1, 252/6 Rachadaphisek Road, Huaykwang, Bangkok 10320 Tel. 0-2693-2300 Fax. 0-2693-2320

Fund

38.77

12,914,035

14. M V Property Estate Company Limited 39th Floor, Jewelry Trade Center Tower, 919/468 Silom Road, Bangrak, Bangkok 10500 Tel. 0-2630-0851 Fax. 0-2630-0850

Real Estate

10 Annual Report 2005

100,000

Annual Report 2005 11

2. Nature of Business 2.1Important Business Characteristics Kiatnakin Bank Public Company Limited offers the entire range of commercial banking services as specified by the Commercial Bank Act and related announcements issued by the Bank of Thailand. The Bank has been approved to provide commercial banking services, such as accepting deposits, extending credits, issuing and endorsing bill of exchange or negotiable instrument, trading in foreign currency, avalisation of trade bills, acceptance of bills, issuing of letters of credit or guarantee, and operating hire purchase loan and leasing, etc. The nature of the business of Kiatnakinâ&#x20AC;&#x2122;s group is categorized into 3 types as follows: 1) Commercial Banking business - consists of Kiatnakin Bank Public Company Limited 2) Securities business - consists of Kiatnakin Securities Company Limited, which is listed as broker number 19 in the Stock Exchange of Thailand 3) Investment of Mutual Funds - consists of investments in six mutual funds as follows: Asia Recovery 1 Fund, Asia Recovery 2 Fund,Asia Recovery Fund 3, Thai Restructuring Mutual Fund, Asia Recovery Property Fund 1 and Asia Recovery Property Fund 3.

2.2 Commercial Bankâ&#x20AC;&#x2122;s Main Business Deposit Service The Bank offered a variety of ways to save money. Depositors can choose from many savings or fixed deposits schemes in which they can select their own maturity dates. Mutual Fund Selling Agent The Bank acted as an agent in selling and buying different types of mutual funds, such as the Retirement Mutual Fund (RMF), Long-term Mutual Fund (LTF), Fixed Income Fund and Equities Fund, etc. Hire Purchase Loan The Bank offered all types of auto hire purchase services so that borrowers of such loans are able to manage their cash flow properly at a suitable interest rate and repayment period. The Bank also offered automobile registration service, licensing service along with automobile insurance and tax. Auction of Repossessed Automobile The Bank arranged a monthly auction for interested parties in the central region and other parts of Thailand and has extended hire purchase loans to those who won the bid to these automobiles. Residential Project Loan The Bank offered comprehensive residential project loan services, regardless of whether the project is small or large, old or new, or filled with problems. Our customers received speedy credit processing for their projects; high credit limits for the project owners; and a repayment schedule that correspond to their financial competence. Apart from these services, the Bank also provided other advisory services, such as financial and investment consulting; selling and public relations consulting; and project development and management consulting. Corporate Loan The Bank offered a full range of corporate credits for prospective clients. Customers received prompt response when credits are considered and approved; short-term

KIATNAKIN BANK

KIATNAKIN BANK credits at a level high enough to support their needs; and a repayment schedule that correspond to their financial competence. These credits included loans to new and second-hand automobile dealers, apartment businesses, logistics businesses, and packaging and printing businesses.

Property Foreclosed The Bank arranged Bank’s assets, such as land, commercial buildings, office buildings and residential units, both new and renovated, to be sold to the general public for their own use or for investment purposes. Customers can obtain more information from our website www.kkasset.com and search for available assets by the type, size, price or province. Moreover, the system can give customers an estimate of the loan amount based on the borrower’ s income status. Additional information can also be acquired from our Call Center every day at 0-2680-3420-1.

Securities Brokerage Service Kiatnakin Securities Company Limited (KKS) is one of the leading companies that provide investors with a comprehensive financial and investment services by highly competent personnel in the following areas of service:

Securities Brokerage Agent KKS has an experienced team of advisors to provide sound advice and present analysis which can add real value to our investors’ investments.

Financial Advisory Our team’s emphasis is to provide specialized knowledge and skills for certain types of transactions.

Internet trading via KK e-Trade Investors are able to send their securities purchase instructions, check the status of the buy-sell orders, and check their portfolio on a 24-hour basis.

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

2.2 Revenue Structure Kiatnakin Bank Public Company Limited has the following revenue structures and shareholding in its subsidiary companies:

2003 Fund Management* 1,770 Mill. Bath 28%

Fund Management* 1,170 Mill. Bath 20%

Finance Business 3,888 Mill. Bath 61%

2004

Finance Business 4,173 Mill. Bath 71%

Securities Business 546 Mill. Bath 9% Securities Business 682 Mill. Bath 11%

2005 Fund Management* 1,262 Mill. Bath 18% Securities Business 389 Mill. Bath 5%

Bank Business 5,472 Mill. Bath 77%

Consists of 6 Mutual Funds as shown in section 1.2 Juristic entities in which our Bank holds at least 10% (sequence number 6-11)

12 Annual Report 2005

Annual Report 2005 13

2.3 Summary of Significant Changes during 2005 The Bank revised the organization structure in order to raise the efficiency and to be in line with the commercial bank’s system. The Bank appointed Mr. Tawatchai Sudtikipisan to be the Bank’s President and Mr. Pravit Varutbangkul to be the Director and Vice chairman. The Bank maintained its “A-” credit rating from Thai Rating and Information Services Ltd. (TRIS) which reflected our highly secure financial position. The Bank opened one new branch in the greater Bangkok metropolitan area, namely the Asoke Branch, which brings the total number of branches to 16 when including all the regional braches. The Board of Director authorized the payment of interim dividend of 1 Baht per share to ordinary shareholders based on the financial results from 1 January to 30 June 2005. When combined with the interim dividend the Board authorized in the amount of 1.30 Baht per share based on the financial results from 1 July to 30 December 2005, the total dividend for the year is 2.30 Baht per share.

2.4 Competition, Industry Trends and Future Competitiveness The domestic commercial banking business had a major structural change in 2005 due to the addition of six small commercial banks, namely Tisco Bank PCL, Kiatnakin Bank PCL, ACL Bank PCL. Land and House Retail Bank PCL, GE Money Retail Bank PCL, and The International Commercial Bank of Chaina. The additions raised the total number of commercial banks from 12 to 17 [While Bank of Asia PCL merged with UOB Radanasin PCL]. As a result of the implementation of the Financial Master Plan which requires financial institutions to transform themselves into an a banking entity as guided by the Authorities. Currently, commercial banks in Thailand are grouped into three types according to their asset size big, medium and small. The number of banks in each group is five, three and nine, respectively and the proportion of their assets are 70%, 20% and 10%, respectively. Even though the economy grew at a declining rate during 2005, the growth was consistent with modest loan expansion rate. While the deposit and lending rates rose, the commercial banking business remained resilient with improved operating results. This can be attributed to the progress made in resolving the non-performance loans (NPL) in the commercial banking system, which resulted in a decline from 11.82% to 9.05%. Aside from this, there was a marked improvement in 2005 by commercial banks’ performance in general, as evidenced from the rise in assets and profit per bank employee. Commercial banks also continued to expand its network coverage electronically instead of opening full branches in order to increase convenience and service response time for customers. The expansion can be measured by the increase in the number of ATM machines and sub-branches, while the number of full branches remained the same. In 2006, commercial banks are expected to continue to experience difficulties and unavoidable competition as a result of changing market conditions, such as new and additional number of commercial banks following the Financial Master Plan; the establishment of Deposit Insurance Scheme (DIS), which is expected to cause deposits to be moved and spread to other banks in order for depositors to receive the deposit insurance coverage. In addition, the continuing upward interest rate trend is expected to make an impact on borrowers’ future repayment ability and delay the resolution of the Bank’s doubtful debts. For these reasons, the Bank must emphasize the efficiency of its operations in order to reduce the rising operating costs from increased competition. Banks must maintain their reputation in order to enhance their ability to raise funds and have an effective risk management system such that the impact on the bank’s operation is minimized. These are the key factors which all commercial banks must face constantly and are indeed real challenges for our management.

KIATNAKIN BANK

KIATNAKIN BANK 3. Risk factors Banking business is directly related to the domestic and international economic as well as financial conditions. Therefore, the Bank consistently and continuously places great emphasis on the risk management by establishing an independent Risk Management Unit, which reports directly to the Risk Management Committee. The Unit is responsible for setting risk management policies, developing strategic plans and advocating risk protection measures in order to reduce the existing and expected risks. Five major risk classifications have been identified and are described as follows:

Credit Risk

Strategic Risk The Bank continued to maintain the policy on extending credits to those industry sectors that it has expertise in and to the new sectors that have been thoroughly researched by the staff. The Bank placed great importance in developing proficiency for the staff in order to hone their skills in risk management. The Bank continued to work hard to build shareholders’ and investors’ confidence by strengthening the capital fund foundation, such that it sufficiently and appropriately supports various risks, and succeeded in maintaining much higher risk asset capital funds than the industry’s average. As of 31 December 2005, the Bank’s risk asset capital fund totaled Baht 15,885 million, equivalent to 24.61%, which is above the 8.50% minimum requirement by the Bank of Thailand.

The Bank placed great importance in developing and improving on customers’ risk assessment technique and risk models, which were used as tools to predict the chance of missed payment and possible loss as well as manage the risks of the portfolios to be within an acceptable level and consistent with the returns. The bank also emphasized efficient risks management and control by setting the ceiling for various internal and external risk factors that may impact each loan businesses. This was done in order to effectively manage the portfolios, and improve our ability to handle impacts from external changes. Risk reports have been enhanced and given more substance. They have reflected the real risks faced by the Bank in an accurate and rapid manner, which allowed management to make appropriate and timely decisions. Moreover, the Risk Management Unit conducted quality reviews of small loan customers, major loan customers and customers whose loan quality fell below the Bank’s standard and assisted in setting adequate provisions. At present, the Bank’s loans consists of 38% hire purchase loans, 25% residential project loans and 11% [W3]commercial loans (of which 26% are investments in financial claims under resale agreements). Doubtful credits amounted to Baht 5,866 million or 12.7% of total loans.

Market Risk Interest rate is one of the key variables which may directly impact assets and liabilities, causing the net interest income to change. The Bank’s Assets and Liabilities Management Committee’s main tasks are to control the Bank’s interest rate risk to be at an acceptable level with minimal fluctuation and consistent with the Risk Management Committee’s policy. During 2005, the Bank successfully reduced the interest risk as measured by the total credits extended which are the Bank’s main assets generator. As at 31 December 2005, the outstanding loans and debtors with floating interest rates and loans of debtors that will mature in 2006 amounted to Baht 26,442 million or 38.50% of total assets. The Bank considered these figures to be satisfactorily high when compared with debts with 1-year maturity which amounted to 40.40% of total assets. Therefore, the volatility of the interest rate did not significantly affect the Bank’s balance sheet based on analysis of the impact from changes of interest rates. A 1% change in the interest rate changed about

14 Annual Report 2005

Annual Report 2005 15

0.42% of the net interest income forecast within the next 12 months. This figure is considered to be low when compared to the Bank’s standard of 5%. During 2005, the Bank did not conduct any foreign currency transactions, but in 2006 the Bank set up a policy to start conducting the foreign currency business. The Bank already had the policy to manage a balanced structure of the foreign currencies’ assets and liabilities. When an imbalance occurs, the Bank will protect such risk by using measures ranging from buying and selling futures contracts along with setting the ceiling for holding foreign currencies. With respect to the pricing risk, investments in net securities as of 31 December 2005 amounted to Baht 3,705 million were spread among various types of securities in accordance with the Bank’s investment policy. In evaluating the pricing risk the Bank used daily mark-to-market price to reflect the daily status of the investments. In addition, the Bank has set up çStop Loss Limité in order to prevent the impact of a reduction of securities prices to the Bank’s capital. Liquidity Risk The Bank’s Assets and Liabilities Management Committee’s key role is to supervise and manage the Bank’s liquidity in accordance to the policy set by the Bank’s Board of Directors and the Risk Committee. The Committee ensured that the Bank had adequate liquidity in both normal and crisis situations. The Bank has a policy in place to secure long-term funds in order to appropriately correspond to the Bank’s strategy, credits plan and investment plans. As of 31 December 2005, the Bank had Baht 24,734 million of funds related to loans, deposits, and debentures with outstanding maturities in excess of one year, which is equivalent to 49.10% of total outstanding loans. Aside from this, the Bank realizes the risk of being dependent on funds from the money market and large depositors. Thus, it is the Bank’s policy to expand the customer base to reduce such concentration risk - the efforts which have continued from 2004. We have been able to reduce such risk by maintaining the liquidity position of at least 7% of borrowed funds, a level which is higher than the mandatory 6% requirements. At the end of 2005, the Bank maintained the liquidity position at an average of 7.78%. To continually minimize the liquidity risk, the Bank put in place various processes to regularly review, follow up and assess the liquidity position. There are reports on the maturity profiles of the assets and liabilities per their contracts and report on customer behavior as well as arranging appropriate level of liquid assets and credit lines from other financial institutions and funding sources. In addition, the Bank developed an advance warning system and business contingency plan to handle liquidity crisis. The Bank used key indicators at various levels to serve as warning signals. Operational Risk The Bank believes that effective operational risk management will help the Bank achieve its goals, reduce operational losses, and improve operational procedures and systems. In order to add more value for our shareholders as well as enhance the Bank’s reputation for operational excellence, the Bank is determined to raise our competitive advantage while maintaining good corporate governance through development of skills, knowledge and capability of our personnel. The Bank initiated a pilot project in Operational Risk Management for small loan operations that covered a large number of our operational staff. We developed more effective tools for recording actual operational losses with an intention to create a Loss Database. Furthermore, the Bank conducted Risk Control Self-Assessment to assess potential operational risks, amount of loss occurred, and management and control of the risks. The assessment facilitated our qualitative and quantitative risk analysis as well as the determination of key risk indicators, which can be used to as early warning signs to protect against and minimize losses in a timely manner. The results of this pilot project will be used to effectively develop other area of the Bank’s operations and allow the Bank to efficiently put aside capital funds for future operational risks.

KIATNAKIN BANK

KIATNAKIN BANK 4. Shareholding and Management Structure Board of Directors Nomination and Remuneration Committee

Audit Committee Internal Audit Office Risk Management Committee

Investment Committee Executive Board

Asset and liabilities Management Committee Lending Committee

Risk Management

President

Information and Technology Committee Directors Office

Central Support

Treasury & Funding

Personnal Department

Corporate Lending

Residential Project Lending

Retail Lending

The Bank has no major shareholders or groups of shareholders as defined by the SEC.

4.1 List of 10 Largest Shareholders (as of July 15, 2005) Name

Number of shares

Percentage

42 42,423,000

8.78

Ms. Panida Thepkanchana

40,983,048

8.29

State Street Bank And Trust Cmmpany

35,707,253

7.22

Ms. Vansamorn Wannamethee

30,354,872

6.14

18 25,718,220

5.20

Thai NVDR Company Limited

25,471,152

5.15

Ms. Thitinan Wattanavekin

23,356,628

4.72

16,003,976

3.24

Trinya Company Limited

13,973,149

2.83

Ms. Chansamorn Wattanavekin

12,747,640

2.58

Chase Nominees Limited

Norbax Inc.,

Chase Nominees Limited

Source: Top 20 Major Shareholderâ&#x20AC;&#x2122;s Report, Thailand Securities Depository Company Limited.

16 Annual Report 2005

Annual Report 2005 17

Juristic Person Name

Address

Shareholders

1. Chase Nominees Limited 42 Standard Chartered Bank Custody and .Clearing Service Department 14th Floor Zone B, 90 North Sathorn Road, Silom, Bangkok 10500 2. State Street Bank And Trust Company 3. Norbax Inc., 18

4. Thai NVDR Company Limited

N.A.

C/O Standard Chartered Bank Custody and Clearing Service Department 14th Floor, 100 North Sathorn Road, Silom, Bangrak, Bangkok 10500 Standard Chartered Bank Custody and Clearing Service Department 14th Floor, 100 North Sathorn Road, Silom, Bangkok 10500

N.A.

7th Stock Exchange of Thailand Bldg., 62 Ratchada Pisek Road, Klongtoey, Bangkok 10110

N.A.

5. Chase Nominees Limited 1 Standard Chartered Bank Custody and Clearing Service Department 14th Floor, 100 North Sathorn Road, Silom, Bangkok 10500 6. Trinya Company Limited

78 Soi Captain Bush, New Road, Bangrak, Bangrak, Bangkok 10500

N.A.

1. Eastern Sugar Company Limted 97..50% 2. Ms. Chansamorn Wattanavekin 2.50%

4.2 Management 1) Management Structure The Bank’s management structure is made up of five major panels as follows: Board of Directors, Audit Committee, Executive Board, Risk Management Committee and Nomination and Remuneration Committee.

❏ Board of Directors The Board of Directors is a representative of our shareholders. The main purpose of the Board’s roles, duties and responsibilities is to manage the Bank to achieve stability and good returns on investments by having integrity and preventing issues related to conflicts of interest from taking place. For these reasons, certain limitations to the authorities and responsibilities of the Board were set and are described as follows: Set key policies and strategic goals of the Bank. Review and approve strategy recommended by

the Executive Board. Supervise and monitor the Executive Board in managing the Bank, ensuring that the Management has followed the approved plans efficiently and effectively. Set up regulations to ensure good supervision in accordance with the principles of corporate

governance in matters related to professional ethics of each executive board and the Bank’s staff. The principles of good supervision aims to establish a guideline for the organization to follow; to consistently maintain a fair and high level of business ethics as well as responsibilities towards each related party; and to raise awareness and prevent conflicts of interest.

KIATNAKIN BANK

KIATNAKIN BANK Set up internal audits and ensure that there are sufficient reports and information for the Board

of Directors, including the Bank’s past results and the future performance trends. Supervise the Risk Management Committee to ensure that they set up policies, procedures and

control measures on management of various types of risks, namely credit risk, investment risk, market risk, liquidity risk and operational risk. Consider the appointment and set the authority level of executives starting with the Head of

each section position and upwards as well as the Chairman of the five major Committees in order for them to assist in management of the Bank and ensure adherence to the set policies. These Committees include the Audit Committee, the Nomination and Remuneration Committee, the Risk management Committee and the Executive Board. Endorse the annual financial reports that have already been examined by the auditor and

reviewed both by the Executive Board and the Audit Committee in order to seek approval at the shareholder’s meeting. Acknowledge the auditor’s opinion through the Management Letter as well as the opinion of the Executive Board. Conduct the business in accordance with the laws, Articles of the Association, and Memorandum

of Association of the Bank, including the resolutions passed in the Shareholder’s Annual Meeting. In addition, the Board of Directors may seek further professional opinion from external consultants related to Banking operations, which is paid by the Bank. The Executive Board must meet at least once every 3 months. Each meeting must have at least half of total number of directors present, and the meeting resolutions must be based on the majority of the votes from all the directors. The Board of Directors consists of nine directors and one secretary as follows: Mr. Supol

Wattanavekin

Chairman

Ms. Nawaaporn

Ryanskul

Independent Director

Mr. Pichai

Dachanapirom

Independent Director

Assoc.Prof. Manop

Bongsadadt

Independent Director

Mr. Tarnin

Chirasoontorn

Independent Director

Mr. Chet

Pattrakornkul

Independent Director

Mr. Suraphol

Kulsiri

Director

* Mr. Pravit

Varutbangkul

Director

* Mr. Tawatchai

Sudtikitpisan

Director

Ms. Porntip

Chuprakhun

Secretary

Remarte *Have authortity in company

❏ Audit Committee The Audit Committee has been assigned the following duties as authorized by the Board of Directors: Ensure that the Bank produces accurate and sufficient financial reports. Ensure that the Bank has appropriate and efficient internal control and internal audit system

in place. Ensure that the Bank conducted its business in accordance with the securities laws, the Stock

of Exchange regulations and the relevant laws related to the Bank’s business.

18 Annual Report 2005

Annual Report 2005 19

Consider, select and recommend an auditor for the Bank to hire and the auditor’s remunerations. Review all disclosures of the Bank’s information where connected transactions have taken place

or where there may be conflicts of interest in order to ensure their accuracy and completeness. Report on the supervision of the Audit Committee by disclosing the information in the Annual

Report, which should be duly signed off by the Chairman of the Audit Committee. Consider, select, rotate, transfer or terminate Internal Audit Officers. Report on the Audit Committee’s operations and make recommendations to the Executive Board.

The Audit Committee has the authority to inspect or to question any relevant personnel regarding any issues related to the Bank’s internal matters in order to ensure that responsibilities and authority have not been breached. The Audit Committee is authorized to hire or bring in specialists to assist with the auditing process. The Audit Committee is also empowered to question and examine the Bank’s matters as deemed appropriate. In addition, the Audit Committee must coordinate with the Risk Management Committee to ensure that they adhere to the Bank’s Risk Management Policy and carry out other duties assigned by the Board of Directors and are endorsed by the Audit Committee.[W1] The Audit Committee is required to meet at least four times per year or more if necessary. The Committee may invite the Management team or any connected person(s) to join the meeting to give additional information related to the matter being audit. Each meeting held by the Audit Committee must have at least half of its members present and the meeting’s resolutions must be based on the majority of the votes from the members present at each meeting.

The Audit Committee consists of three members and one secretary as follows: Ms. Nawaaporn

Ryanskul

Chairman

Mr. Pichai

Dachanapirom

Member

Assoc.Prof. Manop Bongsadadt

Member

Mr. Kriengsak

Secretary

Sukhanaphorn

❏ Executive Board The Executive Board was appointed by the Board of Directors to set the strategy, develop a business plan, efficiently and effectively supervise the management team according to the business plan. Thus, the Board of Directors decided to set the following authorities and responsibilities for the Executive Board: Set the strategy, business plans, annual budget to be in line with the policy and goals, which

have been approved by the Board of Directors and which comply with the required rules and regulations. Set the organization structure for all business units under the Executive Board’s responsibility.

Appoint and set limits for the authority and responsibilities for the Bank’s management officers from the position of the deputy managing director downwards. Set limits on credit line approval limit, investments, purchasing and expenses to maximize the

Bank’s benefits while complying with the respective laws.

KIATNAKIN BANK

KIATNAKIN BANK Efficiently set work procedures, rules, operational processes and internal control system. Consider and approve loans/credit lines, authorize sales of foreclosed assets, and set prices of

foreclosed assets to be purchased from the market. Use authority to raise objections in accordance to the set limits. Supervise and manage the Bank to be in line with the risk framework set by the Risk Management

Committee, which includes the following types of risks: strategic risk, credit risk, market risk, investment risk, liquidity risk, operational risk, legal risk and reputation risk. Conduct one-self as well as supervise the management team and staff members to ensure

compliance with the regulations related to the business code of ethics and professional ethics. Appoint one or more committees or one or more sub-committees to scrutinize, consider and

approve specialized work according to the agreement on behalf of the Board of Director. Prepare quarterly management and operational reports for the Board of Directors to keep the

Board members up to date of the progress. In additional, the Executive Board may seek further professional opinion from external consultant related to Bank’s business operations whose expense incurred is to be paid by the Bank. The Executive Board must meet at least once a month. Each meeting must have at least half of its members present and the meeting resolutions must be based on the majority of the votes from the members present at each meeting. The Executive Board consists of seven directors and one secretary as follows: Mr. Supol

Wattanavekin

Chairman

Mr. Pravit

Varutbangkul

Vice Chairman

Mr. Tawatchai

Sudtikitpisan

President

Mr. Sarawut

Jaruchinda

Head of Corporate Lending

Ms. Thitinan

Wattanavekin

Head of Treasury and Funding

Mr. Thanawat

Neamsub

Senior Executive Vice President - Retail Lending

Ms. Sineenath

Tejagupta

Senior Executive Vice President - Director Office

Ms. Porntip

Chuprakhun

Secretary

❏ Risk Management Committee The Executive Board was appointed by the Board of Directors to set the strategy, develop a business plan, efficiently and effectively supervise the management team according to the business plan. Thus, the Board of Directors decided to set the following authorities and responsibilities for the Executive Board: Set the strategy, business plans, annual budget to be in line with the policy and goals, which

Bank’s benefits while complying with the respective laws. Efficiently set work procedures, rules, operational processes and internal control system.

20 Annual Report 2005

Annual Report 2005 21

Consider and approve loans/credit lines, authorize sales of foreclosed assets, and set prices of

compliance with the regulations related to the business code of ethics and professional ethics. Appoint one or more committees or one or more sub-committees to scrutinize, consider and

approve specialized work according to the agreement on behalf of the Board of Director. Prepare quarterly management and operational reports for the Board of Directors to keep the

Board members up to date of the progress. In additional, the Executive Board may seek further professional opinion from external consultant related to Bankâ&#x20AC;&#x2122;s business operations whose expense incurred is to be paid by the Bank. The Executive Board must meet at least once a month. Each meeting must have at least half of its members present and the meeting resolutions must be based on the majority of the votes from the members present at each meeting. The Risk Management Committee consists of eight members and one secretary as follows: Mr. Supol

Wattanavekin

Chairman

Ms. Thitinan

Wattanavekin

Director

Mr. Pravit

Varutbangkul

Director

Ms. Sineenath

Tejagupta

Director

Mr. Pracha

Chumnarnkitkosol

Director

Mr. Chet

Pattrakornkul

Director

Mr. Tawatchai

Sudtikitpisan

Director

Mr. Kriengsak

Sukhanaphorn

Director

Ms. Upsorn

Sinswade

Secretary

â?? Nomination and Remuneration Committee The Nomination and Remuneration Committee has the following authorities and responsibilities: Set the policy, principles and procedures for recruiting and selecting qualified candidates for

Directors and senior executives from the Deputy Managing Director level upwards. The selected candidates are proposed to the Board of Directors for approval. Screen and propose candidates with suitable qualifications for the following positions in the

Bank: _

Directors

Directors for the committees which would receive authorization and direct responsibilities from the Executive Board.

Senior executives from the Deputy Managing Director level upwards.

KIATNAKIN BANK

KIATNAKIN BANK Ensure that the number of Bank’s Management team is sufficient and appropriate for the Bank,

paying special attention to the qualification of members of the Board of Directors who must have appropriate knowledge, ability and experience. Disclose the recruiting policy as well as the detailed procedures involved in the Annual Report. Set the remuneration policy and other benefits for Directors and Senior Executives from the

Deputy Manager Director level upwards. Set the guidelines on performance appraisal for Director and Senior Executive from the Deputy

Manager Director level upwards in order to appropriately adjust the annual remuneration package. The performance appraisal takes into consideration the responsibilities, associated risks and ability to increase long-term shareholders’ values. Disclose the remuneration policy and available options, the development of remuneration reports

and comments from the Remuneration Committee in the Annual Report. The Nomination & Remuneration Committee must meet at least twice a year. Each meeting must have at least half of its members present and the meeting’s resolutions must be based on the majority of the votes from the member present at each meeting. The Nomination and Remuneration Committee consists of three members and one secretary as follows: Mr. Tarnin

Chirasoonton

Chairman

Assoc.Prof. Manop

Bongsadadt

Director

Mr. Suraphol

Kulsiri

Director

Mr. Nujaree

Sithasrivong

Secretary

2) Selection Procedures for Directors The process of selecting directors begins with the nomination of names and background of the candidates by shareholders, Directors and Senior Executives. The Selection and Remuneration Committee evaluate each candidate’s qualifications and suitability, determine appropriate remuneration, and then make a proposal at the Board of Directors meeting. The Board of Directors makes recommendations and obtains final approval at the Shareholders meeting. This procedure must be governed by the following Bank’s rules and regulations: Each shareholder’s total number of votes is based on one vote per share. Each shareholder must exercise all votes granted under rule number 1; he/she can select one or more Directors, but cannot determined how the votes are to be divided up. The candidates who receive the most votes, in descending order, are appointed as Directors.

The total number of appointment may be based on the existing number of Directors or the number desired at the time. In case of a tie for the final available appointment, the chairman cast the deciding vote. 3) Executive’s Remuneration Financial remuneration Other remunerations

Director’s remuneration Director’s remuneration is carried out in three main fashions as follows:_

Monthly compensation in the capacity of Chairman and members of the Board of Director.

22 Annual Report 2005

Annual Report 2005 23 _

Meeting fees paid to the chairman and members on attendance basis to each meeting in various boards.

Annual bonus paid in conjunction to overall performance of the company and bonus paid to employees including the longevity of service of the directors.

The Bank set a clear and transparent policy for the director’s remuneration that is in line with the industry. The remuneration is sufficiently high to attract and retain directors with desirable qualities. Our shareholders’ approval has been duly sought and granted at the shareholders’ meetings. The executive’s remuneration was set in accordance with the principles and policies specified by the Board of the Directors. The amount is directly correlates with the Bank’s performance as well as the performance of each executive. In 2005, the Bank made various remuneration payments to the directors and the executives whose details are as follows: –

Total remuneration for the Bank’s 8 senior executives, which included salaries bonus and provident fund, amounted to Baht 96,609,558 .

–

Remuneration for the Bank’s directors, including the director who have left their post are as follows:

Remuneration Unit : Baht Meeting Fee (Baht/year) Name - Surname

Board of Director Audit Committee

Nomination and Remuneration Committee

Bonus Paid in 2006

Total Remuneration Paid in Year 2005

1. Mr. Supol Wattanavekin

405,000

315,000

720,000

2. Ms. Nawaaporn Ryanskul

330,000

135,000

288,750

753,750

3. Mr. Tarnin Chirasoonton

390,000

90,000

354,375

834,375

4. Assoc. Prof. Manop Bongsadadt

330,000

90,000

60,000

288,750

768,750

5. Mr. Pichai Dachanapirom

330,000

90,000

262,500

682,500

6. Mr. Chet Pattrakornkul*

270,000

210,000

480,000

7. Mr. Tawatchai Sudtikitpisan

270,000

210,000

480,000

8. Mr. Pravit Varutbangkul

270,000

210,000

480,000

9. Mr. Suraphol Kulsiri

330,000

60,000

236,250

626,250

90,000

3,015,000

315,000

210,000

2,375,625

5,915,625

Mr. Soomboon Chaidechsuriya** Total * **

The committee was nominated since April 25, 2005 The committee was resigned since April 7, 2005

KIATNAKIN BANK

KIATNAKIN BANK Number of Ordinary Shares Held by Executives in 2005 Name

Position

Number of shares

Changes in 2005

Mr. Supol Wattanavekin

Chairman

8,68,808

Increase 125,000 shares

Mr. Pravit Varutbangkul

Vice Chairman

100,000

Mr. Tawatchai Sudtikitpisan

President

Ms. Thitinan Wattanavekin

Head of Treasury and Funding

23,381,628

Increase 1,158,620 shares

Mr. Pracha Chumnarnkitkosol

Head of Risk Management

Mr. Sarawut Charuchinda

Head of Corporate Lending

Ms. Sineenath Tejagupta

Senior Executive Vice President / Retail Lending

Decrease 25,000 shares

Mr. Thanawat Neamsab

Senior Executive Vice President /

40,000

Increase 25,000 shares

7,000

37,500

Increase 12,500 shares

Director Office Ms. Somlak Artamnoyvipas

Senior Vice President / Treasury and Funding

Ms. Suree Harnpinijsak

Senior Vice President / Accounting Department

4) Auditor’s Remuneration The bank incurs Baht 1,383,940 in external auditor’s fee for auditing the its financial statements, Baht 1,627,600 for the consolidated financial statement, Baht 3,060,000 for auditing all subsidiaries’ financial statements and Baht 270,000 for special audit procedure required by the Bank of Thailand. An additional amount of Baht 1,468,217 has also been paid for other consultancy services including, taxes advice, operational risk procedure, as well as various training services related to policies and procedures guidelines from the Bank of Thailand. 5) Good Corporate Governance Policy The Bank’s Board of Directors placed a great deal of importance in having good corporate governance principles, and have approved a corporate governance policy at the 2/2549 meeting. The summary of the official written policy is as follows:

❏ The Bank’s Board of Directors Roles and responsibilities Bank’s Board of Directors and various sub-committees: The Bank has

clearly defined the structure, roles and responsibilities of the Bank’s Board of Directors and various sub-committees in section 4.2 1) Management Structure. Chairman and Chairman of the Management Committee: The Bank’s Board of Directors has

clearly defined and separated the roles and responsibilities of the Chairman and Chairman of the Management Committee Leadership and Vision: The Bank’s Board of Directors must be ethical; behave appropriately as

a leader; and conduct themselves in a way that are socially acceptable and suited for management of the Bank.

24 Annual Report 2005

Annual Report 2005 25

Remuneration of the Bank’s Director and Executive: The Bank based the director’s remuneration

on the level of responsibility and the individual performance, which has been approved by the shareholders. The executive’s remuneration was set in accordance with the level of responsibility, performance of each executive, and Bank’s performance. Board of Directors’ Report: The Board of Directors is responsible for the development of annual

financial statements/reports and presented them at the shareholder’s meeting together with the report from the audit committee for the Bank’s Annual Report. The Board empowered the audit committee to monitor and ensure that the Bank has accurate and appropriate financial statements/reports and fully discloses essential information regarding related party transactions or transactions with conflict of interests for transparency and completeness.

❏ Equal Rights for Shareholders Shareholders Meeting: The Bank’s Board of Directors must hold a shareholders meeting within

four months from the date of the accounting year end. The Bank has to send out meeting invitations and agenda to all the shareholders with facts and opinion of the Board of Directors for each agenda item. The meeting invitation must be sent out to the shareholders at least 14 working days prior to the meeting date and the meeting announcement must be printed in the newspaper at least 3 days prior to the meeting for 3 or more consecutive days. There has to be an announcement to inform shareholders on how to vote and an equal opportunity for shareholders to share their opinion and pose questions during the meeting as per the meeting guideline. At every shareholders meeting, the Bank’s Board of Directors, executives and the auditor must be present to provide additional information and answer queries from our shareholders. Responsibility towards the shareholders: The Bank’s Board of Directors looked after the executives

and employees to ensure everyone perform their duties honestly and take responsibility for the results of their action. All the shareholders can be confident that all of the Bank’s decisions and actions were done with the shareholders’ best interest in mind. Moreover, shareholders at the shareholders meeting can share their opinion, vote on key modifications, including election of the member(s) of the Bank’s Board of Directors and their remuneration, allocation of net profit and dividend payment, appointment of the auditor and the associated remuneration. Rights of other stakeholders : The Bank firmly believes in fairness and good virtue for other

stakeholders in order to build strong and on-going business relationships. The Bank pledged to treat all stakeholders, namely executives, employees, business partners, creditors, competitors, and society in general, in the same manner and do not selectively treat any one unfairly. The Bank vowed not to make decision based on personal relationships and provide equal opportunity for everyone regardless of race, nationality, religion or sex. Furthermore, the Bank placed great emphasis on their community and social responsibilities as if it’s our main mission. The Bank’s conducts toward each group of stakeholders can be summarized as follows:

Executives and Employees The Bank recruited people that are knowledgeable, capable and has experience to join the company on an equal opportunity basis, and then develop the person to have management capability. The remuneration varied depending on the individual’s performance and achievements as compared to others in the same position at other banks.

Customers The Bank focuses on providing high-quality and appropriate financial products and services along with expert advice at a reasonable rate.

KIATNAKIN BANK

Business Partners/Creditors The Bank dealed impartially with all business partners/creditors based on the foundation of business development that gives fair return for both parties and strict adherence to the agreed terms and conditions. Whenever there is a disagreement, both parties shall discuss and find a win-win resolution, while striving to maintain good business relationships in the long-term.

Competitors The Bank’s dealings with our competitors are within the related laws and good corporate governance.

Community and Society The Bank adhered to the country’s policy as well as conduct itself according to the related laws and regulations. The Bank promotes democracy with our King as the leader; conducts business with responsibility and promotes various activities that are beneficial to society, community and locality.

❏ Disclosure of Information and Transparency The Bank has a policy which emphasizes the disclosure of the Bank’s financial and general information through the Stock Exchange of Thailand, internet HYPERLINK çhttp://www.kiatnakin.co.thé and investor relations unit. Investor relations The Bank instilled investor’s confidence through disclosure of information

that are correct, complete, timely, transparent, and equally within the laws and regulations. The Bank set up an çInvestor Relations Unité to take responsibility in communicating with the shareholders, investors, analysts, and the Stock Exchange of Thailand. Conflicts of Interests The Bank has a policy for conducting related party transactions for the

Bank and its subsidiaries as defined by the Stock Exchange of Thailand and the Bank of Thailand. It’s mandatory that the Bank and its subsidiaries adhere to the policy and procedures. In addition, the Bank incorporated these procedures into the Professional Ethics Manual for the directors, executives and employees and made it clear that any deviations may cause conflicts of interests with the Bank. Usage of Internal Information As stated in the Professional Ethics Manual, the Bank prohibits

directors, executives and employees from using the Bank’s internal information to purchase shares or disclose such information to others for the purpose of buying or selling shares on the market.

❏ Internal Control and Risk Management Internal Control and Internal Audit Systems

The Bank required executives in charge to examine and report on the internal control system and allowed the Internal Audit Office to conduct regular reviews in order to monitor the management operation within the Bank. The purpose of the self evaluation and audits is to ensure that executives and employees operate with strict adherence to the regulations, which includes the Bank’s Operations Manual as well as Approval Manual

Risk Management System The Bank consistently and continuously places great emphasis on the

risk management by establishing an independent Risk Management Unit that operates with international standards in order to assess and analyze potential risks in the Bank’s operation. The Unit is also responsible for setting up elimination, prevention and control measures in order to reduce the existing and expected risks.

❏ Professional Ethics The Bank developed a Professional Ethics Manual and Code of Conducts for directors, executives and employees to use as operations guideline and consistently adhere to these ethical standards as outlined in the manual until it becomes the main work principles.

26 Annual Report 2005

Annual Report 2005 27

In addition, the Bank made the Professional Ethics Manuals available for distribution, public relations, regular assessment and reporting to the Board of Directors. The details of good corporate governance have already been disclosed in the Bank’s website HYPERLINK http://www.kiatnakin.co.th and details to appropriately Supervise Various aspects of the business are as follow.

❏ Shareholders and Stakeholders Rights for Stakeholders

Equal Rights for Shareholders The Bank’s policy stipulates that the ordinary shareholders meeting must be held once a year and within four months from the date of the accounting year-end. The Bank sent out meeting invitations and agenda to all the shareholders at 14 days prior to the meeting dates. Each agenda item included the opinion of the Board of Directors, which was recorded accurately, completely and sufficiently for the shareholders to use to arrive at their voting decision. In addition, the Bank selected a meeting location that was convenient for all the shareholders. Shareholder(s) who were not able to attend the meeting can send a proxy to the meeting to make inquiries and vote in his/her place. Details of the 2006 general shareholders meeting can be found in the bank’s website, HYPERLINK çhttp://www.kiatnakin.co.thé 21 days prior to the meeting.

The Bank places great emphasis on the rights of each group of stakeholders through our policies which look after all stakeholders, both externally and internally, such as employees and executives from the Bank and its subsidiaries and individuals and/or related businesses. The Bank’s guidelines for handling such transactions were clear, fair, transparent and auditable. Moreover, the Bank publishes the details of such transactions in the Notes to the Financial Statements every quarter as well as in the Annual Report. We realized that strong stakeholders’ support can enhance the Bank competitiveness, which ultimately leads to our long term success. The Bank has mechanisms to protect those who reported the wrongdoing or conducted related party transactions that was certain to caused damaged to the Bank. The Bank has the following guidelines for each group of stakeholders:

Customers The Bank believes our customers are the key supporters that enable the Bank to achieve our main goals; therefore, the Bank is determined to deliver a high quality of service by making sure that our staff members have in-depth knowledge on our customer’s business as well as continuously building new and innovative products and services for our customers. For these reasons, the Bank is obligated to continually develop our work systems, branch network and technology in order to provide speedy, accurate and superior services. To facilitate service improvements, the Bank has provided a means to receive customer feedback from our website www.kiatnakin.co.th. Alternatively, customers can send in information to the Bank’s Audit Office. Employees The Bank considers our staff members to be our most important assets; therefore, the Bank continuously enhances the efficiency of our personnel management system in order to maintain and develop quality personnel and achieve the Bank’s main goals. We achieved this by making sure that the work environment is conducive to conducting business; the management of compensation and employees’ welfare is appropriate and competitive with the market rates; as well as the arrangement of a number of training courses to develop the skills and capability of our personnel so that everyone is able to progress in their chosen field.

KIATNAKIN BANK

KIATNAKIN BANK Creditors The Bank continues to strictly adhere to the agreed terms and conditions it had with creditors, while being deeply grateful to our creditors’ and depositors’ for their continuous support and trust, especially during the past crisis. Business Partners The Bank acknowledges the importance of our business partners because their support made a significant contribution to the Bank’s success. The Bank continues to strictly adhere to the agreed terms and conditions it had with our partners, which are based on the concept of succeeding together as business partners. Social, Community and Environmental Responsibilities Kiatnakin Bank Public Company Limited whose purpose is to create value for shareholders while being mindful of the social, community and environmental responsibilities. Aside from generating employment opportunities in the area where the Bank has expanded its network to, the Bank also adhered to the policy of continual sharing and contributing back to the community. We have provided on-going support in education, such as being a co-host for The Bangkok Business Challenge 2002 Contest for four consecutive years. We worked together with the World Vision Foundation in providing bicycle as for children in the provinces. In addition, we supported Kiat Ruammit Education Fund Foundation in the Give One Get Two With Revenue Department Project in which we created a new computer training room that met the Education Department’s standard. The Bank also promoted Buddhist religion through an on-going sponsorship of meditation training for wisdom development and peace through the Young Buddhist Association of Thailand. Futhermore, as a means to contribute to the community, we have been continuously making donations and assisting the Tsunami victims The Bank aims to instill the concepts of environmental and energy conservation in our executives and employees. We have issued energy conservation measures relating to the usage of electricity, telephone, water and office equipments. These social, community and environmental responsibilities are consistent with the wishes of our founder who is determined to operate a sound business that go hand in hand with high level of social responsibilities. Shareholders Meetings _

The Bank has a policy that requires the Bank’s Chairman, Chairman of the Audit Committee, and Chairman of all other sub-committees, and the auditor attend every shareholders meeting in order to provide additional information and answer queries from our shareholders. In the past year, the Bank’s Chairman and all the Chairmen that headed each sub-committee attended the meeting. In addition, the Chairman of the Meeting has duly given equal opportunities to all shareholders to examine the Bank’s operations, pose questions, share their opinion and make various suggestions including nominations for new Directors.

❏ Directors Corporate Governance Policy The Bank’s Board of Directors places great significance on good corporate governance in order to raise the level of transparency and business capability, thereby boosting the confidence of our shareholders, investors and all related parties. They have established a policy on corporate governance which directs the Bank’s business operations while emphasizing the Bank’s control and internal audit system. Its goals are to ensure the Bank’s executives effectively adhere to the policy within the legal limitations and business ethics, to assess the director’s performance internally, and to enable directors to review the internal controls process.

28 Annual Report 2005

Annual Report 2005 29

In addition, the Risk Management Committee and the Nomination and Remuneration Committee have been appointed to maintain good corporate governance. To further promote common knowledge and understandings, the Bank has distributed the policies to related parties through the Annual Report section on the Bank’s website as well as through seminars for our executives and staff members.

Leadership and Vision The Bank’s Board of Directors set and took part in the Bank’s vision, mission, strategies, goals, business plans and budget as well as supervision in order to ensure that the Bank’s executives effectively and efficiently operate the business in accordance with the set business objectives and budget. The Bank also arranged meetings to develop business plans for executives and staffs to ensure that there is a common understanding on an on-going basis. The Board of Directors ensured that the Bank has a reputable system for internal control, corporate governance and risk management. Additionally, all of the Bank’s directors have received training from the Thai Institute of Directors Association (IOD). The Bank’s Board of Directors and Executive Board have responsibilities according to their duties towards the shareholders. There is a system which clearly separates the roles and responsibilities between the Board of Directors and Executive Board and between the Board of Directors and shareholders. All details are provided in the Management Structure Section of the Annual Report.

Balance of Power for Directors not on the Executive Board

Self Assessment of the Bank’s Board of Directors

The Board of Directors has 9 members, consisting of six non-Executive Board members and three Executive Board members. Out of the six non-Executive Board members, five are independent directors, three are on the Audit Committee and two are on the Nomination and Remuneration Committee.

The Bank’s Board of Directors conducted an annual self assessment in order to review the Board’s performance over the past year to determine whether they have carried out their duties completely and appropriately as per their jurisdiction and the principles of good governance. The Audit Committee gathered all the assessments and summarized them.

Consolidation or Separation of the Director’s Position The Bank’s Chairman is not an independent director, nor is he the same person as the Bank’s Managing Director; therefore there is a clear separation of responsibilities between policy setting and dayto-day operations. The Bank’s definition of an independent director is as follows: Such director: _

Can hold no more than 5% of the total number of voting shares that belongs to the Bank, its subsidiary companies or joint-ventures, or a person that may have conflicts of interest with the Bank (including a person that is involved according to Section 258 of the Securities and Exchange Act BE 2534).

Can not be involved with the management of the Bank. The person is not someone who work for the Bank; is a staff member of the Bank; a consultant who receives regular income from the

KIATNAKIN BANK

KIATNAKIN BANK Bank; has the authority over the Bank, its subsidiary companies or joint ventures; or may have conflicts of interest with the Bank. Such a person must not receive any gain or suffer any loss from providing such service to the Bank as mentioned above for at least one year. _

Has no business relationship or receives any gains or loss, whether directly or indirectly, from the financial and managerial position with the Bank, its subsidiary companies or jointventures, or a person that may have conflicts of interest that may lead to the loss of independence.

_ Is not a close relative of any members of the Bank’s management, a major shareholder of the Bank, its subsidiaries companies or joint ventures, or a person who may have conflicts of interest. Any such person is prohibited from being appointed in order to look after the interest of the Bank’s directors and major shareholders. Other Committees The Bank’s Board of Directors appointed the Audit Committee, the Risk Management Committee and the Nomination and Remuneration Committee to assist the Bank’s executives in supervising the business. Details of the committee’s responsibilities and authorities are described in the Management Structure Section of the Annual Report. The Board Meeting The Board of Directors scheduled the Board Meetings in advance with a clearly defined agenda. The Secretary of the Board of Directors is responsible for arranging the meetings and sending meeting invitations along with the agenda, which included the objectives and explanations to each item of the agenda, to members of the Board at least seven days in advance. These tasks are carried out to allow sufficient time for the directors to consider matters prior to attending each meeting. In 2005, the Bank’s Board of Directors held eight meetings, each lasting approximately three hours. For each meeting, the meeting minutes was formally prepared, endorsed by the Board, and made available for the Board and other related parties to examine.

30 Annual Report 2005

Annual Report 2005 31

The Board of Director Meeting Attended in 2005 Unit : Attended / No. of Meeting held

Nomination & Remuneration Committee _

Board of Directors

Executive Boards

Audit Committee

Mr. Supol Wattanavekin

8/8

Ms. Nawaaporn Ryanskul

7/8

14/15 _

Mr. Tarnin Chirasoonton

7/8

6/6 _

Assoc. Prof. Manop Bongsadadt

6/8

4/4

Mr. Pichai Dachanapirom

8/8

Mr. Chet Pattrakornkul*

4/4

6/6 _

Mr. Tawatchai Sudtikitpisan

8/8

14/15

Mr. Pravit Varutbangkul

8/8

Mr. Suraphol Kulsiri

8/8

13/15 _

Mr. Somboon Chaidechsuriya**

1/3

1/2

3/3 _

Number of Meetings Attended

Number of Committee

% of meetings attended*

Risk Management Committee

Management Committe

Investment Committee

100

Asset and Liabilities Management Committee

Information and Technology Committee

Lending Committee

Corporate Lending sub-committee

Retail Lending sub-committee

Asset Foreclosed sub-committee

Name

* **

_ 3/3 2/3 _ _

The committee was nominated since April 25, 2005 The committee was resigned since April 7, 2005

The Board of Director and sub-committees Meeting attended in 2005

Remark : average % of meetings attended

Conflicts of Interest In order to prevent any conflicts of interest, the Bank’s Board of Directors exercised utmost care in monitoring transactions, which may potentially cause conflicts. The Board formally set up policies and procedures for the approval of related transactions. Bank’s executives must report any changes of their securities holding to the Securities and Exchange Commission (SEC), as per Article 59 of the Securities Exchange Act (BE 2535). In addition, the Bank’s directors involved with the related transactions must abstain from voting due to conflicts of interest.

KIATNAKIN BANK

KIATNAKIN BANK In additional, procedures in dealing with transactions with related parties have also been established. Directors or management staff involved will not attend the meeting while discussing the particular agenda, the approval must be unanimous. The transaction must be carried out as normally done with any outside parties. All documents must be maintained for any future review with detail disclosure in the annual report and Form 56-1.

❏ Internal Control and Internal Audit Systems The Bank placed great emphasis on having efficient internal control system, both at the management and operational level. Operational staffs’ and executives’ authority was clearly and formally defined in writing. Control was instigated to ensure that all assets are used to create benefits in the most optimal way. The duties of the operational staffs, supervisors and approvers were separated in order to create an appropriate check and balance system and proper audit capability. Financial reports also had their own control system, and the reports were regularly submitted to the responsible executive. The Bank has an Internal Audit Office to maintain the confidence that our major work and key financial activities were carried out effectively and as designated. Our Audit Office conducted auditing work that was consistent with both internal and legal requirements. To maintain its independence and a system of checks and balance for our Internal Audit Office, the Board of Directors instructed the Internal Audit Office to report their audit finds directly to the Audit Committee and the Board of Directors. Another area of great importance to the Board of Directors is risk management. The Risk Management Committee and Risk Management Unit have set up protective measures and steps in managing the risks. These measures were closely monitored to ensure compliance with the related laws and regulations. Appropriate reports were duly prepared which recorded all risks related matters. Furthermore, the Bank’s Board of Directors developed and distributed the Internal Control Assessment Form in order for each director to review and evaluate the Bank’s internal control system and determine whether it’s acceptable and stringent enough. The Internal Audit Office collected the forms and summarized the findings.

❏ Disclosure of Information and Transparency Investor Relations The Board of Directors placed great importance on disclosure of information that are correct, complete, transparent and comprehensive, which covers financial as well as general information and included important details which may impact the Bank’s share price. The Bank disseminated such information to keep investors and all related parties informed via the Stock Exchange of Thailand’s channel of communications and the Bank’s website. In addition, the Bank set up an/ Investor Relations Unit to provide information and news on the Bank’s various activities to investors, shareholders, analysts, and the general public. Investors can contact our Investor Relations Unit via telephone at 0-2680-3160-1, website: www.kiatnakin.co.th, and/ or E-mail: investor_relation@kiatnakin.co.th. Furthermore, the Bank, in co-operation with the Securities Analyst Association, continued to periodically meet with securities analysts in order to directly disseminate company related information. During 2005, the Bank held three Meetings with local securities analysts and arranged 68 interview for analysts and Bankûs executives. In addition, the Bank met foreign securities analysts six times last year, five of which were held aborad. Business Ethics The Bank has a definite stance on professional ethics. We made announcements, which served as a guide to good practice, and issued the Code of Professional Ethics for executives to ensure that all related parties used them as guideline and conduct their duties for the Bank with honesty, integrity and fairness towards the Bank and all other stakeholders. The Bank regularly communicated this message to all personnel and followed up to ensure that everyone abides by it. Seminars were conducted regularly to ensure that all staffs and the executive are aware of this issue and have the same understanding.

32 Annual Report 2005

Annual Report 2005 33

6) Policies and Methods for Monitoring Executives on Usage of Internal Information To ensure against misuse of internal information, which has not been disclosed to the general public, for personal gains, the Bank instructed the directors and executives to prepare a report on their respective shareholdings of the Bank’s securities, including their spouse and children under legal age as well as individuals related to the Bank’s directors and/or the Bank’s executives. The report must be submitted within three business days of the purchase or sale date of such securities. The Bank also emphasized honesty and integrity by prohibiting the Bank’s directors and staffs to use their position and power or opportunity at work for personal gain which may contradict the business ethics, code of conducts, professionalism, work rules and regulations or compromise the Bank’s best interest. The Internal Audit Office has been empowered to review the use of internal information and adherence to the Code of Professional Ethics. Any breach or misconducts are reported to the Audit Committee and the Board of Directors for further consideration regarding the violation of the Bank’s rules and internal control. The Bank assessed the effectiveness of the internal control system as per good corporate governance principles through the use of the following five key factors: Control Environment The Bank promoted awareness among all personnel of the necessity in having an internal control system by setting clear and measurable mission and goals, which serves as a guideline for staffs to follow; having formal written policies and operational rules that places great importance on honesty and ethics when conducting business; and having appropriate organization structure. Risk Assessment The Bank assessed the fundamental risks associated with the business according to both internal and external risk factors. The Bank’s Risk Management Committee and Risk Management Unit supervise and monitor various risks for the Bank. Control Activities The Bank provided sufficient control activities by clearly defining authorities and approval levels for transactions; establishing measures to protect assets against frauds and set up techniques to recover lost assets which included inspecting and counting assets; separating work duties; and examining transactions to ensure that they comply with the laws and related regulations. Information and Communication The Bank provided information that was up-to-date and sufficient for timely decision-making. The information was organized in a manner which facilitated ease of understanding. In addition, the Bank’s internal communications were clear and were able to fully reach every part of the organization. Monitoring and Evaluation The Bank established a monitoring and evaluation system to create assurance that the internal control system is continuously functioning and receiving appropriate modifications to reflect the changing situations and fix previous short comings. 7) Dividend Policy The Bank’s policy on dividend payments stated that no more than 60 per cent of the net income will be allocated to dividend distribution annually. The dividend policy of the Bank’s subsidiary companies is decided by the Directors on a case-by-case basis with no preset rate or amount. 8) Personnel Policy Human resources are among the essential factors for an organization’s success. The Bank realizes the value and importance of human resources and is determined to retain our highly valued personnel by adhering to Bank’s human resources vision and mission that are describe below: The Human Resources Management Vision Build and develop our human capital to achieve high competency in order to support the Bank’s expansion and create a world class human resources system that will propel the Bank to become an employer of choice

KIATNAKIN BANK

KIATNAKIN BANK The Human Resources Management Mission ■

Manage and develop personnel to raise the competency level to be in line with our business.

■ Develop the infrastructure of the management system and revise Human Resources’ role to be a strategic partner that can support and jointly develop the business in order to achieve the Bank’s goals.

In order to achieve the above vision and mission, the Bank has instigated certain strategic human resources initiatives as follows: ■

Attract and retain skilled personnel

■

Performance base reward

■

Talent pool management

■

Professional HR consultant

The Bank managed and developed personnel’s skill and competency level in 2005 by arranging various training sessions and seminars, which included courses that were mandatory, specialized, management related, and urgently needed. Some of the main courses that were offered included Risk Management, Legal Knowledge of Banking Business, Anti-Money Laundering Laws, Project Management, How to Increase Work Efficiency, Tango, Scotwork Negotiation skill, New Business & HR Management Paradigm, etc. In addition, the Bank developed an environment that fostered knowledge sharing among personnel and transferring of expert knowledge to the organization. More specifically, the Bank created a central knowledge repository for personnel to communicate/transfer knowledge among each other, which includes Wisdom Hour Project that allowed personnel to have an on-going exchange regarding their work experience and oversight. In 2006, the Bank plans to increase the management efficiency and develop personnel by initiating the following programs: ■

HRIS (Human Resource Information System) to assist in the management of personnel data and increase management efficiency ■ KK

Knowledge Society to promote an environment of sharing and learning together, which is the source of the organization’s knowledge regarding enhance quality of work and life, professional journals, newsletters, and newspapers to promote better balance between work and personal life ■

Talent Management Programs

■

Voice to U...Campaign to foster work culture as per the Bank’s Values

5. Related Party Transactions Details regarding related persons and businesses are described in Note #33 in the Financial Statements.

6. Analysis of the Bank’s Financial Situation and Operating Performance Operating Results The Bank’s consolidated financial statements record its first year as a full service commercial bank with a net profit before tax of Baht 2,711 and after tax of Baht 2,436 for the 2005, compared to the last period as a finance company with an improvement of 15.84% and 10.33%, respectively. It also posts an improvement in revaluation gain of the investment in financial claims of Baht 138 million and a deterioration of the investment in equity of Baht 70 million respectively, from year-end 2004.

34 Annual Report 2005

Annual Report 2005 35

Business Performance Kiatnakin successfully transformed into a full service commercial bank on October 3, 2005. The overall strategy on the asset side is to remain in retails and engage in business that it possess an expertise. The company continues to pursue its five main business products, which includes managing the investment in financial claims, providing general loans, residential project loan, hire purchase loans and conducting the securities brokerage business. 1) Investment in Financial Claims (Unit: Baht Million) Investment in Financial Claims

2005

2004

2003

From FRA, in Funds From FRA, in Kiatnakin From Loan Execution Department, in Kiatnakin

5,105 578 4,471

5,565 1,481 4,455

6,117 1,840 1,507

10,154

11,501

9,464

Total

Kiatnakin Bank made a stable progress in manage its investment in financial claims. In 2005, it was also able to acquire a small amount of Baht 1,014 million from the Loan Execution Department with a cost of 262 Baht million. The total outstanding of investment in financial claims decreased to Baht 10,154 million in 2005 from the end of 2004 at Baht 11,501 million. Over the period, the Financial Institutions Development Fund (FIDF) held an auction through the Loan Execution Department for the remaining financial claim loans from the 56 finance companies that were shut down in 1997, for a total amount of Baht 10,741 million, but only Baht 4,170 million were successfully carried out. 2) General Loans About one third of these loans were commercial loans that were made prior to the crisis. Efforts were made to restructure or liquidate these loans and it is expected that the process will be finalized in the similar manner and time frame as the investment in financial claims. Another portion of loans in this category were restructured investment in financial claims that were booked in the bank. The remaining balances are new loans that were developed after the crisis. These new loans will replace the continuous decrease in the investment in financial claims. All commercial loans, excluding residential project loans and hire purchase loans will be booked in this category. 3) Residential Project Loans The bank started to build up a loan portfolio, which consisted of refinanced loans from other financial institutions. They were project loans provided to small developers of residential projects, and can be treated as loans made to small and medium size business. These loans were generally made to partially finished housing projects in the beginning phase. Since most of these projects were mostly completed by 2003, financing of new projects already took place in 2004. The responsible loan unit was given a mandate to build up a residential project finance portfolio that covers all the provinces countrywide. By the end of 2005, the bank was able to secure a portfolio of Baht 15,733 million, of which about Baht 164 million were booked in two property funds. 4) Hire Purchase Loans Hire purchase loans represented the highest percentage in Kiatnakinâ&#x20AC;&#x2122;s loan portfolio, which is consistent with the Bankâ&#x20AC;&#x2122;s strategy to concentrate the business in the area which the Bank possessed an expertise. At the end of 2005, hire purchase loans record an outstanding of Baht 23,556 million, which represented 52% of total loans. The loans were provided through the network of fifteen branches that are strategically located in various provinces all over the country. Hire purchase loan is expected to represent the highest percentage of the total loans in years to come.

KIATNAKIN BANK

KIATNAKIN BANK 5) Securities Brokerage Service Kiatnakin Securities continued to concentrate on retail customers. It has closed one office in Phrae and open one office in Chantaburi in 2005 making the total of 23 throughout the country.

Financial Statement Analysis 1) Interest and Dividend Income (Unit: Baht Million) Interest and Dividend Income Loans and Deposits Hire Purchase Securities Investment in Financial Claims Total

2005

2004

2003

2,285 2,093 127 1,084

1,795 1,490 138 1,027

1,895 856 139 1,283

5,589

4,450

4,173

Total interest revenues increased to Baht 5,589 million in 2005 from Baht 4,450 million in 2004, an improvement of Baht 1,139 million or 25.6%. The improvement was accounted for by the overall loan growth during the year. The interest revenue for hire purchase loans increased from Baht 1,490 million to Baht 2,093 million, or 40% over the year in conjunction with the loan growth of 30%. The interest revenue for other loan products increase from Baht 1,933 million to Baht 2,412 million, or 25% over the year in conjunction with the loan growth of 14%. Interest revenues on investment in financial claims, while cannot be very well forecasted, remained about the same level of the previous year with a slightly lower success rate in restructuring process. 2) Interest Expense Total interest expenses increased to Baht 1,516 million in 2005 from Baht 961 million in 2004, an increase of Baht 555 million, or 58%. Total funding requirement for the year increased to Baht 49,855 million from Baht 40,853, or 22% to support the loan growth over the period. Almost all of the increases were accounted for by public deposits. 3) Loan Recoveries/Loan Loss Provisions (Unit: Baht Million) Provisions for Doubtful Accounts Total Allowance, 1 January Recoveries Provisions for bad debt and doubtful accounts Charged off Total Allowance, 31 December

2005

2004

2003

3,611 18 724 (470)

3,112 47 625 (173)

459 109 2,557 (13)

3,883

3,611

3,112

With a stringent loan classification model combined with the conservative loan losses reserve policy, the Bank set aside another Baht 724 million of loan provision in 2005. As a result, the reserve for loan losses at year-end 2005 stood at Baht 3,883 million against the required reserve of Baht 2,310 million, or a coverage of 168%.

36 Annual Report 2005

Annual Report 2005 37

4) Non-Interest Income Non-interest revenues increased to Baht 1,534 million in 2005 from Baht 1,439 million in 2004. Brokerage fee income and gain from securities trading deteriorated somewhat due to overall market condition. An improvement was made in the earning in financial claim due to the progress in the restructuring process achieved over the year.

5) Operating Expense With the additional expense incurred in transforming itself from a finance company to a full service commercial bank, the total operating expenses remained under controlled. The total operating expenses, excluding the uncontrollable items composed of fees paid to FIDF, business taxes and provision for off balance sheet commitment amounted to Baht 1,804 million in 2005 and was slightly higher than 2004 figure of Baht 1,677 million. This translated into an expense/revenue ratio of 0.35, a slight improvement from last year at 0.38.

Financial Position Assets (Unit: Baht Million) Assets Net Investment in Securities Investment in Financial Claims Investment in Property Funds Business Loans and Receivables Securities Business Receivables Allowance for Doubtful Accounts Properties Foreclosed Premises and Equipments Other assets Total Assets

2005

2004

2003

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

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

3,570 9,464 301 22,926 1,378 (3,112) 4,273 236 3,635

68,051

57,454

42,671

On a consolidated basis, the Bank ended 2005 with the total assets of Baht 68,051 million, an increase of Baht 10,596 million or 18% from Baht 57,455 million last year. There was growth in all core assets especially in business loans. Core assets included: Investment in Financial Claims, Investment in Property Funds, Business Loans and Property Foreclosed. More details of each major type of assets are as follows: (Unit: Baht Million) Core Business Investment in Financial Claims Investment in Property Funds Loans to Finance Business Allowance for Doubtful Accounts Properties Foreclosed Total Core Assets

2005

2004

2003

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

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

9,464 301 22,926 (3,112) 4,273

57,940

50,470

33,852

KIATNAKIN BANK

KIATNAKIN BANK 1) Net Investment in Securities Investment in securities increased to Baht 3,705 million from Baht 2,714 million in 2003. The bank normally invests temporary excess liquidity in government bonds. According to the present regulation, up to 6% of the 7% cash reserve requirement can be maintained in government bonds or debt securities issued by various states enterprises. In 2003, the bank began to have a meaningful portfolio of proprietary investment, which rose to Baht 698 million in 2005 from Baht 805 million in 2004. 2) Investment in Financial Claims (Unit: Baht Million) Investment in Financial Claims From FRA, set up in funds Investment in Property Funds Restructured Non-Restructured a) From FRA, set up in KK Restructured Non-Restructured From Loan Execution Dept. set up in KK Restructured Non-Restructured Total

2005

2004

2003

5,105 694 1,299 3,112 971 – 971 4,078 – 4,078

5,565 696 1,855 3,014 1,198 – 1,198 4,738 – 4,738

6,117 809 1,359 3,949 1,840 – 1,840 1,507 – 1,507

10,154

11,501

9,464

During 2005, the Bank was able to manage down the total investment claims, booked in the Funds to Baht 5,105 million from a total of Baht 5,565 million in 2004, which represented an increase of Baht 460 million or 8%. In the same token, those that were booked in the company’s book were managed down to Baht 5,049 million from Baht 5,936 million or 15% in 2004. These decrease in the outstanding amount represented success in the process of restructuring these assets. These restructuring were made in four ways: fully settled in cash, installment payment over a period of time, giving up the collaterals in lieu of cash, or the combination thereof. While installment payments were still being treated as part of the investment for those that were booked in the funds, it will be reclassified to loans for those that were booked in the company. Settlement by collateral in lieu of cash will be booked as foreclosed assets. In 2005, a small amount of Baht 262 million from the Loan Execution Department. 3) Loans to Banking Business (Unit: Baht Million) Banking Business Loans General Loans Reclassified from Restructured Inv. Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Total

38 Annual Report 2005

2005

2004

2003

6,247

5,994

6,878

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

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

2,484 4,101 293 8,144 7,904

45,536

37,417

22,926

Annual Report 2005 39

The Bank made a moderate growth in business loans in 2005. Total loans grew from Baht 37,417 million in 2003 to Baht 45,536 million, an increase of Baht 8,119 million or 23% over the year. The Bank dividedthe Total Business Loans into three categories: general loans, residential project loans and hire purchase loans. General Loans A major portion of this loan portfolio was a result of success made in restructured investment in financial claims. The increasing amount over the period was accounted for by the faster pace in the progress of restructuring in comparison to the installment payments. One third of this loan portfolio comprised of loans created prior to the crisis. The bank managed these loans by either improving the quality through restructuring process and maintaining them as normal loans or liquidating them through a settlement process. Continuous progress was made in restructuring problem loans during the year. A small amount of Baht 400 million in new loans was also booked over the period. As a result, general loans increased slightly over the period to Baht 6,247 million to Baht 5,994 million, or about 4%.

Residential Project Loans The bank continued to finance new residential projects, mostly to the same operators with proven track records. At the end of 2005, we were able to support more than 257 projects and recorded a total amount of Baht 15,733 million for this type of loans plus another Baht 164 million booked in two property funds, compared to Baht 13,326 million and Baht 213 million in 2004. While these projects were financed strategically countrywide, 68% were made in the greater Bangkok area. Most of these projects are medium size single house/townhouse units. Following are two charts illustrating the demographic in term of loan outstanding by location and type of projects.

Classified by Location

Northeast 6% Central 7%

North 2%

Classified by Types

Res. Condo 6%

Commercial 4%

South 8% East 10%

Greater Bangkok 68%

Single / Town House 90%

Hire Purchase Loans Hire purchase loans have also achieved a satisfactory growth rate. The bank was able to record an outstanding loan of Baht 23,556 million at year-end 2005, an increase of Baht 5,459 million from Baht 18,097 million in 2004, or about 30%. A large percentage of its hire purchase loans portfolio was still in the used car financing. Following are two charts illustrating the demographic in term of accounts by vehicle type and in term of loan outstandings by new/used vehicles.

KIATNAKIN BANK

KIATNAKIN BANK Classified by location

Others 5% (3,238 account)

Classified by type

Sedant 34% (38,471 account)

New cars 41%

Used cars 49%

One ton pick-up vans 61% (74,946 account)

4) Classified Loans The bank continued to maintain a rather stringent loan classification model, especially for the residential project loans. Residential project loans were not only classified as a breach in financial commitment, they were also classified as a breach in progress rate of developing, progress of sales, etc. Details of classification in each type of loan are shown in the table below: (Unit: Baht Million) Classified Loans General Loans Reclassified from Restructured Inv. Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Total

2005

2004

2003

895 1,770 141 4,122 1,132 8,060

1,099 2,119 58 2,185 693 6,154

431 2,030 40 338 243 3,082

5) Allowance for Possible Loan Losses The Bank issued a conservative loan reserve policy to closely match with the loan classifications. The objective was to maintain a loan reserve policy, which is more stringent than the requirement of the Bank of Thailand at all time. Details of loan reserve for each type of loans are shown in the table below. (Unit: Baht Million) Allowance for Doubtful Accounts (Bank)

Actual

Required

Excess

624

490

134

1,157

1,060

1,226

115

1,111

791

609

182

3,849

2,295

1,554 _

3,864

2,310

1,554

General Loans Reclassified from Restructured Inv. Claims Old Loans New Loans Residential Project Loans Hire Purchase Loans Total Interbank and money market Grand Total

40 Annual Report 2005

Annual Report 2005 41

6) Property Foreclosed The total outstanding property foreclosed increased to Baht 5,969 million in 2005 from Baht 4,950 million in 2004 or about 20%. The total sales of foreclosed assets for 2005 amounted to Baht 1,425 million. A total amount of Baht 2,224 million of assets has been acquired by litigation process and by the process of negotiation for a settlement in lieu of cash. The majority of these assets are land and residential house in the greater Bangkok area. The followings chart shows the breakdown in term of amount by location and by type.

Classified by type

North 7%

Classified by new/used

South 5%

Cars 4% Resident 3%

Other 0%

Northeast 10% East 8% Housing 29% Central 13% Greater Bangkok 57% Lands 63%

Liabilities and Shareholders’ Equity (Unit: Baht Million) Liabilities and Shareholders’ Equity Checking Deposits Savings Deposits Time Deposits Debentures Total Borrowings and Deposits Capital Retain Earnings Unrealized Gain/(Loss) on Invest in Fin. Claims Unrealized Gain/(Loss) on Invest in Securities Total Shareholders’ equity

2005

2,004

2,003

43,420 6,435 49,855 7,483 8,213 503 (29)

34,418 6,435 40,853 7,167 6,882 365 41

19,748 6,435 26,183 5,924 6,166 377 368

16,170

14,455

12,835

1) Deposits and Borrowings Kiatnakin has been successfully transformed from a finance company into a full service commercial bank since October 3, 2005. While it is now able to take checking and savings deposit in all the existing branches, it is not the bank’s strategy to aggressively sell these products in this early stage. The bank, however, continues to expand its deposit base as well as to decrease the concentration of the deposit amount. In that, the bank is successful in increasing its time deposits base by increasing the number of accounts by 23% over the year. To support the loan growth, the total deposits at year-end increased to Baht 43,420

KIATNAKIN BANK

KIATNAKIN BANK million in 2005 from Baht 34,418 million in 2004, or 26%. A conservative gap between the company’s assets and liabilities is being managed closely to maintain a comfortable level of liquidity risk. At the end of 2005, almost 49% of total funding carried a maturity profile of over 12 months. The fix and floating interest rates have also been closely managed to prevent the bank from the upward trend of interest rate. 1.1) Shareholders’ Equity (Unit: Baht Million) Equity Beginning of the year Dividends payment Conversion of warrants Net profit Improvement/(Deterioration) Profit/(loss) in investment Improvement/(Deterioration) Profit/(loss) in investment

of unrealized in financial claims of unrealized in securities

Ending of the year

2005

2004

2003

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

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

9,903 (703) 326 2,065

138

(12)

952

(70)

(327)

292

16,170

14,454

12,835

The shareholders’ equity increased to Baht 16,170 million in 2005 from Baht 14,454 at the end of 2004 an increase of Baht 1,716 million, or about 12%. This was mainly due to three reasons: 1) warrants conversions during the year 2) net profit generated for the year and some pay out of dividend during the year 3) an improvement in revaluation of investment in financial claims as well as an improvement in unrealized gain of investment in securities. At year-end 2005, the bank’s BIS ratio stood at 24.61%.

42 Annual Report 2005

Annual Report 2005 43

Profiles of Kiatnakinâ&#x20AC;&#x2122;s Directors and Executives

Name-Surname/ Age Position (1) (Yr.)

1. Mr.Supol Wattanavekin Non_

Executive Director **

2. Ms. Nawaaporn Ryanskul

Education / Training

Number* Family of ShareRelationship holding with the executives (%)

_ Master of Business 11,105,510 Brotherâ&#x20AC;&#x2122;s Head of shares Treasury and Administration (Executive), Sasin (2.24%) Funding Graduate Institute of Business Administration of Chulalongkorn University _ Orchestrating Winning Performance 2005 (IMD) _ Board & CEO Assessment, Thai Institute of Directors (IOD) _ Chairman 2000, Thai Institute of Directors (IOD) _ Master of Business Administration (ECON), University of California at Los Angeles, U.S.A. _ Directors Certification Program (DCP 1/2000) Thai Institute of Directors (IOD) _ Audit Committee Program (ACP11/2005) Thai Institute of Directors (IOD)

Work Experiences in 5 years Period

2005 _ Present Chairman

2005 _ Present Chairman of the Executive board 2004 _ Present Director

1999 _ Present Director 1986 _ 2005

1986 _ 2005

Name of Company

Position

Chairman Chairman of the Executive board

2005 _ Present Independent Director and Chairman of the Audit Committee Independent June 2004 _ 2005 Director and Chairman of the Audit Committee Dec. Appeals _ 2000 Present 1989 _ Present Committee

1987 _ Present Director

Kiatnakin Bank Public Company Limited Kiatnakin Bank Public Company Limited The Erawan Group Public Company Limited Kiatnakin Securities Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

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

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005 ** Do not have authority in the subsidiary company, Kiatnakin Securities Company Limited, as a Director

KIATNAKIN BANK

KIATNAKIN BANK Name-Surname/ Age Position (1) (Yr.)

3. Mr. Pichai Dachanapirom Non_ Executive Director

Education / Training

_ Bachelor of Accountancy, Thammasart University Directors Certification Program (DCP 32/2003) Thai Institute of Directors (IOD) _ Audit Committee Program (ACP 9/2005) Thai Institute of Directors (IOD)

Number* Family of ShareRelationship holding with the executives (%) 25,000 shares (0.01%)

Work Experiences in 5 years Period

Position

2005 _ Present Independent Director and Member of the Audit Committee Independent 1994 _ 2005 Director and Member of the Audit Committee _ 2003 Present Executive Director _ 2001 Present Executive Director _ 1998 Present Executive Director _ 1998 Present Executive Director 1998 _ Present Executive Director 1990 _ Present Executive Director _ 1989 Present Executive Director _ 1984 Present Executive Director

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

44 Annual Report 2005

Name of Company Kiatnakin Bank Public Company Limited

Kiatnakin Fianance Public Company Limited

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

Annual Report 2005 45

Name-Surname/ Age Position (1) (Yr.)

4. Mr. Tarnin Chirasoonton Non_ Executive Director

Education / Training

Number* Family of ShareRelationship holding with the executives (%)

_ Bachelor of Law, 32,500 Ramkamhaeng shares University (0.01%) _ Directors Certificate Program (DCP10/2001), Thai Institute of Directors (IOD)

Work Experiences in 5 years Period

Position

2005 _ Present Independent Director and Chairman of the Nomination and Remuneration Committee 2004 _ 2005 Independent Director And Chairman of the Nomination and Remuneration Committee Independent 2003 _ 2004 Director and Member of the Nomination and Remuneration Committee 2001 _ 2004 Independent Director and Chairman of the Audit Committee _ 1999 2001 Independent Director and Member of the Audit Committee

Name of Company Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

KIATNAKIN BANK

KIATNAKIN BANK Name-Surname/ Age Position (1) (Yr.)

5. Assoc. Prof. Manop Bongsadadt Non_ Executive Director

Education / Training

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

Number* Family of ShareRelationship holding with the executives (%) _

Work Experiences in 5 years Period

Position

2005 _ Present Independent Director and Member of the Nomination and Remuneration Committee, Member of the Audit Committee _ 2005 2005 Member of the Audit Committee 2004 _ 2005 Independent Director and Member of the Nomination and Remuneration Committee 2004 _ Present Chairman of the Audit Committee _ 2004 Present Director

2003 _ Present Chairman

2002 _ Present Associate Professor _ 1989 Present Chairman 1989 _ Present Chairman

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

46 Annual Report 2005

Name of Company Kiatnakin Bank Public Company Limited

Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

N.C. Housing Public Company Limited The Erawan Group Public Company Limited Rasa Property Development Public Company Limited Chulalongkorn University Waterford Company Limited Four Aces Company Limited

Annual Report 2005 47

Name-Surname/ Age Position (1) (Yr.)

6. Suraphol Kulsiri Non_ Executive Director ***

7. Mr. Chet Pattrakornkul Non_ Executive Director

Education / Training

Number* Family of ShareRelationship holding with the executives (%)

_ Bachelor of 50,000 Marketing, Bangkok shares (0.01%) University _ Directors Certificate Program (DCP13/2001), Thai Institute of Directors (IOD) _ Master of Marketing (Certificate program), Thammasart University _ Directors Certificate Program (DCP9/2001), Thai Institute of Directors (IOD)

_ Master of Markeing (Certificate program), Thammasart Unaversity _ Director Certificate Program (DCP9/2001) Thai Institute of Director (IOD)

Work Experiences in 5 years Period

Position

Name of Company

2005 _ Present Independent Director and Member of the Nomination and Remuneration Committee 2004 _ 2005 Independent Director and Member of the Nomination and Remuneration Committee 2003 _ Present Chief Executive Officer _ 1999 2003 Managing Director

Kiatnakin Bank Public Company Limited

2005 _ Present Independent

Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited

2002 _ 2005

2000 _ 2002

Director Head of Consumer Lending Assistant Managing Director

Kiatnakin Finance Public Company Limited

Kiatnakin Securities Company Limited Kiatnakin Securities Company Limited

Kiatnakin Finance Public Company Limited

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005 *** Have authority in Subsidiary company, Kiatnakin Serurities Company Limited, as the chief executive officer.

KIATNAKIN BANK

KIATNAKIN BANK Name-Surname/ Age Position (1) (Yr.)

8. Ms. Thitinan Wattanavekin Non_ Executive Director **

9. Mr. Tawatchai 46 Sudtikitpisan

Education / Training

Number* Family of ShareRelationship holding with the executives (%)

_ Master of 23,381,628 Shares Management (4.71%) Sasin Graduate Institute of Business Administration of Chulalongkorn University _ Directors Certificate Program (DCP1/2000), Thai Institute of Directors (IOD)

_ Master of Business Administration, Master of Science in Electrical Engineering The University of Texas at Austin, Texas, USA _ Directors Certificate Program (DCP3/2000), Thai Institute of Directors (IOD)

Sister没s Chairman

Work Experiences in 5 years Period

Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited Kiatnakin Securities Company Limited Director and Kiatnakin Finance Assistant Public Company Managing Limited Director

2005 _ Present President

Kiatnakin Bank Public Company Limited _ Kiatnakin Bank 2005 Present Head of Residential Public Company Project, Head Limited of Corporate Lending and Head of Consumer Lending _ Head of Kiatnakin Finance 2002 2005 Residential Public Company Project Limited Lending Kiatnakin Finance 2001 _ 2002 Assistant Managing Public Company Director Limited 1999 _ 2001 Executive Asia Recovery Director Management Company Limited

48 Annual Report 2005

Name of Company

2005 _ Present Head of Treasury and Funding _ 2002 2005 Head of Treasury and Funding 1999 _ Present Director 1987 _ 2002

Position

Annual Report 2005 49

Name-Surname/ Age Position (1) (Yr.)

Education / Training

Number* Family of ShareRelationship holding with the executives (%) _

10. Mr. Pracha Chumnarn_ kitkosol

_ Master of Business Administration (Finance) University of Texas Arlington, USA

11. Mr. Pravit Varubangkul

_ Msater of Business 100,000 shares Administration (0.02%) (Operations Research) University of Santa Clara, California, USA _ Directors Certificate Program (DCP5/2000), Thai Institute of Directors (IOD)

12. Mr. Sarawut Charuchinda Non _ Executive Director

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

Work Experiences in 5 years Period

Position

Name of Company

2005 _ Present Head of Risk Kiatnakin Bank Management Public Company Limited _ Head of Risk Kiatnakin Finance 2005 2005 Management Public Company Limited Head of Kiatnakin Finance 2004 _ 2005 Public Company Credit Committee Limited Managing Asia Recovery 1999 _ 2004 Management Director Company Limited

2005 _ Present Director, Vice Kiatnakin Bank Public Company Chairman Limited _ Kiatnakin Finance Head of 2002 2005 Public Company Central Limited Support Kiatnakin Finance Assistant 1993 _ 2002 Public Company Managing Limited Director

2005 _ Present Head of Corporate Lending 2002 _ 2005 Head of Asset Management 2000 _ 2002

Assistant Managing Director

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

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

KIATNAKIN BANK

KIATNAKIN BANK Name-Surname/ Age Position (1) (Yr.)

13. Thanawat Neamsub

14. Ms. Sineenath Tejagupta

Education / Training

_ Beachelor of Law, Ramkamhaeng

_ Master of Science in Business, Mississippi University for Woman, Mississippi, USA

Number* Family of ShareRelationship holding with the executives (%) 40,000 shares (0.01%)

Work Experiences in 5 years Period

Position

2005 _ Present Senior Executive Vice President Deputy 2002 _ 2005 Managing Director _ Assistant 1998 2002 Managing Director

Kiatnakin Bank Public Company Limited

2005 _ Present Senior Executive Vice President Deputy 2002 _ 2005 Managing Director _ 1991 2002 Assistant Managing Director

Kiatnakin Bank Public Company Limited

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

50 Annual Report 2005

Name of Company

Kiatnakin Finance Public Company Limited Kiatnakin Finance Public Company Limited

Annual Report 2005 51

Name-Surname/ Age Position (1) (Yr.)

15. Ms. Somlak Artamnoy_ vipas

16. Ms. Suree Harnpinijsak

Education / Training

Number* Family of ShareRelationship holding with the executives (%)

_ Bachelor of 7,000 shares Accounting, (0.00%) Chulalongkorn University _ Financial Executive Development Program # 13, The Thai Institute of Banking and Finance Association _ Young Bankerâ&#x20AC;&#x2122;s Executive Development Program # 9, The Thai Institute of Banking and Finance Association

_ Master of 37,500 shares Accounting, Chulalongkorn (0.01%) University _ Young Bankerâ&#x20AC;&#x2122;s Executive Development Program # 9, The Thai Institute of Banking and Finance Association

Work Experiences in 5 years Period

Position

2005 _ Present Senior Vice President 1994 _ 2005

Senior Vice President

2005 _ Present Senior Vice President 2002 _ 2005

Senior Vice President

1991 _ 2001

Vice President

Name of Company Kiatnakin Bank Public Company Limited Kiatnakin Finance Public Company Limited

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

Remark: * including with shareholding of spouse and child who is not become legal age as of Dec. 31, 2005

Every executive at Kiatnakin Bank Public Company Limited do not have a history of illegal conduct, have not declared bankruptcy, or had criminal offenses in the past ten years. (History of executives as of 31 December, 2005)

KIATNAKIN BANK

The Board of Directorsâ&#x20AC;&#x2122; Report Dear shareholders The Board of Directors is responsible for the consolidated financial statements of the Bank and its subsidiaries companies as well as the financial information which appear in the Annual Report. The financial information was prepared in accordance with the Generally Accepted Accounting Principles (GAAP). An appropriate accounting policy was chosen and consistently maintained, using the most prudent discretion and best judgment. The financial statements were also prepared based on full disclosure of essential information and are included in the Notes to Financial Statements Section. The Board of Directors established an effective internal control system to ensure that all accounting records are accurate, complete and sufficient to facilitate the Bank in maintaining all of its assets. The system helped the Bank to identify any potential weakness and prevent fraudulent or significant mismanagement of its business operations. The Board of Directors also appointed the Audit Committee, which consisted of directors who are not responsible for supervising the quality of the financial reports and internal control system. The opinion of the Audit Committee related to these matters is in the Report from the Audit Committee Section of the Annual Report. In the Board of Directorsâ&#x20AC;&#x2122; opinion, the Bankâ&#x20AC;&#x2122;s overall internal control system is satisfactory and able to confidently and credibly reflect the financial statements as of 31 December 2005 for the Bank and its subsidiaries companies.

(Supol Wattanavekin) Chairman of the Board of Directors

52 Annual Report 2005

Annual Report 2005 53

Report from the Nomination and Remuneration Committee Dear shareholders The Nomination and Remuneration Committee was appointed as per the Board of Directorâ&#x20AC;&#x2122;s resolution at 6/2003 meeting. The committee comprised of 3 members, of which two are independent directors and one is a non-executive director. The committee held three meetings in 2005, and during the past year, all the committee members conducted their duties while adhering strictly within the boundary of their responsibilities. The responsibilities of the committees are to Screen and propose candidates with suitable qualifications for various directorâ&#x20AC;&#x2122;s positions. Ensure that the overall size, level of knowledge and capability, and experience of the Board of Directors are appropriate for the Bank. Set the remuneration policy and other benefits for directors and senior executives from the Deputy Manager Director level upwards. Set the guidelines on performance appraisal for director and senior executive from the Deputy Manager Director level upwards in order to appropriately adjust the annual remuneration package. The performance appraisal takes into consideration the responsibilities, associated risks and ability to increase long-term shareholdersâ&#x20AC;&#x2122; values. The Nomination & Remuneration Committee has disclosed the remuneration in various formats, the development of remuneration reports and comments from the Remuneration Committee in the 2005 Annual Report.

(Tarnin Chirasoontorn) Chairman of the Nomination and Remuneration Committee

KIATNAKIN BANK

AUDITORâ&#x20AC;&#x2122;S REPORT To the Shareholders of Kiatnakin Bank Public Company Limited I have audited the accompanying consolidated and bank balance sheets as at 31 December 2005 and 2004, and the related consolidated and bank statements of income, changes in shareholdersâ&#x20AC;&#x2122; equity and cash flows for the years then ended of Kiatnakin Bank Public Company Limited and its subsidiaries and of Kiatnakin Bank Public Company Limited. The bankâ&#x20AC;&#x2122;s management is responsible for the correctness and completeness of information in these financial statements. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the consolidated and bank financial statements referred to above present fairly, in all materials respects, the consolidated and bank financial position as at 31 December 2005 and 2004 and the consolidated and bank results of operations and cash flows for the years then ended of Kiatnakin Bank Public Company Limited and its subsidiaries and of Kiatnakin Bank Public Company Limited in accordance with generally accepted accounting principles.

Suchart Luengsuraswat Certified Public Accountant (Thailand) No. 2807 PricewaterhouseCoopers ABAS Limited Bangkok 14 February 2006

54 Annual Report 2005

Annual Report 2005 55

KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS AS AT 31 DECEMBER 2005 AND 2004

Notes ASSETS Cash Interbank and money market items - Domestic items Interest bearing Non-interest bearing Total interbank and money market items Securities purchased under resale agreements Investment in securities Short term investments, net Long term investments, net Investment in subsidiaries, net Total investment in securities, net Investment in loans, net Investment in properties, net Trading transactions with securities companies Loans and accrued interest receivable Loans Securities business receivables Total loans and receivables Accrued interest receivable Total loans and accrued interest receivable Less: Allowance for doubtful accounts Allowance for troubled debt restructuring Net loans and accrued interest receivable Properties foreclosed, net Land, premises and equipment, net Intangible assets, net Deferred commission on hire purchase Other assets Total assets

Consolidated 2005 2004 Baht Baht

Bank 2005 Baht

2004 Baht

65,646,347

5,960,691

64,191,347

2,898,299

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

609,782,865 560,732,203

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

450,116,654 360,617,680

2,324,823,410

1,170,515,068

1,951,477,121

810,734,334

1,480,000,000

1,070,000,000

1,480,000,000

920,000,000

5 6

2,096,707,118 1,676,058,849 989,608,148 1,333,368,562 1,608,599,015 1,037,832,207 1,516,786,008 843,123,667 – – 10,786,901,035 9,792,505,845 3,705,306,133 2,713,891,056 13,293,295,191 11,968,998,074 10,154,053,219 11,501,483,308 5,048,863,689 5,936,356,475 163,894,654 213,044,504 – – 161,778,221

14,152,742

–

8 45,536,104,555 37,416,687,625 45,536,104,555 37,416,912,196 586,091,508 625,232,736 17,958,090 18,608,090 46,122,196,063 38,041,920,361 45,554,062,645 37,435,520,286 509,730,322 540,083,013 507,275,528 538,003,648 46,631,926,385 38,582,003,374 46,061,338,173 37,973,523,934 9 10

(3,648,428,773) (3,498,293,023) (3,613,835,898) (3,463,737,290) (235,491,532)

(112,482,017)

(235,491,532)

(112,482,017)

42,748,006,080 34,971,228,334 42,212,010,743 34,397,304,627 11 12 13 14

5,969,166,467 4,949,903,062 3,738,574,360 3,422,752,153 429,476,196 378,349,896 263,342,598 210,317,164 74,362,480 20,483,699 64,085,126 7,370,364 308,919,114 252,468,647 308,919,114 252,468,647 465,395,014 192,821,296 233,665,773 147,977,038 68,050,827,335 57,454,302,303 68,658,425,062 58,077,177,175

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

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT’D) AS AT 31 DECEMBER 2005 AND 2004

Consolidated 2005 2004 Baht Baht

Notes LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits Deposits in Baht Total deposits Interbank and money market items - Domestic items Interest bearing Total interbank and money market items Liabilities payable on demand Trading transactions with securities companies Securities business payables Borrowings Short term borrowings Long term borrowings Total borrowings Other liabilities Total liabilities

Bank 2005 Baht

2004 Baht

15 40,395,621,885 31,616,092,826 41,580,621,885 32,927,092,826 40,395,621,885 31,616,092,826 41,580,621,885 32,927,092,826 16 3,024,147,175

2,801,963,145

2,975,394,539

2,696,802,252

3,024,147,175 84,344,704

2,801,963,145 –

2,975,394,539 84,344,704

2,696,802,252 –

– 356,455,805

97,823,529 270,690,752

– –

1,500,000,000 – 1,500,000,000 – 4,935,000,000 6,435,000,000 4,935,000,000 6,435,000,000 6,435,000,000 6,435,000,000 6,435,000,000 6,435,000,000 1,546,674,508 1,749,360,527 1,413,181,767 1,563,665,733 51,842,244,077 42,970,930,779 52,488,542,895 43,622,560,811

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

56 Annual Report 2005

Annual Report 2005 57

KIATNAKIN BANK PUBLIC COMPANY LIMITED BALANCE SHEETS (CONT’D) AS AT 31 DECEMBER 2005 AND 2004

Notes Shareholders’ equity Share capital Registered

Consolidated 2005 2004 Baht Baht

Bank 2005 Baht

2004 Baht

Issued and fully paid-up Warrants 19 Share premium Fair value reserves on investment in loans Fair value reserves on availablefor-sale securities Retained earnings Appropriated Legal reserve Other reserve Unappropriated

7,154,600,300

4,959,732,850 43,584,809 2,479,979,786 502,607,895

4,711,011,920 90,315,082 2,365,185,571 365,052,985

4,959,732,850 43,584,809 2,479,979,786 502,607,895

4,711,011,920 90,315,082 2,365,185,571 365,052,985

(29,524,203)

40,966,159

(29,524,203)

40,966,159

558,736,906 448,312,407 558,736,906 448,312,407 380,000 380,000 380,000 380,000 7,654,384,124 6,433,392,240 7,654,384,124 6,433,392,240 16,169,882,167 14,454,616,364 16,169,882,167 14,454,616,364

Minority interests

38,701,091

28,755,160

–

Total shareholders’ equity

16,208,583,258 14,483,371,524 16,169,882,167 14,454,616,364

Total liabilities and shareholders’ equity

68,050,827,335 57,454,302,303 68,658,425,062 58,077,177,175

OFF-BALANCE SHEET ITEMS - CONTINGENCIES Aval on bills and guarantees on loans Interest rate swap

27 946,214,256

693,993,259

946,214,256

693,993,259

1,000,000,000

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

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Consolidated 2005 Baht

2004 Baht

2005 Baht

2004 Baht

2,211,186,242

1,772,479,049

2,199,545,715

1,764,366,588

76,825,410

22,775,445

78,069,017

19,408,928

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

1,489,800,162 138,438,005 1,026,491,339 4,449,984,000

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

1,489,826,416 123,018,784 162,308,420 3,558,929,136

1,177,839,206

658,446,886

1,215,560,813

670,780,257

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

37,283,282 – 256,780,436 8,165,441 960,676,045 3,489,307,955

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

37,860,111 – 256,549,637 8,165,441 973,355,446 2,585,573,690

Notes Interest and dividend income Interest on loans Interest on interbank and money market items Hire purchase and financial lease income Interest and dividend on securities Interest on investment in loans Total interest and dividend income Interest expenses Interest on deposits Interest on interbank and money market items Interest on short term borrowings Interest on long term borrowings Fees and charges on borrowings Total interest expenses Net interest and dividend income Bad debts and doubtful accounts (addition) (Loss) on troubled debt restructuring transactions 31 Net interest and dividend income after bad debts and doubtful accounts and loss on troubled debt restructuring Non-interest income Gain on disposal investment in securities Gain on revaluation of investment Impairment loss on investment in loans 7 Share of net profit in subsidiaries Brokerage fees Fees and services income Acceptance, avals and guarantees Others Loss on exchanges Gain from revaluation and sale of foreclosed assets Other income 22 Total non-interest income

Bank

(737,933,299)

(641,620,368)

(738,127,098)

(630,745,525)

(7,555,255)

(40,244,656)

(7,555,255)

(40,244,656)

3,327,711,567

2,807,442,931

2,525,976,848

1,914,583,509

80,623,293 661,970,961 (206,453,073) 1,159,648,740 –

301,809,904 347,530,203 (398,402,812) 1,068,141,339 –

64,796,599 728,797,595 (206,453,073) – 370,588,227

311,375,875 297,505,438 (398,402,812) – 529,618,843

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

17,728,521 203,413,594 –

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

17,728,521 203,050,899 –

235,541,177 75,301,114

367,859,857 109,522,578

– 68,907,113

56,453,832 82,110,790

1,533,661,812

1,438,621,894

2,034,290,109

1,678,422,676

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

58 Annual Report 2005

Annual Report 2005 59

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF INCOME (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Consolidated

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

Bank

Notes

2005 Baht

2004 Baht

2005 Baht

2004 Baht

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

761,939,215 201,327,378 121,394,645 181,626,641 10,706,667

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

474,847,081 92,968,505 119,605,316 62,528,242 8,125,000

135,916,331

84,577,879

135,916,331

84,577,879

– 731,892,948 2,147,420,463

– 521,613,857 1,883,186,282

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

– 409,766,740 1,252,418,763

2,713,952,916 (275,433,395) 2,438,519,521 (2,518,213) 2,436,001,308 4.95 4.44

2,362,878,543 (152,124,422) 2,210,754,121 (2,264,151) 2,208,489,970 4.77 4.01

2,711,434,703 (275,433,395) 2,436,001,308 – 2,436,001,308 4.95 4.44

2,340,587,422 (132,097,452) 2,208,489,970 – 2,208,489,970 4.77 4.01

25 25

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

KIATNAKIN BANK

60 Annual Report 2005

Opening Balance as at 1 January 2004 Fair value reserve Net profit Legal reserve Dividend paid Ordinary shares Warrants Closing Balances as at 31 December 2004

Opening Balance as at 1 January 2005 Fair value reserve Net profit Legal reserve (Note 35) Dividend paid (Note 35) Ordinary shares (Note 19) Warrants (Note 19) Closing Balances as at 31 December 2005

90,315,082

4,711,011,920

2,365,185,571

1,940,134,360 – – – – 425,051,211 –

2,479,979,786

2,365,185,571 – – – – 114,794,215 –

Share premium Baht

365,052,985

377,030,512 (11,977,527) – – – – –

502,607,895

365,052,985 137,554,910 – – – – –

40,966,159

368,146,955 (327,180,796) – – – – –

(29,524,203)

40,966,159 (70,490,362) – – – – –

Fair value Fair value reserves on reserves on investment available-forin loans sale securities Baht Baht

Consolidated

448,312,407

345,069,027 – – 103,243,380 – – –

558,736,906

448,312,407 – – 110,424,499 – – –

Legal reserve Baht

380,000

380,000 – – – – – –

380,000

380,000 – – – – – –

General reserve Baht

Minority interest Baht

38,701,091

16,208,583,258

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

Total Baht

6,433,392,240

28,755,160

14,483,371,524

5,820,569,967 30,915,772 12,865,925,387 – (4,424,763) (343,583,086) 2,208,489,970 2,264,151 2,210,754,121 (103,243,380) – – (1,492,424,317) – (1,492,424,317) – – 1,375,286,611 – – (132,587,192)

7,654,384,124

6,433,392,240 28,755,160 – 7,427,718 2,436,001,308 2,518,213 (110,424,499) – (1,104,584,925) – – – – –

Unappropriated retained earnings Baht

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

222,902,274 – – – – – (132,587,192)

43,584,809

4,959,732,850

3,760,776,520 – – – – 950,235,400 –

90,315,082 – – – – – (46,730,273)

Warrants Baht

4,711,011,920 – – – – 248,720,930 –

Issued and paid-up share capital Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CHANGE IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

KIATNAKIN BANK

Opening Balance as at 1 January 2004 Fair value reserve Net profit Legal reserve Dividend paid Ordinary shares Warrants Closing Balances as at 31 December 2004

Opening Balance as at 1 January 2005 Fair value reserve Net profit Legal reserve (Note 35) Dividend paid (Note 35) Ordinary shares (Note 19) Warrants (Note 19) Closing Balances as at 31 December 2005

KIATNAKIN BANK 90,315,082

4,711,011,920

2,365,185,571

1,940,134,360 – – – – 425,051,211 –

2,479,979,786

2,365,185,571 – – – – 114,794,215 –

Share premium Baht

365,052,985

377,030,512 (11,977,527) – – – – –

502,607,895

365,052,985 137,554,910 – – – – –

General reserve Baht

40,966,159

368,146,955 (327,180,796) – – – – –

(29,524,203)

448,312,407

345,069,027 – – 103,243,380 – – –

558,736,906

380,000

380,000 – – – – – –

380,000

40,966,159 448,312,407 380,000 (70,490,362) – – – – – – 110,424,499 – – (1,104,584,925) – – – – – – –

Legal reserve Baht

6,433,392,240

5,820,569,967 – 2,208,489,970 (103,243,380) (1,492,424,317) – –

7,654,384,124

–

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

Unappropriated retained earnings Baht

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

222,902,274 – – – – – (132,587,192)

43,584,809

4,959,732,850

3,760,776,520 – – – – 950,235,400 –

90,315,082 – – – – – (46,730,273)

Warrants Baht

4,711,011,920 – – – – 248,720,930 –

Issued and paid-up share capital Baht

Bank Fair value Fair value reserves on reserves on investment available-forin loans sale securities Baht Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CHANGE IN SHAREHOLDERS’ EQUITY (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

–

– – – – – – –

–

– – – – – – –

Minority interest Baht

14,454,616,364

12,835,009,615 (339,158,323) 2,208,489,970 – (1,492,424,317) 1,375,286,611 (132,587,192)

16,169,882,167

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

Total Baht

Annual Report 2005 61

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Consolidated 2005 Baht

2004 Baht

Bank 2005 Baht

2004 Baht

Cash flows from operating activities Net income for year 2,436,001,308 2,208,489,970 2,436,001,308 2,208,489,970 Adjustments to reconcile net profit to cash received (paid) from operating activities: Depreciation and amortisation 231,417,265 189,205,055 179,250,269 120,028,868 Bad debt and doubtful accounts 756,355,290 673,843,926 756,318,149 677,917,347 Provision for off-balance sheet items 63,187,776 – 63,187,776 – Provision for diminution in value of securities (14,785,113) 53,382,804 – – Provision for diminution in value of properties foreclosed (219,632,438) 30,874,475 177,013,402 108,750,712 (Gain) loss on revaluation of investment in loans and properties (34,125,218) 307,271,052 16,566,303 335,803,219 (Gain) from transfering investment in loans to loans (650,632,550) (318,659,100) (650,632,550) (318,659,100) (Gain) on disposal of securities (4,362,774) (121,463,572) (670,943) (121,463,572) (Gain) on disposal of equipment (2,538,367) (5,111,276) (1,557,986) (3,764,454) Share of net profit in subsidiaries – – (1,159,648,740) (1,068,141,339) Share of net profit in subsidiaries to minority interest 2,518,213 2,264,151 – – Profit from operations before changes in operating assets and liabilities 2,563,403,392 3,020,097,485 1,815,826,988 1,938,961,651 (Increase) decrease in operating assets Interbank and money market items (1,167,658,343) 1,418,628,939 (1,154,092,787) 297,954,556 Securities purchased under resale agreements (410,000,000) (810,000,000) (560,000,000) (660,000,000) Investment in trading and available-for-sale securities (445,826,091) 136,181,139 301,689,165 (190,293,747) Investment in loans 660,738,870 (1,331,973,363) 135,140,156 (4,031,500,473) Investment in property 34,179,958 100,579,768 – – Trading transactions with securities companies (147,625,479) 52,208,585 – – Loans and receivables (9,263,940,246) (16,327,074,420) (8,962,580,983) (14,790,298,980) Accrued interest receivable and dividend 41,240,989 (241,976,635) 43,118,297 (118,089,519) Properties foreclosed 1,424,645,958 821,840,951 1,391,815,397 712,256,185 Other assets (447,352,658) (104,509,187) (268,453,074) (169,401,259)

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

62 Annual Report 2005

Annual Report 2005 63

KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Consolidated 2005 Baht Increase (decrease) in operating liabilities Deposits Interbank and money market items Liabilities payable on demand Trading transaction with securities companies Securities business payables Accrued interest expenses Accrued corporate income tax Other liabilities Net cash provided by (used in) operating activities Cash flows from investing activities Cash paid for purchase of investment in securities Proceeds from sales of investment in securities Purchase of premises and equipment Proceeds from sales of equipment Purchase of intangible assets Dividend received Net cash (used in) provided by investing activities Cash flows from financing activities Proceeds from increase in share capital Proceeds from share premium Cash paid for dividend Net cash (used in) financing activities Net increase in cash Cash at beginning of year Adjustment for change in accounting policy for joint venture Cash at end of year

2004 Baht

8,779,528,999 13,059,717,347 222,184,030 1,610,037,557 84,344,704 – (97,823,529) 85,765,053 51,312,987 16,917,759 (331,924,793) 1,652,111,560

Bank

(88,932,789) (734,188,927) 78,620,450 108,312,120 (867,630,603) (100,061,583)

(1,003,100,671) (1,146,273,512)

2005 Baht

2004 Baht

8,653,529,059 14,240,236,382 278,592,287 1,603,202,253 84,344,704 – – – 52,049,494 17,532,502 (283,253,738) 1,545,257,467

– – 78,541,192 123,595,128 (729,694,892) (1,694,531,523)

(833,396,044) (1,049,892,082)

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

1,713,520,177 (212,161,158) 6,682,928 (9,593,787) –

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

2,116,720,705 (85,320,606) 4,272,255 (3,090,699) 962,287,623

(803,018,460)

352,174,648

(696,164,366)

1,944,977,196

201,990,657 817,648,207 201,990,657 817,648,207 114,794,215 425,051,211 114,794,215 425,051,211 (1,104,584,925) (1,492,424,317) (1,104,584,925) (1,492,424,317) (787,800,053) 61,293,047 5,960,691 (1,607,391) 65,646,347

(249,724,899) 2,388,166 3,572,525

(787,800,053) 61,293,048 2,898,299

(249,724,899) 720,774 2,177,525

–

5,960,691

64,191,347

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

KIATNAKIN BANK

2,898,299

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (CONT’D) FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004 Consolidated

Bank

2005 Baht

2004 Baht

2005 Baht

2004 Baht

Additional cash flows information Cash paid during year Interest expense Income tax expense

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

882,055,595 43,812,302

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

885,875,897 8,502,324

Non cash transactions Transfer assets for loan settement Transfer investments in loans to be loans Transfer foreclosed assets to be loans

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

1,668,399,016 1,066,242,641 –

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

1,515,627,092 1,066,242,641 –

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

64 Annual Report 2005

Annual Report 2005 65

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

1. Approval of the financial statements These consolidated and the bank financial statements have been approved by the management on 14 February 2006.

2. General information Kiatnakin Bank Public Company Limited (“the bank”) incorporated in Thailand. The address of its registered office is as follows: 12th Floor, Amarin Tower, 500, Ploenchit Road, Patumwan, Bangkok, 10330. The bank is listed on the Stock Exchange of Thailand. The principal business operations of the bank and the subsidiaries (“the group”) are financing services, securities brokering and investing advisory. Following the Financial Sector Master Plan (the Plan), jointly collaborated by the Ministry of Finance and the Bank of Thailand and submitted to the cabinet on 6 January 2004, aims to improve efficiency, stability and competition within the financial institutions system, and to broaden accessibility of financial services to all potential users. As at 15 December 2004, the bank was granted an approval for commercial bank realignment from the Ministry of Finance. On 27 September 2005, the bank was granted the license to operate as a commercial bank and to operate the foreign payment transactions from the Ministry of Finance. The bank starts operating as a commercial bank on 3 October 2005 and Radanatun Finance Public Company Limited (a subsidiary) returned the finance business license to the Ministry of Finance, which effective on 3 October 2005 registered to change the name with the Ministry of Commerce from “Kiatnakin Finance Public Company Limited” to “Kiatnakin Bank Public Company Limited”. The group employs 1,256 staff (31 December 2004 : 1,176 staff), with 16 branches (31 December 2004 : 15 branches).

3. Accounting Policies a) Basis of preparation of financial statements The consolidated and the bank financial statements have been prepared in accordance with Thai generally accepted accounting principles under the Accounting Act B.E. 2543, being those Thai Accounting Standard issued under the Accounting Profession Act B.E. 2547, and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act B.E. 2535 and the Bank of Thailand. The accounting principles applied may differ from generally accepted accounting principles adopted in other countries. The accompanying consolidated and bank financial statements are therefore not intended to present the financial position and results of operations and cash flows in accordance with countries other than Thailand. Consequently, these consolidated and bank financial statements are only addressed to those who are informed about Thai generally accepted accounting principles and practices.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (cont’ d) a) Basis of preparation of financial statements (cont’ d) As a result of the Federation of Accounting Profession (FAP) approval of three new accounting standards on 12 May 2005, the group has adopted TAS 52, “Events After Balance Sheet Date”, TAS 53, “Provisions, Contingent Liabilities, and Contingent Assets” and TAS 54, “Discontinuing Operations” for the year ended 31 December 2005. The consolidated and the bank financial statements have been prepared under the historical cost except for investment and foreclosed assets which used fair value as disclosure in related Note. The preparation of financial statements in conformity with Thai generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses in the reported periods. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. An English version of the consolidated and bank financial statements have been prepared from the statutory financial statements that are in Thai language. In the event of a conflict or a difference in interpretation between the two languages, the Thai language statutory financial statements shall prevail. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

b) Income and expenses recognition Interest on loans and deposits Interest on loans and deposits is recognised as income on the accrual basis, except in the case of interest on loans which is over three months past due from the due date where interest is recognised on collection basis. The bank reverses accrued interest income on loan when its principal or interest payment has become over three months past due to comply with the Bank of Thailand’s notification dated 24 December 1998. The bank continues its income recognition on the accrual basis when the entire amount of the principal and overdue interest has been paid. Hire purchase and financial lease income Hire purchase income is calculated by the “sum of the installment digits” method and recognised on the accrual basis, except in the case of interest on hire purchase which is over three months past due from the due date where interest is recognized on collection basis. The bank reverses accrued interest income on hire purchase when its principal or interest payment has become over three months past due to comply with the Bank of Thailand’s notification dated 24 December 1998. The bank continues its income recognition on the accrual basis when the entire amount of the principal and overdue interest has been paid. Lease contracts are recorded by financial lease method. Income from financial lease contracts is recognised on the effective interest method over the year of contracts.

66 Annual Report 2005

Annual Report 2005 67

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (contâ&#x20AC;&#x2122; d) b) Income and expenses recognition (contâ&#x20AC;&#x2122;d) Interest and dividend income Interest on investment is recognised as income on accrual basis except in the case of interest on debt securities which is over three months past due from the due date where interest is recognised on collection basis. Dividend income is recognised when dividend is declared. Income from investment in loans Interest on investment in loans is recognized as income on the collection basis based on the outstanding loans multiplied by the effective yield according to contract or new agreement. Fees and services income Fees and services are recognised as income when services are rendered. Expenses and dividend recognition Expenses are recognised on an accrual basis. Dividend are recorded in the consolidated and bank financial statements in the period in which they are approved by the shareholders.

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

d) Investment in securities d.1) Basis of investment classification Investments other than investments in subsidiaries and interest in joint ventures are classified into the following four categories: trading, held-to-maturity, available-for-sale and general investments. The classification is dependent on the purpose for which the investments were acquired. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from shortterm fluctuations in price are classified as trading investments and included in short-term investments. Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in long-term investments, except for maturities within 12 months from the balance sheet date, which are classified as short-term investments. Investments intended to be held for an indefinite period of time, which may be sold in response to liquidity needs or changes in interest rates, are classified as available-for-sale; and are included in long-term investments unless management has expressed the intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in short-term investments. Investments in non-marketable equity securities are classified as general investments.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (cont’ d) d) Investment in securities (cont’d) d.2) Book value of investments Trading and available-for-sale investments are stated at fair value. The fair value of debt securities traded in the established market is based on the quoted prices or yields of the debt securities at the balance sheet date, or the latest trading date prior to the balance sheet date if there was no trading on that date. If the debt securities are not traded in the established market, the fair value is calculated by reference to the risk-free yield curve adjusted by an appropriate risk premium. The fair value of equity securities is based on the last bid price quoted by the Stock Exchange of Thailand at the balance sheet date. The fair value of unit trusts is determined from the net assets value (NAV) published by mutual fund management companies as the fund managers. Unrealised gain or losses resulting from changes in fair value of trading investments are recognised in the statements of income. Unrealised gain or losses resulting from changes in fair value of available-for-sale investments are recognised as a net amount in a separate component of shareholders’ equity, except where the securities are sold out, the realised gain or losses will be recognised in the statements of income. General investments are stated at cost less allowance for impairment in value. Investments in subsidiaries are reported by using the equity method of accounting in the bank financial statements. Subsidiaries are companies in which Kiatnakin Bank Public Company Limited has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, significant accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the bank. Separate disclosure is made for minority interests in the consolidated balance sheet and consolidated statement of income. Investment in joint venture According to enter in joint venture of subsidiary with Devonshire Capital Pte Limited to establish the Company named Devonshire Kiatnakin Company Limited with interests at 50% of registered capital, the group’s interests in jointly controlled entities is accounted for by the proportionate consolidation. Under this method the group includes its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows in the relevant components of the financial statements. In the company financial statements the equity method is applied for interests in joint ventures.

68 Annual Report 2005

Annual Report 2005 69

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (cont’ d) d) Investment in securities (cont’d) d.2) Book value of investments (cont’d As of 30 June 2005 onward, the subsidiary’s management believed that the equity method considered more appropriate as compared to the proportionate consolidation for joint venture. Therefore the accounting basis has been changed from proportionate consolidations to equity method. However, the comparative statements for 2004 in the parent’s financial statements are not restated due to immateriality. On 27 July 2005, the subsidiary has cancelled the investment in joint venture, and sold out the investment to other venturer. A list of the subsidiaries is set out in Note 6. A test of impairment is carried out when there is a factor indicating that an investment might be impaired. If the carrying amount of the investment is higher than its recoverable amount, impairment loss is charged to the statements of income. d.3) Income recognition relative to investment On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the statement of income. When partly disposing of a particular investment in debt or equity securities, the carrying amount of disposed part is determined by the weight average carrying amount of the total holding of the investment.

e) Valuation of investment in loans The investment in loans is the investment in commercial and hire-purchase loans with and without collateral. These commercial and hire-purchase loans have no readily ascertainable market values available and, therefore, are reported at estimated fair value as determined by the bank management committee. The values assigned to the investment portfolio are based upon available information and assumptions and do not necessarily represent amounts which might ultimately be realized. Because of the inherent uncertainty of valuation, those estimated fair values might differ from the values that would have been used had a ready market for the investments existed. Unrealised gain or losses resulting from changes in fair value of investment in loans of the bank are reported as a net amount in a separate component of shareholders’ equity, except where the investments are sold out, the realised gain or losses will be recognised in the statements of income. The subsidiaries, which are mutual funds, recognise the changes in fair value of investment in loans in the statements of income. A test for impairment is carried out when there is a factor indicating that an investment might be impaired. If the carrying value of the investment is higher than its recoverable amount, impairment loss is charged to the statement of income.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (cont’ d) e) Valuation of investment in loans (cont’d) The investment in loans of the parent company will be transferred to loans account to comply with the Bank of Thailand’s notification no. Thor Por Tor. Sor Nor Sor. (31) Wor. 2775/2545 Re: Accounting procedures regarding purchasing or taking of transfer of loan debters and supervision guidelines. The fair value was adopted for transfer. The different between net book value and fair value is recognized as gain on revaluation in the statement of income.

f) Valuation of investment in property The investment in property is the investment in real estate business of the subsidiaries, which are mutual funds. These investments generally have no readily ascertainable market values available and, therefore, are reported at estimated fair value as determined by the bank management committee. The values assigned to the investment portfolio are based upon available information and assumptions and do not necessarily represent amounts which might ultimately be realized. Because of the inherent uncertainty of valuation, those estimated fair values might differ from the values that would have been used had a ready market for the investment existed. Unrealised gain or losses resulting from changes in fair value of investment in property are reported in the statements of income.

g) Allowance for doubtful accounts The bank classifies its loan portfolios into categories and sets allowance for doubtful accounts for loans in accordance with the Bank of Thailand’s notification dated 26 August 2004 and with the management estimation over the allowance for doubtful accounts from the ending balance of loans. The year that a loan is past due and the ability to repay the debt are the principal criteria utilised in classifying a loan. The maximum collateral value used in calculating the required allowance for doubtful accounts is based on the type of collateral and the date of the most recent revaluation. Allowance for doubtful accounts on loans and receivable is made for the estimated loss that might be incurred where the debts are not fully secured and/ or full recoveries of principals and interest are doubtful. Allowance for doubtful accounts on hire-purchase loan is provided by based on the aging analysis. Allowance for doubtful accounts for securities business receivables has been determined on the basis in accordance with the requirements of the Securities Exchange Commission’s notification dated 15 February 2001. Bad debts are written off during the year in which they are identified.

70 Annual Report 2005

Annual Report 2005 71

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (contâ&#x20AC;&#x2122; d) h) Troubled debt restructuring The bank accounts for troubled debt restructuring in accordance with guidelines approved by the Bank of Thailand. The bank records the assets or equities transferred to the bank for debt settlements at the lower of fair values of the assets, less estimated selling expenses, or the amount of investment in receivables (including non-accrued interest income at the restructuring date). In case that the debt restructuring involves modifications of terms of receivables, the fair value of investment in receivables after restructuring is based on the net present value of the expected future cash flows, using the Minimum Lending Rates (MLR) prevailing at the restructuring date. Losses arising from restructuring by waiver of principal or recorded accrued interest receivable, less recorded allowance, are recognised in the statement of income when incurred. Legal fees and other direct costs incurred to effect the debt restructuring are expensed when incurred.

i) Properties foreclosed Properties foreclosed represent land and/or construction, leasehold, condominium and repossessed vehicles. The repossessed land and/or construction, leasehold and condominium are stated at the lower of the outstanding loan principal including accrued interest or fair value. The subsidiaries, which are mutual funds, stated the properties foreclosed at the fair value. As of 30 June 2005 onward, management change its method of valuation from using net present value of expected cash inflow from sales within 1 year and discounted with suitable rate according to the risk, to the independent appraised value less estimated selling cost and discounted by the risk premium if the holding period is greater than 3 years. The repossessed vehicles are stated at the lower of the outstanding loan principal including accrued interest and accrued value added tax or fair value. As at 31 December 2005, fair value of the repossessed vehicles is based on the external appraised value less estimated discount according to risk that might incur of each repossessed vehicle.

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

10 - 20 years 5 years

Gains and losses on disposal of fixed assets determined by comparing proceeds with the carrying amount and are included in operating profit.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (cont’ d) j) Premises and equipment and depreciation (cont’d) Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the group. Major renovations are depreciated over the remaining useful life of the related asset.

k) Intangible assets k.1) Computer software Costs that are directly associated with acquiring identifiable and unique software products controlled by the group and will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software. Computer software are recognised as assets and are amortised using the straight-line method over their useful lives, not exceeding a period of 10 years. k.2) Leasehold right Expenditure on acquired leasehold right in building is capitalised and amortised using the straight-line method over their useful lives, generally during 1-3 years.

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

m) Commercial papers sold Sales with recourse of commercial papers without bank’s or finance company’s acceptance or aval are recorded as liabilities under the caption of “Liabilities under commercial papers sold”. Sales with recourse of commercial papers with bank’s or finance company’s acceptance or aval are presented as off-balance sheet contingencies.

72 Annual Report 2005

Annual Report 2005 73

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

3. Accounting Policies (contâ&#x20AC;&#x2122; d) n) Related companies Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the bank, including holding companies, subsidiaries and fellow subsidiaries are related parties of the bank. Associates and individuals owning, directly or indirectly, an interest in the voting power of the bank that gives them significant influence over the enterprise, key management personnel, including directors and officers of the bank and close members of the family of these individuals and companies associated with these individuals also constitute related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.

o) Accounting for lease Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the year of the lease. When an operating lease is terminated before the lease year has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the year in which termination takes place.

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

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

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

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

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

t) Provisions The group recognizes the provisions for off-balance sheet items according to the Bank of Thailand notification no. Thor Por Thor. Phor Nor Sor. (21) Wor. 2395/2548 dated 23 December 2005.

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

74 Annual Report 2005

Annual Report 2005 75

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

4. Interbank and money market items - Domestic items (Assets) As at 31 December 2005 and 2004, interbank and money market items comprised of 31 December 2005 Consolidated On demand The Bank of Thailand and FIDF 235,604,063 Commercial Banks 1,901,515,310 Total 2,137,119,373 Less:Allowance for doubtful accounts (13,000,000) Total 2,124,119,373

Bank

Term

Total

On demand

Term

Total

– 202,704,037 202,704,037

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

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

– 200,001,659 200,001,659

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

(2,000,000) (15,000,000) (13,000,000) (2,000,000) (15,000,000) 200,704,037 2,324,823,410 1,753,475,462 198,001,659 1,951,477,121 31 December 2004 Consolidated

On demand The Bank of Thailand and FIDF 214,098,729 Commercial Banks 955,315,135 Finance, Securities and Credit froncier – Total 1,169,413,864 Add: Accrued interest receivable 57,204 Less:Allowance for doubtful accounts (850,000) Total 1,168,621,068

Bank

Term

Total

On demand

Term

Total

– 2,694,000

214,098,729 958,009,135

213,603,102 433,766,439

– 1,642

213,603,102 433,768,081

– 2,694,000

– 1,172,107,864

85,000,000 732,369,541

80,000,000 80,001,642

165,000,000 812,371,183

57,204

13,151

–

(800,000) (1,650,000) 1,894,000 1,170,515,068

(850,000) 731,532,692

–

(800,000) 79,201,642

13,151

(1,650,000) 810,734,334

As at 31 December 2005, the bank has fixed deposits at bank used for the issuance of guarantee, amounted to Baht 1.59 million for consolidated financial statement and nil for the bank financial statement (31 December 2004 : Baht 1.48 million and nil, respectively).

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

5. Securities purchased under resale agreements

Government and Bank of Thailand’s bonds Total

Consolidated 31 December 31 December 2005 2004 Baht Baht

Bank 31 December 31 December 2005 2004 Baht Baht

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

1,070,000,000 1,070,000,000

920,000,000 920,000,000

6. Investment in securities 31 December 2005 Consolidated Bank Cost/ Cost/ Net book value Fair value Net book value Fair value Baht Baht Baht Baht Short-term investment Trading securities Equity securities Listed securities Less: Provision for change in value of investments Net equity securities Net trading securities Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total - net debt instruments Equity securities Listed securities Unit trusts Less: Provision for changes in value of investments Net equity securities Net available-for-sale securities Net short-term investment

41,942,123

39,202,100

–

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

– 39,202,100 39,202,100

– – –

874,841,194

–

104,856,402 979,697,596

– –

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

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

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

– 1,077,807,422

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

– 989,608,148

2,057,505,018 2,096,707,118

2,057,505,018

989,608,148 989,608,148

989,608,148

76 Annual Report 2005

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

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

Annual Report 2005 77

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d) 31 December 2005 Consolidated

Long-term investment Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total Less: Provision for changes in value of investments Net debt instruments Equity securities Listed securities Unit trusts Total Add: Provision for changes in value of investments Net equity securities Net available-for-sale securities Held to maturity securities Government and state enterprise securities General investment Equity securities Unit trusts Total general investment Net long-term investment Investment in subsidiaries Equity securities Unit trusts Total investment in subsidiaries Net investment in securities

Cost/ Net book value Baht

Bank

Fair value Baht

Cost/ Net book value Baht

Fair value Baht

6,497,886 30,215,665 36,713,551

36,662 30,992,434 31,029,096

46,000 – 46,000

36,662 – 36,662

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

– 31,029,096

(9,338) 36,662

– 36,662

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

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

– – –

– –

4,971,517 46,646,400

– 46,646,400

– –

77,675,496

36,662

1,504,507,221

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

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

1,608,599,015

1,516,786,008

– – _

789,793,732 9,997,107,303 10,786,901,035

– – _

13,293,295,191

1,504,507,221

– – – 3,705,306,133

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d) 31 December 2004 Consolidated Bank Cost/ Cost/ Net book value Fair value Net book value Fair value Baht Baht Baht Baht Short-term investment Trading securities Equity securities Listed securities Less: Provision for change in value of investments Net equity securities

185,815,441

179,057,568

–

(6,757,873) 179,057,568

– 179,057,568

– –

Net trading securities

179,057,568

–

84,988,405 20,948,767 105,937,172

84,991,349 20,950,644 105,941,993

– 20,948,767 20,948,767

– 20,950,644 20,950,644

4,821 105,941,993

– 105,941,993

1,877 20,950,644

– 20,950,644

966,052,930 100,295,896 1,066,348,826

874,241,605 112,645,241 986,886,846

809,464,019 100,225,000 909,689,019

795,705,041 112,540,435 908,245,476

– 986,886,846

(1,443,543) 908,245,476

– 908,245,476

929,196,120

Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total Add: Provision for changes in value of investments Net debt instruments Equity securities Listed securities Unit trusts Less: Provision for changes in value of investments Net equity securities

(79,461,980) 986,886,846

Net available-for-sale securities

1,092,828,839

Held to maturity securities Government and state enterprise securities Net short-term investment

404,172,442 1,676,058,849

78 Annual Report 2005

1,092,828,839

– –

404,172,442 1,333,368,562

– –

Annual Report 2005 79

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d) 31 December 2004 Consolidated Bank Cost/ Cost/ Net book value Fair value Net book value Fair value Baht Baht Baht Baht Long-term investment Available-for-sale securities Debt instruments Corporate debt instruments Government and state enterprise securities Total Less: Provision for changes in value of investments Net debt instruments

26,954,143 351,767,075 378,721,218

20,454,346 348,646,452 369,100,798

20,502,257 321,321,241 341,823,498

20,454,346 315,617,133 336,071,479

(9,620,420) 369,100,798

– 369,100,798

(5,752,019) 336,071,479

– 336,071,479

134,733,836 10,035,000 144,768,836

137,573,100 10,035,000 147,608,100

– – –

2,839,264 147,608,100

– 147,608,100

– –

Net available-for-sale securities

516,708,898

Held to maturity securities Government and state enterprise securities

494,810,062

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

General investment Equity securities Unit trusts Total general investment Net long-term investment Investment in subsidiaries Equity securities Unit trusts Total investment in subsidiaries Net investment in securities

336,071,479

494,810,062

26,303,247 10,000 26,313,247

12,232,126 10,000 12,242,126

1,037,832,207

843,123,667

– – _

965,022,667 8,827,483,178 9,792,505,845

– – _

11,968,998,074

– – – 2,713,891,056

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d) Outstanding available-for-sale and held to maturity debt instruments can be analysed as follows:

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

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

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

Total Baht

6,451,886 – 6,451,886

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

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

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

(6,451,886) –

– 979,697,596

767,431 31,029,096

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

– –

– 979,697,596

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

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

31 December 2005 Bank Mature within 2 - 5 years Total Baht Baht Available-for-sale debt instruments Corporate debt instruments Total Add (less): Provision for changes in value of investments

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

80 Annual Report 2005

46,000 46,000 (9,338) 36,662

1,504,507,221 1,504,543,883

46,000 46,000 (9,338) 36,662

1,504,507,221 1,504,543,883

Annual Report 2005 81

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d)

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

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

31 December 2004 Consolidated Mature Mature within within 1year 2 - 5 years Baht Baht

Total Baht

6,451,886 – 6,451,886

84,988,405 20,948,767 105,937,172

20,502,257 351,767,075 372,269,332

111,942,548 372,715,842 484,658,390

(6,451,886) –

4,821 105,941,993

(3,168,534) 369,100,798

(9,615,599) 475,042,791

– –

404,172,442 510,114,435

494,810,062 863,910,860

898,982,504 1,374,025,295

31 December 2004 Bank Mature Mature within within 1 year 2 - 5 years Baht Baht

Total Baht

– 20,948,767 20,948,767

20,502,257 321,321,241 341,823,498

20,502,257 342,270,008 362,772,265

1,877 20,950,644

(5,752,018) 336,071,480

(5,750,141) 357,022,124

404,172,442 425,123,086

494,810,062 830,881,542

898,982,504 1,256,004,628

The subsidiaries incorporated in the consolidated accounts are Kiatnakin Securities Company Limited, Asia Recovery Fund 1, 2 and 3, Thai Restructuring Fund and Asia Recovery Property Fund 1 and 3. As at 8 September 2005, Radanatun Finance Public Company Limited registered for dissolution with the Ministry of Commerce. Kiatnakin Securities Company Limited disposed its investment in joint venture named Devonshire Kiatnakin Co., Ltd. according to the investment termination contract dated 27 July 2005. As at 31 December 2005, the bank deposited government and state enterprise securities at Bank of Thailand, amounted to Baht 982 million (31 December 2004 : Baht 852 million) for the guarantee of securities with repurchase agreement in Bank of Thailand market.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

6. Investment in securities (cont’d) During year 2005, the bank reclassified the investment in Government and state enterprise securities from long-term available-for-sale investment to be held to maturity investment. The fair value on transferred date was Baht 1,020 million and the difference between net book value and fair value of investment amount of Baht 28 million was recorded as fair value reserves under shareholders’ equity and will be amortised according to the remaining lives of those securities. The reclassification of the aboved securities is for purpose of banking business. Investment in securities where the bank holds 10% or more of the issued shares of the investees are as follows:

Principal activities Other companies Chiangmai Yarnyon 1993 Co., Ltd. BTM Leasing Co., Ltd. Attakorn Co., Ltd. M.V. Property Estate Co., Ltd. Fund (which is not a legal corporate entity) Kiatnakin Fixed Income Fund Kiatnakin Bank K-Asset Equity Fund Ayudthya Tuntawee Fund 5

Car trading Leasing Hire purchase Real estate Investing business in bonds and promissory Investing business in debt and equity securities Investing business in debt and equity securities

82 Annual Report 2005

31 December 2005 Consolidated and Bank Investment amount Percentage of Baht holding 650,000 3,085,200 – 100,000

10.00 10.00 10.00 10.00

–

10.33

50,125,000

38.77

50,000,000

74.61

31 December 2004 Consolidated and Bank Investment amount Percentage of Baht holding 650,000 3,085,200 – 100,000

10.00 10.00 10.00 10.00

–

10.33

50,125,000

34.88

50,000,000

57.27

Asia Recovery 1 Fund Asia Recovery 2 Fund Asia Recovery 3 Fund Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3

Kiatnakin Securities Co., Ltd. Unit trust* Unit trust* Unit trust* Unit trust* Unit trust** Unit trust***

Securities

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

Relationship

The followings are details of the bank’ s subsidiaries.

6. Investment in securities (cont’d)

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

Paid-up capital/ outstanding capital Baht

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

Equity method Baht

649,999,930 789,793,732 1,300,337,966 1,984,558,318 1,961,941,249 2,448,470,578 2,014,395,044 2,637,657,349 778,863,948 1,595,340,297 255,966,954 255,388,055 941,000,000 1,075,692,706 7,902,505,091 10,786,901,035

Cost method Baht

31 December 2005 Bank

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

99.99 99.95 99.59 99.97 98.91 99.50 98.77

Investment proportion Amount at par Percentage Baht of holding

– – – – – – –

Dividend paid by subsidiaries Baht

Annual Report 2005 83

KIATNAKIN BANK

84 Annual Report 2005 Ordinary shareholder Ordinary shareholder Unit holder Unit holder Unit holder Unit holder Unit holder Unit holder

Relationship

150,000,000 1,259,474,124 1,872,393,082 1,908,328,946 786,984,835 244,184,036 933,405,003

650,000,000

Paid-up capital/ outstanding capital Baht

415,499,709 1,300,337,966 1,961,941,249 2,014,395,044 778,863,948 255,966,954 941,000,000 8,318,004,800

649,999,930

Cost method Baht 796,821,919

Equity method Baht

168,200,748 1,750,653,632 2,170,148,061 2,391,849,343 1,246,257,752 284,641,121 983,933,269 9,792,505,845

31 December 2004 Bank

149,999,850 1,258,841,522 1,864,642,561 1,907,786,584 778,413,713 242,963,061 921,954,695 7,774,601,916

649,999,930

99.99 99.95 99.59 99.97 98.91 99.50 98.77

99.99

Investment proportion Amount at par Percentage Baht of holding

– – 267,752,211 106,866,421 274,616,057 13,640,000 235,700,000

–

Dividend paid by subsidiaries Baht

The Group did not disclose the group’s share of the assets and liabilities and sales and expenses of the joint venture which included in the balance sheets and statements of income because of immateriality.

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

Unit trust* Unit trust* Unit trust* Unit trust* Unit trust** Unit trust***

Financing

Ratanatun Finance Public Co., Ltd.

Asia Recovery 1 Fund Asia Recovery 2 Fund Asia Recovery 3 Fund Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3

Securities

Kiatnakin Securities Co., Ltd.

Principal activities

6. Investment in securities (cont’d)

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

KIATNAKIN BANK

Annual Report 2005 85

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

7. Investment in loans, net The details of bidding receivables from the Financial Restructuring Authority (FRA), the Legal Execution Department (LED) and purchasing receivables are as follows: As of 31 December 2005

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

Outstanding balance per prior and Number of renew agreements customers Baht

Outstanding balance Baht

Fair value Baht

461 269

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

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

763,911,248 193,083,500

44,810,160

35,226,196

14,223,062

710 1,803 3,244

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

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

– 4,077,645,879 5,048,863,689

2,874 6,118

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

3,438,272,598 5,105,189,530 9,298,015,590 10,154,053,219

As of 31 December 2004

Outstanding balance per prior and Number of renew agreements customers Baht

Outstanding balance Baht

Fair value Baht

520 280

3,588,476,580 1,088,513,063

1,524,758,604 281,184,936

935,137,826 248,957,029

44,810,160

35,226,196

13,814,745

836 1,768 3,405

127,341,488 17,123,201,343 21,972,342,634

9,708,918 5,017,345,732 6,868,224,386

– 4,738,446,875 5,936,356,475

3,189 6,594

13,068,311,109 3,963,875,325 5,565,126,833 35,040,653,743 10,832,099,711 11,501,483,308

During the year, the impairment charge of Baht 206,453,073 for investment in loans was made as a result of the doubtful in the abilities to repay these balances (31 December 2004 : Baht 398,402,812).

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable a) Classified by type of business Consolidated 31 December 31 December 2005 2004 Baht Baht Banking business loans Loans Hire purchase receivables* Total finance business loans Add: Accrued interest receivable Less:Allowance for doubtful accounts Allowance for troubled debt restructuring Net banking business loans and accrued interest receivable Securities business receivables Cash accounts Margin accounts Total securities business receivables Add: Accrued interest receivable Less: Allowance for doubtful accounts Net securities business receivables and accrued interest receivable Net loans and accrued interest receivable

Bank 31 December 31 December 2005 2004 Baht Baht

21,979,900,455 19,319,529,702 21,979,900,455 23,556,204,100 18,097,157,923 23,556,204,100 45,536,104,555 37,416,687,625 45,536,104,555 507,275,528 538,002,577 507,275,528 (3,596,173,079) (3,446,072,168) (3,596,173,079) (235,491,532)

(112,482,017)

(235,491,532)

19,319,529,702 18,097,382,494 37,416,912,196 538,003,648 (3,446,072,168) (112,482,017)

42,211,715,472

34,396,136,017

42,211,715,472

34,396,361,659

305,815,098 280,276,410

408,362,301 216,870,435

17,958,090 –

18,608,090 –

586,091,508 2,454,794 (52,255,694)

625,232,736 2,080,436 (52,220,855)

17,958,090 – (17,662,819)

18,608,090 – (17,665,122)

536,290,608

575,092,317

295,271

942,968

42,748,006,080

34,971,228,334

42,212,010,743

34,397,304,627

* Hire-purchase receivables are shown net of unearned income in the consolidated and the bank financial statements amount of Baht 4,051,175,555 (31 December 2004 : Baht 3,459,363,388).

86 Annual Report 2005

Annual Report 2005 87

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (contâ&#x20AC;&#x2122;d) b) Classified by maturity Consolidated 31 December 31 December 2005 2004 Baht Baht On demand or become due Less than one year Over one year Total loans and accrued interest receivables

2,439,642,535 6,418,364,863 37,773,918,987 46,631,926,385

1,739,981,079 7,415,842,838 29,426,179,457 38,582,003,374

Bank 31 December 31 December 2005 2004 Baht Baht 2,436,513,338 5,881,898,708 37,742,926,127 46,061,338,173

1,733,748,386 6,856,662,661 29,383,112,887 37,973,523,934

c) Classified by currency and customer location 31 December 2005 Consolidated Domestic Baht Total

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

Total

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

Bank Domestic 46,061,338,173 46,061,338,173

Total

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

31 December 2004 Consolidated Domestic Baht Total

38,582,003,374 38,582,003,374

Total

38,582,003,374 38,582,003,374

Bank Domestic 37,973,523,934 37,973,523,934

Total

37,973,523,934 37,973,523,934

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification 31 December 2005 Consolidated Normal debts Baht

Specially mentioned Sub-standard debts debts Baht Baht

Doubtful Possible loan debts loss Baht Baht

Total Baht

Agriculture and mining 22,253,776 – – 8,000,000 31,746,341 62,000,117 Manufacturing and commerce 1,110,020,999 17,386,290 138,359,324 126,666,237 765,057,894 2,157,490,744 Property development and construction 12,471,557,419 18,616,827 966,127,048 2,738,836,958 1,293,150,844 17,488,289,096 Public utility and services 899,859,230 4,022,584 68,703,138 78,459,744 125,035,182 1,176,079,878 Housing loans 34,618,496 16,053,808 985,573 678,105 59,354,413 111,690,395 Hire purchase loans 19,234,166,678 3,189,896,050 791,314,050 301,930,352 38,896,971 23,556,204,101 Others 969,867,933 40,069,158 49,425,920 91,181,411 419,897,310 1,570,441,732 Total loans 34,742,344,531 3,286,044,717 2,014,915,053 3,345,752,807 2,733,138,955 46,122,196,063 Accrued interest receivables

464,584,894

37,309,005

88 Annual Report 2005

334,422

2,101,701

5,400,300

509,730,322

Annual Report 2005 89

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification (cont’d) 31 December 2005 Bank Normal debts Baht

Specially mentioned Sub-standard debts debts Baht Baht

Agriculture and mining 22,253,776 – – Manufacturing and commerce 1,110,020,999 17,386,290 138,359,324 Property development and construction 12,471,557,419 18,616,827 966,127,048 Public utility and services 899,859,230 4,022,584 68,703,138 Housing loans 34,618,496 16,053,808 985,573 Hire purchase loans 19,234,166,678 3,189,896,050 791,314,050 Others 435,856,572 40,069,158 48,670,979 Total loans 34,208,333,170 3,286,044,717 2,014,160,112 Accrued interest receivables

463,355,860

37,309,005

334,422

Doubtful debts Baht

Possible loan loss Baht

Total Baht

8,000,000

31,746,341

62,000,117

126,666,237

765,057,894

2,157,490,744

2,738,836,958 1,293,150,844 17,488,289,096 78,459,744 678,105

125,035,182 59,354,413

1,176,079,878 111,690,395

301,930,352 38,896,971 23,556,204,101 57,814,295 419,897,310 1,002,308,314 3,312,385,691 2,733,138,955 45,554,062,645

875,941

5,400,300

KIATNAKIN BANK

507,275,528

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification (cont’d) 31 December 2004 Consolidated Normal debts Baht Agriculture and mining 63,061,643 Manufacturing and commerce 692,738,601 Property development and construction 11,029,750,623 Public utility and services 290,147,266 Housing loans 52,215,580 Hire purchase loans 15,118,281,333 Others 1,079,770,044 Total loans 28,325,965,090 Accrued interest receivables

444,494,409

Specially mentioned debts Baht

Sub-standard debts Baht

Doubtful debts Baht

Possible loan loss Baht

Total Baht

396,229

28,607,290

12,522,196

104,587,358

92,373,156

231,097,727

964,186,962

2,271,517,156

693,929,331 1,932,297,056

624,967,771

610,904,980 14,891,849,761

206,942,604 3,542,852

154,295,395 2,810,237

155,294,443 90,772,526

– 291,120,710

10,571,496 2,167,308

2,286,364,272 423,242,982 142,193,301 43,549,764 78,648,641 95,505,385 3,525,449,533 2,539,696,868 1,279,477,106

48,199,408

38,626,743

90 Annual Report 2005

2,269,371

817,251,204 151,508,503

127,076,035 18,097,157,923 410,574,622 1,708,048,456 2,371,331,764 38,041,920,361

6,493,082

540,083,013

Annual Report 2005 91

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (cont’d) d) Classified by industry and classification (cont’d) 31 December 2004 Bank Normal debts Baht

Specially mentioned debts Baht

Sub-standard debts Baht

Agriculture and mining 63,061,643 – 396,229 Manufacturing and commerce 692,738,601 291,120,710 92,373,156 Property development and construction 11,029,750,623 693,929,331 1,932,297,056 Public utility and services 290,147,266 206,942,604 10,571,496 Housing loans 52,215,580 3,542,852 2,167,308 Hire purchase loans 15,118,505,904 2,286,364,272 423,242,982 Others 509,992,711 43,549,764 75,131,302 Total loans 27,756,412,328 3,525,449,533 2,536,179,529 Accrued interest receivables

443,640,803

48,199,408

38,626,743

Doubtful Possible loan debts loss Baht Baht

Total Baht

28,607,290

12,522,196

104,587,358

231,097,727

964,186,962

2,271,517,156

624,967,771

610,904,980 14,891,849,761

154,295,395 155,294,443 817,251,204 2,810,237 90,772,526 151,508,503 142,193,301 127,076,035 18,097,382,494 62,175,411 410,574,622 1,101,423,810 1,246,147,132 2,371,331,764 37,435,520,286

1,043,612

6,493,082

538,003,648

e) Classified by classification 31 December 2005 Consolidated

Debt classification Normal debts Specially-mentioned debts Sub-standard debts Doubtful debts Possible loan loss Total Additional allowance for some doubtful accounts Total

Loan outstanding and interest receivable Baht

Loan net of collateral Baht

34,221,604,390 3,302,935,643 2,021,966,919 3,316,986,107 2,773,613,419 45,637,106,478

21,156,605,805 3,248,450,754 1,031,003,351 609,604,276 1,199,529,552 27,245,193,737

% of allowance 1 2 20 50 100

Allowance for doubtful account Baht 211,566,058 64,969,015 206,200,670 304,802,138 1,199,529,552 1,987,067,433 1,896,852,872 3,883,920,305

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

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

Debt classification Normal debts Specially-mentioned debts Sub-standard debts Doubtful debts Possible loan loss Total Additional allowance for some doubtful accounts Total

Loan outstanding and interest receivable Baht

Loan net of collateral Baht

34,221,604,390 3,302,935,643 2,021,966,919 3,316,986,107 2,739,020,545 45,602,513,604

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

% of allowance 1 2 20 50 100

Allowance for doubtful account Baht 211,566,058 64,969,015 206,200,670 304,802,138 1,164,936,677 1,952,474,558 1,896,852,872 3,849,327,430

31 December 2004 Consolidated

Debt classification Normal debts Specially-mentioned debts Sub-standard debts Doubtful debts Possible loan loss Total Additional allowance for some doubtful accounts Total

Loan outstanding and interest receivable Baht

Loan net of collateral Baht

27,771,548,232 3,537,538,292 2,578,825,238 1,249,039,566 2,412,892,469 37,549,843,797

16,408,096,411 2,752,004,550 627,656,003 661,295,054 1,450,202,465 21,899,254,483

% of allowance 1 2 20 50 100

Allowance for doubtful account Baht 164,080,964 55,040,091 125,531,200 330,647,527 1,450,202,465 2,125,502,247 1,485,272,793 3,610,775,040

92 Annual Report 2005

Annual Report 2005 93

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

8. Loans and accrued interest receivable (cont’d) e) Classified by classification (cont’d) 31 December 2004 Bank

Debt classification Normal debts Specially-mentioned debts Sub-standard debts Doubtful debts Possible loan loss Total Additional allowance for some doubtful accounts Total

Loan outstanding and interest receivable Baht

Loan net of collateral Baht

27,771,548,232 3,537,538,292 2,578,825,238 1,249,039,566 2,378,336,736 37,515,288,064

16,408,096,411 2,752,004,550 627,656,003 661,295,054 1,415,646,732 21,864,698,750

% of allowance 1 2 20 50 100

Allowance for doubtful account Baht 164,080,964 55,040,091 125,531,201 330,647,527 1,415,646,732 2,090,946,515 1,485,272,792 3,576,219,307

Loans and interest receivable from which recognition of income has been discontinued and are classified as required by the Bank of Thailand’s notification are as follows: Consolidated 31 December 2005 31 December 2004 Principal Interest receivable Principal Interest receivable Baht Baht Baht Baht Loans and bills receivables Securities business receivables Hire-purchase receivables Total loans from which recognition of income has been discontinued

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

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

3,480,240,860 51,576,741 692,512,319

10,608,851 1,225,759 2,173

5,866,090,528

6,932,517

4,224,329,920

11,836,783

Bank 31 December 2005 Principal Interest receivable Baht Baht Loans and bills receivables Securities business receivables Hire-purchase receivables Total loans from which recognition of income has been discontinued

31 December 2004 Principal Interest receivable Baht Baht

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

5,701,372 – 5,386

3,480,240,860 18,608,090 692,512,319

10,608,851 – 2,173

5,833,336,723

5,706,758

4,191,361,269

10,611,024

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

9. Allowance for doubtful accounts 31 December 2005 Consolidated Normal debts Baht At beginning of year 507,190,093 Add: Allowance for doubtful accounts (reversal) 87,485,195 Less: Bad debt written off – Allowance for doubtful accounts at end of year 594,675,288

Specially mentioned debts Baht

Sub-standard debts Baht

Doubtful debts Baht

Possible loan loss Baht

Total Baht

72,137,517

769,534,931

479,360,069

1,670,070,413

3,498,293,023

474,281,318

346,801,846

619,995,776

(469,860,026)

(7,053,935) (281,518,648) –

–

65,083,582

488,016,283

953,641,387

1,547,012,233

3,648,428,773

31 December 2005 Bank Normal debts Baht At beginning of year 507,190,093 Add: Allowance for doubtful accounts (reversal) 87,485,195 Less: Bad debt written off – Allowance for doubtful accounts at end of year 594,675,288

Specially mentioned debts Baht

Sub-standard debts Baht

Doubtful debts Baht

Possible loan loss Baht

Total Baht

72,137,517

769,534,931

479,360,069

1,635,514,680

3,463,737,290

474,281,318

346,764,704

619,958,634

(469,860,026)

(7,053,935) (281,518,648) –

–

65,083,582

488,016,283

953,641,387

94 Annual Report 2005

1,512,419,358

3,613,835,898

Annual Report 2005 95

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

9. Allowance for doubtful accounts (cont’d) 31 December 2004 Consolidated Normal debts Baht

Specially mentioned debts Baht

Sub-standard debts Baht

Doubtful debts Baht

Possible loan loss Baht

Total Baht

At beginning of year 1,201,524,331 289,997,279 97,792,683 Add: Allowance for doubtful accounts (reversal) (694,334,238) (217,859,762) 671,742,248 Less: Bad debt written off – – – Allowance for doubtful accounts at end of year 507,190,093 72,137,517 769,534,931

103,793,498

1,231,797,573

2,924,905,364

375,566,571

611,707,545

746,822,364

–

(173,434,705)

479,360,069

1,670,070,413

3,498,293,023

31 December 2004 Bank Normal debts Baht

Specially mentioned debts Baht

Sub-standard debts Baht

Doubtful debts Baht

Possible loan loss Baht

Total Baht

103,793,498

1,193,168,419

2,886,276,210

375,566,571

615,780,966

750,895,785

–

(173,434,705)

479,360,069

1,635,514,680

3,463,737,290

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

10. Allowance for troubled debt restructuring Consolidated and Bank 31 December 2005 31 December 2004 Baht Baht At beginning of year Increase (decrease) during year At end of year

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

187,110,455 (74,628,438) 112,482,017

11. Properties foreclosed Consolidated 31 December 31 December 2005 2004 Baht Baht Properties foreclosed Add (less): Provision for diminution in value of properties foreclosed Net properties foreclosed

Bank 31 December 31 December 2005 2004 Baht Baht

5,753,334,126

4,953,703,159

4,543,680,444

4,050,844,835

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

(3,800,097) 4,949,903,062

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

(628,092,682) 3,422,752,153

Properties foreclosed are acquired by assets transferred, by auction and by the repossession for the debt settlement. 31 December 2005 Consolidated Immovable assets Movable assets Baht Baht At beginning of year Additions Disposals At end of year Add (less): Provision for diminution in value of properties foreclosed Net properties foreclosed

96 Annual Report 2005

4,704,215,808 1,243,354,089 (431,790,677) 5,515,779,220 284,948,047 5,800,727,267

Total Baht

249,487,351 4,953,703,159 980,922,836 2,224,276,925 (992,855,281) (1,424,645,958) 237,554,906 5,753,334,126 (69,115,706) 168,439,200

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

Annual Report 2005 97

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

11. Properties foreclosed (contâ&#x20AC;&#x2122;d) 31 December 2005 Bank Immovable assets Movable assets Baht Baht At beginning of year Additions Disposals At end of year Less : Provision for diminution in value of properties foreclosed Net properties foreclosed

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

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

3,801,357,484 903,728,169 (398,960,115) 4,306,125,538 (735,990,378) 3,570,135,160

Total Baht

249,487,351 4,050,844,835 980,922,836 1,884,651,005 (992,855,281) (1,391,815,396) 237,554,906 4,543,680,444 (69,115,706) 168,439,200

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

31 December 2004 Consolidated Immovable assets Movable assets Baht Baht

Total Baht

4,004,936,701 1,202,152,283 (502,873,176) 4,704,215,808

102,208,393 466,246,733 (318,967,775) 249,487,351

4,107,145,094 1,668,399,016 (821,840,951) 4,953,703,159

20,726,751 4,724,942,559

(24,526,848) 224,960,503

(3,800,097) 4,949,903,062

31 December 2004 Bank Immovable assets Movable assets Baht Baht

Total Baht

3,145,265,536 1,049,380,358 (393,288,410) 3,801,357,484

102,208,393 466,246,733 (318,967,775) 249,487,351

3,247,473,929 1,515,627,091 (712,256,185) 4,050,844,835

(603,565,834) 3,197,791,650

(24,526,848) 224,960,503

(628,092,682) 3,422,752,153

KIATNAKIN BANK

82,033,946 – 82,033,946

82,033,946 – – (8,507,269) – – 73,526,677

73,526,677 – 73,526,677

For the year ended 31 December 2005 Opening net book amount Additions Disposals Reclassification asset Adjustment from change in accounting policy for joint venture Depreciation charge Closing net book amount

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

Land Baht

As at 31 December 2004 Cost Less: Accumulated depreciation Net book amount

12. Land, premises and equipment, net

Building Baht

98 Annual Report 2005 51,522,908 (24,354,865) 27,168,043

21,146,702 – (222,913) 8,507,269 – (2,263,015) 27,168,043

43,238,552 (22,091,850) 21,146,702

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

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

105,187,304 64,376,588 (402,972) – (488,867) (35,629,418) 133,042,635

401,868,940 (296,681,636) 105,187,304

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

96,215,878 64,518,742 – – (813,579) (28,396,752) 131,524,289

214,344,157 (118,128,279) 96,215,878

Consolidated Office Furniture equipment and fixtures Baht Baht

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

73,766,066 14,159,297 (1,205,939) – (359,530) (22,145,342) 64,214,552

123,555,779 (49,789,713) 73,766,066

Motor vehicle Baht

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

378,349,896 143,054,627 (1,831,824) – (1,661,976) (88,434,527) 429,476,196

865,041,374 (486,691,478) 378,349,896

Total Baht

KIATNAKIN BANK

82,033,946 – 82,033,946

82,033,946 – – (8,507,269) – 73,526,677

73,526,677 – 73,526,677

For the year ended 31 December 2005 Opening net book amount Additions Disposals Reclassification asset Depreciation charge Closing net book amount

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

Land Baht

As at 31 December 2004 Cost Less: Accumulated depreciation Net book amount

12. Land, premises and equipment, net (cont’d)

Building Baht

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

21,146,701 – (222,913) 8,507,269 (2,263,014) 27,168,043

37,256,616 (16,109,915) 21,146,701

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

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

39,608,514 43,276,370 (116,228) – (16,062,415) 66,706,241

147,127,182 (107,518,668) 39,608,514

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

21,155,805 40,364,539 – – (7,502,516) 54,017,828

72,999,148 (51,843,343) 21,155,805

Baml Office Furniture equipment and fixtures Baht Baht

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

46,372,198 10,250,997 (347,311) – (14,352,075) 41,923,809

84,416,521 (38,044,323) 46,372,198

Motor vehicle Baht

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

210,317,164 93,891,906 (686,452) – (40,180,020) 263,342,598

423,833,413 (213,516,249) 210,317,164

Total Baht

Annual Report 2005 99

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

13. Intangible assets, net Software Baht At 31 December 2004 Cost Less: Accumulated amortisation Net book value For the year ended 31 December 2005 Opening net book value Addition Amortisation charge Adjustment from change in accounting policy for joint venture– Closing net book value At 31 December 2005 Cost Less: Accumulated amortisation Net book value 31 December 2005

For the year ended 31 December 2005 Opening net book value Addition Amortisation charge Closing net book value At 31 December 2005 Cost Less: Accumulated amortisation Net book value 31 December 2005

Total Baht

59,223,185 (41,088,949) 18,134,236

5,832,790 (3,552,987) 2,279,803

18,134,236 58,998,690 (4,878,632)

2,279,803 240,000 (411,617)

69,660 – –

20,483,699 59,238,690 (5,290,249)

– 72,254,294

(69,660) 2,108,186

(69,660) –

74,362,480

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

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

– – –

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

Software Baht At 31 December 2004 Cost Less: Accumulated amortisation Net book value

Consolidated Leasehold right License fee Baht Baht

99,999 65,155,974 (30,339) (44,672,275) 69,660 20,483,699

Bank Leasehold right License fee Baht Baht

Total Baht

39,513,186 (32,142,822) 7,370,364

555,789 (555,789) –

– – –

40,068,975 (32,698,611) 7,370,364

7,370,364 58,082,692 (1,388,313) 64,064,743

– 240,000 (219,617) 20,383

– – – –

7,370,364 58,322,692 (1,607,930) 64,085,126

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

795,789 (775,406) 20,383

– – –

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

100 Annual Report 2005

Annual Report 2005 101

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

14. Other assets Consolidated 31 December 31 December 2005 2004 Baht Baht Interest and other income receivables Dividend receivables Other income receivables Deferred expenses – underwriting fee on bonds Prepaid output tax for hire purchase receivables Other receivables, net Refundable deposit Withholding tax Receivables from trading securities Receivables - subsidiary Receivables - Revenue Department Others Total other assets Underwriting fee expense on bond

Bank 31 December 31 December 2005 2004 Baht Baht

22,258,981 – 7,491,477

19,588,695 651,337 9,041,456

20,359,540 – 7,458,904

19,248,337 – 7,725,647

5,399,337 37,410,681 9,568,523 93,083,966 8,400,437 208,073,955 – 8,695,996 65,011,611 465,395,014

9,274,740 25,272,345 1,152,550 28,051,090 25,037,861 198,720 – 23,647,029 50,905,473 192,821,296

5,399,337 37,410,681 2,288,016 83,417,331 5,618,391 31,199,675 374,823 8,695,996 31,443,079 233,665,773

9,274,740 25,272,345 367,440 18,381,661 24,041,342 922,778 1,039,275 23,647,029 18,056,444 147,977,038

3,394,194

3,403,493

3,394,194

3,403,493

Interest, other income receivable and other receivable as at 31 December 2005 are shown of Baht 122,904 in the consolidated and the bank financial statements (31 December 2004: Baht 111,299).

15. Deposits a) Classified by type Consolidated 31 December 31 December 2005 2004 Baht Baht Current accounts Saving deposits Term deposits – Less than 6 months – 6 months to one year – Over one year Promissory notes Certificates of deposit Bill of exchange Total deposits

4,037,436 47,508,419

– –

Bank 31 December 31 December 2005 2004 Baht Baht 4,037,436 47,508,419

– –

7,938,931,116 – 9,123,931,116 – 619,049,039 – 619,049,039 – 1,329,429,295 – 1,329,429,295 – 29,449,100,600 30,579,217,096 29,449,100,600 30,590,217,096 7,565,980 36,875,730 7,565,980 36,875,730 1,000,000,000 1,000,000,000 1,000,000,000 2,300,000,000 40,395,621,885 31,616,092,826 41,580,621,885 32,927,092,826

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

15. Deposits (contâ&#x20AC;&#x2122;d) b) Classified by maturity Consolidated 31 December 31 December 2005 2004 Baht Baht Less than 6 months Less than one year Over one year Total deposits

Bank 31 December 31 December 2005 2004 Baht Baht

16,584,275,883 20,122,618,870 17,769,275,883 21,433,618,870 5,739,759,514 4,091,644,559 5,739,759,514 4,091,644,559 18,071,586,488 7,401,829,397 18,071,586,488 7,401,829,397 40,395,621,885 31,616,092,826 41,580,621,885 32,927,092,826

c) Classified by currency and territory 31 December 2005 Domestic Thai Baht Total deposits

40,312,065,293 40,312,065,293

Consolidated Foreign

Total

Domestic

83,556,592 40,395,621,885 41,497,065,293 83,556,592 40,395,621,885 41,497,065,293

Bank Foreign

Total

83,556,592 41,580,621,885 83,556,592 41,580,621,885

31 December 2004 Domestic Thai Baht Total deposits

31,560,740,185 31,560,740,185

Consolidated Foreign

Total

Domestic

55,352,641 31,616,092,826 32,871,840,185 55,352,641 31,616,092,826 32,871,840,185

102 Annual Report 2005

Bank Foreign

Total

55,352,641 32,927,092,826 55,352,641 32,927,092,826

Annual Report 2005 103

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

16. Interbank and money market items - Domestic items (Liabilities) 31 December 2005 On demand Commercial Banks Finance, Securities and Credit froncier Other financial institutions Total

Consolidated Term

Total

On demand

53,042,189

30,000,000

83,042,189

12,745,037

49,502

599,455,484

299,504,986

2,641,600,000 2,641,600,000 2,971,055,484 3,024,147,175

– 53,091,691

Bank Term

Total

–

12,745,037

49,502

321,000,000

321,049,502

– 12,794,539

2,641,600,000 2,962,600,000

2,641,600,000 2,975,394,539

Bank Term

Total

31 December 2004 On demand Commercial Banks 741,593,147 Finance, Securities and Credit froncier – Other financial institutions – Total 741,593,147

Consolidated Term

Total

On demand

–

741,593,147

621,302,252

–

621,302,252

451,869,998

–

467,000,000

1,608,500,000 2,075,500,000

1,608,500,000 2,696,802,252

1,608,500,000 1,608,500,000 2,060,369,998 2,801,963,145

– 621,302,252

17. Long-term borrowings Consolidated and Bank 2005 2004 Baht Baht At beginning of year Less: Redemption during year Add: Issuing during year At end of year

6,435,000,000 – – 6,435,000,000

KIATNAKIN BANK

104 Annual Report 2005

4.40 per annum 4.00 per annum 2.40 per annum

KK079A KK073A KK087A

1,000 1,000 1,000 1,000 1,500,000 1,000,000 935,000 3,000,000 6,435,000

31 December 2004

– – – – –

Redemption during year

– – – – –

Issuing during year

1,500,000 1,000,000 935,000 3,000,000 6,435,000

31 December 2005

2nd of March and September 2nd of March and September 16th of March and September 17th of January and July

Term of interest payment

2 September 2006 2 September 2007 16 March 2007 17 July 2008

Due for redemption

The bank entered into interest rate swap agreement for KK079A. The details of interest rate swap agreement have been disclosed in note 30.

6.25 - 6 month fixed deposit interest rate per annum for year 2004 and 2005 and 4.15 per annum for year 2005 and 2006

KK069A

Interest rate (percentage)

Unit : share Par value (Baht)

The details of unsecured and senior bonds are as follows:

17. Long-term borrowings (cont’d)

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

KIATNAKIN BANK

Annual Report 2005 105

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

18. Other liabilities

Accrued interest expenses Other accounts payable Stocks subscription payable Accrued bonus Accrued fee and other expenses Income tax payable Specific business tax payable Value added tax payable Up-front fee Others Total other liabilities

Consolidated 31 December 31 December 2005 2004 Baht Baht

Bank 31 December 31 December 2005 2004 Baht Baht

298,267,173 278,122,517 92,221,860 213,895,032 89,047,439 141,127,630 65,647,513 1,434,232 170,995,372 195,915,740 1,546,674,508

299,732,695 267,364,907 92,221,860 199,761,948 47,337,128 141,127,630 65,482,541 â&#x20AC;&#x201C; 170,995,372 129,157,686 1,413,181,767

246,954,186 343,744,530 218,570,228 254,496,006 83,986,260 124,209,871 50,469,056 2,111,696 303,054,646 121,764,048 1,749,360,527

247,683,201 352,261,110 218,570,228 202,114,978 19,373,215 123,595,128 50,319,589 8,563 303,054,646 46,685,075 1,563,665,733

19. Share capital Ordinary shares Consolidated 31 December 31 December 2005 2004 Baht Baht

Bank 31 December 31 December 2005 2004 Baht Baht

Registered 715,460,030 ordinary shares of Baht 10 each (31 December 2004: 715,460,030 ordinary shares)

7,154,600,300

Issued and fully paid-up 495,973,285 ordinary shares of Baht 10 each (31 December 2004: 471,101,192 ordinary shares)

4,959,732,850

4,711,011,920

4,959,732,850

4,711,011,920

KIATNAKIN BANK

106 Annual Report 2005

–

– 90,315,082

– – 2.30 90,315,082 – –

Amount (Baht) 56,900 – 20,317,510 46,730,273 1,026,000 –

Exercise (Unit)

69,750 740,250 – 69,750 22,140,660 46,730,273

– – –

Cancel (Unit)

1.00000

1.29217 1.13362 1.00000 740,250 24,872,093

73,521 23,032,322 1,026,000

Decrease during the year Exercise rate to purchase Share capital ordinary share issued during Amount per 1 unit of year (Baht) warrant (Share) Amount (Baht)

15.62

11,562,705 224,250 316,784,872 140,449,153

–

– 2.30 –

Price per unit Unit (Baht)

10.00 735,210 459,363 12.35 284,449,177 18,949,917 19.53 20,037,780 120,815,623

Exercise price (Baht)

– 43,584,809

– 43,584,809 –

Amount (Baht)

31 December 2005

Warrant KK # 2 can be exercised on the 30th of every quarter ended starting from 30 December 1998 to 30 September 2008. Warrant KK # 3 can be exercised on the 30th of every quarter ended starting from 31 December 1999 to 30 March 2009. Warrant KK # 4 can be exercised on the 30th of every quarter ended starting from 30 March 2001 to 30 December 2010. ESOP warrant which offered to the management, to directors and employees of the bank and of its subsidiaries can be exercised on the 30th of every quarter ended throughout the 4 years, from 2002 to 2005.

KK # 2 516,263 KK # 3 39,267,427 KK # 4 121,841,623 ESOP Warrant 1,034,250 162,659,563

Price per unit Unit (Baht)

31 December 2004

Warrants

19. Share capital (cont’d)

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

KIATNAKIN BANK

Annual Report 2005 107

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

20. Capital funds The capital fund maintained by the bank under Section 4 of the Commercial Bank Act, B.E. 2505 (31 December 2004: under the Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business, B.E. 2522) are as follows: Bank 30 Deceember 2005 31 December 2004 Baht Baht Tier 1 capital Issued and paid-up capital Warrants Share premium Legal reserve General reserve Unappropriated retained earnings Total tier 1 capital

4,959,732,850 43,584,809 2,479,979,786 558,736,906 380,000 7,654,384,124 15,696,798,475

4,711,011,920 90,315,082 2,365,185,571 448,312,407 380,000 6,433,392,240 14,048,597,220

Tier 2 capital Allowance for normal classification loans Unrealised loss on investment in available for sales equity securities Total tier 2 capital Total capital fund

226,566,058 (38,396,422) 188,169,636 15,884,968,111

279,365,482 (1,443,543) 277,921,939 14,326,519,159

Risk weighted assets per capital ratio maintained by the bank as the BOT requirement are as follows: Bank 31 December 2005 Bank ratio Minimum required by BOT Tier 1 capital to risk weighted assets Capital funds to risk weighted assets

24.32% 24.61%

4.25% 8.50%

31 December 2004 Bank ratio Minimum required by BOT 25.30% 25.80%

KIATNAKIN BANK

4.00% 8.00%

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

21. Legal reserve Under the Public Limited Company Act., B.E. 2535, the bank allocates not less than 5 percent of its annual net profit less the accumulated loss brought forward (if any) to a reserve until this fund attains an amount not less than 10 percent of the registered share capital.

22. Other income Consolidated 31 December 31 December 2005 2004 Baht Baht Penalty income Profit from sales fixed assets Profit from interest rate swap Other income Total other income

40,729,191 2,538,367 22,917,808 9,115,748 75,301,114

26,390,394 5,239,320 48,893,144 28,999,720 109,522,578

Bank 31 December 31 December 2005 2004 Baht Baht 40,338,746 1,557,986 22,917,808 4,092,573 68,907,113

25,235,418 3,764,454 48,893,144 4,217,774 82,110,790

23. Other expenses Consolidated 31 December 31 December 2005 2004 Baht Baht Commission expense on hire-purchase contracts Foreclosed assets appraisal expenses Repossessed cars repair expenses Provision for off-balance sheet items according to BOT notification Bank organization expenses Other expenses Total other expenses

Bank 31 December 31 December 2005 2004 Baht Baht

129,079,921 32,604,203 113,564

85,903,679 39,098,783 144,870

129,079,921 28,462,606 113,564

85,903,679 34,768,753 144,870

63,187,776 65,467,762 441,439,722 731,892,948

– 7,530,756 388,935,769 521,613,857

63,187,776 65,467,762 333,320,300 619,631,929

– 7,530,756 281,418,682 409,766,740

108 Annual Report 2005

Annual Report 2005 109

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

24. Income tax Bank For the year ended 31 December 2005 2004 Baht Baht Income before income tax Income not subject to tax or additional deductible expense Expenses not deductible for tax purposes Loss from liquidation of subsidiary Unutilised tax losses brought forward Taxable income Corporate income tax Add : Adjustment income tax of last year Total

2,711,434,703

2,340,587,422

(1,162,599,322) 243,725,292 (869,412,283) – 923,148,390

(1,061,351,429) 471,591,103 – (1,310,502,258) 440,324,838

261,944,517 13,488,878 275,433,395

132,097,452 – 132,097,452

Income tax, which presented in consolidated financial statements for the year ended 31 December 2005 and 2004 included the income tax of subsidiaries at nil and Baht 20.08 million, respectively.

25. Earnings per share Consolidated and Bank 31 December 2005 Income available Ordinary Baht shares Basic earnings per share Net profit available to ordinary shareholders Effect of assumed conversion Warrants Diluted earnings per share Net profit available to ordinary shareholders plus assumed conversions

2,436,001,308

–

2,436,001,308

492,100,203

Per share Baht 4.95

57,000,042

549,100,245

KIATNAKIN BANK

4.44

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

25. Earnings per share (cont’d) Consolidated and Bank 31 December 2004 Income available Ordinary Baht shares Basic earnings per share Net profit available to ordinary shareholders Effect of assumed conversion Warrants Diluted earnings per share Net profit available to ordinary shareholders plus assumed conversions

2,208,489,970 –

2,208,489,970

463,343,924

Per share Baht 4.77

87,309,365

550,653,289

4.01

26. Commitments a) The bank has operating lease commitments in respect of office space, payable from the balance sheet date as follows: 31 December 2005 Consolidated Office space Computer software expense expense Baht Baht Within one year Within two years Over three years

68,482,173 63,819,642 29,928,155 162,229,970

Within one year Within two years Over three years

36,660,117 36,250,116 75,521,075 148,431,308

105,142,290 100,069,758 105,449,230 310,661,278

31 December 2005 Bank Office space Computer software expense expense Baht Baht

Total Baht

41,628,841 40,350,261 18,924,891 100,903,993

110 Annual Report 2005

Total Baht

36,660,117 36,250,116 75,521,075 148,431,308

78,288,958 76,600,377 94,445,966 249,335,301

Annual Report 2005 111

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

26. Commitments (cont’d) a) The bank has operating lease commitments in respect of office space, payable from the balance sheet date as follows: (cont’d) 31 December 2004 Consolidated Office space Computer software expense expense Baht Baht Within one year Within two years Over three years

28,851,632 11,191,620 5,471,555 45,514,807

– – – –

28,851,632 11,191,620 5,471,555 45,514,807

31 December 2004 Bank Office space Computer software expense expense Baht Baht Within one year Within two years Over three years

8,298,111 1,070,316 388,105 9,756,532

Total Baht

– – – –

Total Baht 8,298,111 1,070,316 388,105 9,756,532

b) The bank has commitments in respect of assets received in satisfaction of trouble debts restructuring. The bank has granted an option to debtors for repurchasing the assets within 1 - 5 years. The bank has recorded the referred assets in financial statements under “Foreclosed assets”. The details of such assets classified by outstanding term of contract are as follows: 31 December 2005 Baht Less than 2 months 2 - 12 months Over 12 months but less than 24 months Over 24 months but less than 36 months Over 36 months but less than 60 months

31 December 2004 Baht

– – – – – –

KIATNAKIN BANK

2,585,277 276,155,670 28,651,345 34,276,541 21,331,476 363,000,309

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

27. Contingent liabilities Consolidated and Bank 31 December 2005 31 December 2004 Baht Baht Guarantee - Loans Aval bills of exchange Commitments on interest rate swap contract

926,338,256 19,876,000 1,000,000,000

631,938,615 62,054,644 1,000,000,000

28. Segment information Consolidated (Baht’million) For the year ended 31 December 2005 Banking business Securities business Total Net interest and dividend income after bad debts and doubtful accounts Non-interest income

3,308.29 1,170.69

19.42 362.97

3,327.71 1,533.66

Total income

4,478.98

382.39

4,861.37

Non-interest expenses Income tax

(1,754.01) (275.43)

(393.41) –

(2,147.42) (275.43)

Total expenses

(2,029.44)

(393.41)

(2,422.85)

Income before minority interests Less : Share in net income to minority interests

2,449.54 (2.52)

(11.02) –

2,438.52 (2.52)

Net income (loss) for year

2,447.02

(11.02)

2,436.00

Consolidated (Baht’million) For the year ended 31 December 2004 Banking business Securities business Total Net interest and dividend income after bad debts and doubtful accounts Non-interest income

2,795.92 920.10

11.52 518.52

2,807.44 1,438.62

Total income

3,716.02

530.04

4,246.06

Non-interest expenses Income tax

(1,403.44) (132.24)

(479.75) (19.88)

(1,883.19) (152.12)

Total expenses

(1,535.68)

(499.63)

(2,035.31)

Income before minority interests Less: Share in net income to minority interests

2,180.34 (2.26)

30.41 –

2,210.75 (2.26)

Net income for year

2,178.08

30.41

2,208.49

112 Annual Report 2005

Annual Report 2005 113

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

28. Segment information (cont’d) Consolidated (Baht’million) 31 December 2005 Finance business Securities business Total Net investment in securities Net loans, receivables and accrued interest receivable Net investment in loans Net investment in properties Other assets

3,571.04 42,212.01 10,154.05 163.89 10,684.18

134.27 535.99 – – 595.39

3,705.31 42,748.00 10,154.05 163.89 11,279.57

Total assets

66,785.17

1,265.65

68,050.82

Consolidated (Baht’million) 31 December 2004 Banking business Securities business Total Net investment in securities Net loans, receivables and accrued interest receivable Net investment in loans Net investment in properties Other assets

2,336.78 34,387.19 11,501.48 213.04 7,489.64

377.11 584.04 – – 565.02

2,713.89 34,971.23 11,501.48 213.04 8,054.66

Total assets

55,928.13

1,526.17

57,454.30

The bank operates only in Thailand and no segment information by geographical area is presented accordingly.

29. Staff provident fund The bank paid to provident fund for the year ended 31 December 2005 amount of Baht 7,278,370 (31 December 2004 : Baht 6,088,332).

30. Financial instruments Risks relating to significant financial instruments held by the bank are summarised below: Credit risk The group has policies in place to ensure that loans are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The group has policies that limit the amount of credit exposure to any client or financial institution.

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d) Concentration of credit risk relative to the bank’s loans and receivables summarised by type of industry is as follows: 31 December 2005 Consolidated Bank Baht’ 000 Baht’ 000

31 December 2004 Consolidated Bank Baht’ 000 Baht’ 000

Agriculture and mining Manufacturing and commerce Real estate and constructions Utilities and services Housing loans Hire purchase - automobile Others

62,000 2,157,491 17,488,289 1,176,080 111,690 23,556,204 1,570,442

62,000 2,157,491 17,488,289 1,176,080 111,690 23,556,204 1,002,308

104,587 2,271,517 14,891,850 817,251 151,509 18,097,158 1,708,048

104,587 2,271,517 14,891,850 817,251 151,509 18,097,382 1,101,424

Total loans and receivables

46,122,196

45,554,062

38,041,920

37,435,520

Interest Rate Risk and Liquidity Risk The matching of the long-term source of funds and investment or long-term loans is the fundamental of the bank’s liquidity risk management. In addition, the management over liabilities with the proper maturity and low funding cost is also the bank’ s fundamental. It is unusual for the bank ever to be completely matched since business transacted is often of uncertain term and of different types. The bank has the committee to control over interest rate risk and liquidity risk by having weekly meeting to completely match, at an acceptable cost. Interest rate risk Most of the bank’s assets are subject to fluctuations in interest rate in the market. Interests on loans and receivables are mainly based on fixed rate. Partly are based on floating rate, linked to, for examples, Minimum Lending Rate (MLR) plus or Minimum Overdraft Rate (MOR) plus. Loans and receivables as at 31 December 2005 summarised under fixed and floating interest rate classifications are as follows: 31 December 2005 Consolidated Bank Baht’ 000 Baht’ 000

31 December 2004 Consolidated Bank Baht’ 000 Baht’ 000

Loans and receivables with fixed interest rate Loans and receivables with floating interest rate

42,353,646 3,768,550

42,353,646 3,200,417

34,579,463 3,462,457

34,579,688 2,855,832

Total loans and receivables

46,122,196

45,554,063

38,041,920

37,435,520

The average balances of significant performing financial assets and financial liabilities, including the average interest and dividend income are summarised as follows:

114 Annual Report 2005

Annual Report 2005 115

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d) Bank For the year ended 31 December 2005 Average Interest and outstanding balances dividend income Average rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposits and Interbank and money market items Borrowing

630,423 11,859,908 6,461,792 42,932,780 2,336,667

66 1,271,522 344,034 4,297,982 72,339

0.01 10.72 5.32 10.01 3.10

64,221,570

5,985,943

9.32

42,218,967 6,435,000

1,333,021 211,692

3.16 3.29

48,653,967

1,544,713

3.17

Consolidated For the year ended 31 December 2005 Average Interest and outstanding balances dividend income Average rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposits and Interbank and money market items Borrowing

1,213,068 2,725,155 9,776,023 44,341,203 1,880,000

1,590 126,806 1,083,858 4,304,344 72,339

0.13 4.65 11.09 9.71 3.85

59,935,449

5,588,937

9.32

41,244,780 6,435,000

1,294,124 211,692

3.14 3.29

47,679,780

1,505,816

3.16

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d) Bank For the year ended 31 December 2004 Average Interest and outstanding balances dividend income Average rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposits and Interbank and money market items Borrowing

427,358 12,848,378 4,841,293 30,927,185 916,667

641 1,191,160 162,308 3,257,159 15,802

0.15 9.27 3.35 10.53 1.72

49,960,881

4,627,070

9.26

28,424,094 6,435,000

736,757 228,433

2.59 3.55

34,859,094

965,190

2.77

Consolidated For the year ended 31 December 2004 Average Interest and outstanding balances dividend income Average rate Baht’ 000 Baht’ 000 % Significant performing financial assets Interbank and money market items Net investment in securities Net investment in loans Loans Securities purchased under resale agreements

Significant financial liabilities Deposits and Interbank and money market items Borrowing

116 Annual Report 2005

1,077,958 3,316,030 9,467,639 32,796,708 950,000

10,469 138,438 1,026,491 3,254,771 19,815

0.97 4.17 10.84 9.92 2.09

47,608,335

4,449,984

9.35

28,443,907 6,435,000

724,078 228,433

2.55 3.55

34,878,907

952,511

2.73

Annual Report 2005 117

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d) Liquidity risk Significant assets and liabilities of the bank analysed by relevant maturity groupings are as follows:

On demand

Bank As at 31 December 2005 Within 1 year Over 1 year

(Baht’000) Total

Significant assets Cash Interbank and money market items Securities purchased under resale agreements Net investment in securities Net investment in loans Hire purchase receivables Loans and bills receivable

64,191 1,753,475 – – – – 163,295

– 198,002 1,480,000 989,608 – 10,077 1,852,632

– – – 12,303,687 5,048,864 23,546,127 19,981,932

64,191 1,951,477 1,480,000 13,293,295 5,048,864 23,556,204 21,997,859

Total financial assets

1,980,961

4,530,319

60,880,610

67,391,890

Significant liabilities Deposits Interbank and money market items Borrowing

51,899 12,795 –

31,487,702 575,000 –

10,041,020 2,387,600 6,435,000

41,580,621 2,975,395 6,435,000

Total financial liabilities

64,694

32,062,702

18,863,620

50,991,016

Consolidated As at 31 December 2004 Within 1 year Over 1 year

(Baht’000)

On demand

Total

Significant assets Cash Interbank and money market items Securities purchased under resale agreements Net investment in securities Net investment in loans Net investment in properties Hire purchase receivables Loans and bills receivable

65,646 2,124,119 – – – – – 165,511

– 200,704 1,480,000 2,096,707 737,983 – 10,077 2,386,643

– – – 1,608,599 9,416,070 163,895 23,546,127 20,013,838

65,646 2,324,823 1,480,000 3,705,306 10,154,053 163,895 23,556,204 22,565,992

Total financial assets

2,355,276

6,912,114

54,748,529

64,015,919

51,899 53,092 –

30,302,703 583,455 –

10,041,020 2,387,600 6,435,000

40,395,622 3,024,147 6,435,000

104,991

30,886,158

18,863,620

49,854,769

Significant liabilities Deposits Interbank and money market items Borrowing Total financial liabilities

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d)

On demand

Bank As at 31 December 2004 Within 1 year Over 1 year

(Baht’000) Total

2,898 731,533 – – – – 48,452

– 79,201 920,000 1,333,369 – 13,305 1,621,640

– – – 10,635,629 5,936,356 18,084,078 17,668,045

2,898 810,734 920,000 11,968,998 5,936,356 18,097,383 19,338,137

Total financial assets

782,883

3,967,515

52,324,108

57,074,506

Significant liabilities Deposits Interbank and money market items Borrowing

34,869 621,302 –

8,366,257 855,000 –

24,525,967 1,220,500 6,435,000

32,927,093 2,696,802 6,435,000

Total financial liabilities

656,171

9,221,257

32,181,467

42,058,895

Consolidated As at 31 December 2004 Within 1 year Over 1 year

(Baht’000)

On demand

Total

5,961 1,168,621 150,000 – – – 53,516

– 1,894 920,000 1,676,059 3,851,015 13,305 2,191,417

– – – 1,037,832 7,650,468 18,083,854 17,699,828

5,961 1,170,515 1,070,000 2,713,891 11,501,483 18,097,159 19,944,761

Total financial assets

1,378,098

8,653,690

44,471,982

54,503,770

Significant liabilities Deposits Interbank and money market items Borrowing

– 826,593 –

7,090,129 754,870 –

24,525,964 1,220,500 6,435,000

31,616,093 2,801,963 6,435,000

Total financial liabilities

826,593

7,844,999

32,181,464

40,853,056

Fair values The carrying amounts of financial assets and financial liabilities approximate to their fair values.

118 Annual Report 2005

Annual Report 2005 119

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

30. Financial instruments (cont’d) Interest rate swaps The bank has entered into interest rate swap contracts to reduce interest rate risk for long-term bonds which has fixed interest rate. The bank has entered into interest rate swap contracts for KK079A bonds with fixed interest rate that entitle it to receive interest at floating rates on notional amounts and oblige it to pay interest at fixed rate on the same amounts. Under the interest rate swaps, the bank agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts. At 31 December 2005, the notional principal amounts is Baht 1,000 million, the fixed rate is 4.40% per annum and the floating rate is linked to MLR 4 bank average - 3.60% per annum. The interest rate swaps will be matured on 2 September 2007. The net fair value of the interest rate swap was 31 December 2005 Baht

31 December 2004 Baht

20,553,639

35,373,426

Favourable interest rate swap contract

The fair value of interest rate swap has been calculated using rate quoted by the banker to terminate the contract at the balance sheet date.

31. Troubled debts restructuring As at 31 December 2005, the bank has completed the troubled debts restructuring and loss incurring with 7 debtors (31 December 2004 : 10 debtors) who have the outstanding balance before restructuring amount of Baht 30.19 million (31 December 2004 : 161.60 million). The bank has recognised a loss on a restructuring for the year amount of Baht 7.55 million (31 December 2004 : 40.24 million) in the statement of income under “Loss on troubled debt restructuring”.

Restructuring conditions Modifications of payment terms Transfer of properties and/or transfer of equity and/or modifications of payment terms Total

Number of loans

Consolidated and Bank 31 December 2005 Outstanding Outstanding balance balance before TDR(1) after TDR(1) (Baht’million) (Baht’million)

15.85

2 7

14.34 30.19

Type of assets transferred

Fair value of assets (Baht’million)

Land and buildings

13.44

6.50

– 6.50

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

31. Troubled debts restructuring (cont’d)

Number of loans

Restructuring conditions Modifications of payment terms Transfer of properties and/or transfer of equity and/or modifications of payment terms

141.21

2 10

Total (1)

Consolidated and Bank 31 December 2004 Outstanding Outstanding balance balance before TDR(1) after TDR(1) (Baht’million) (Baht’million)

20.39 161.60

Type of assets transferred

Fair value of assets (Baht’million)

Equity stock, land and buildings

11.10

44.97

10.90 55.87

Net book value (principle including accrued interest).

32. Information on quality of assets The quality of assets classified in accordance with the guidelines of the Securities Exchange Commission as at 31 December 2005 are as follows:

a) Investment in securities The bank has investment in debt instruments in companies, which were ordered to discontinue their operations and defaulted their debts as follows: Consolidated and Bank Type of investment Financial institutions whose operations have been close down Financial institutions whose operations have been close down Non-listed companies which have default on interest payment Non-listed companies which have default on interest payment

Unsecured debenture Senior debenture Senior debenture Convertible debenture

(Baht’million) Market Value Provision

Numbers

Cost

–

– –

The bank has recognised impairment loss on such debt instruments to the statement of income in the year when incurred.

120 Annual Report 2005

Annual Report 2005 121

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

32. Information on quality of assets (Cont’d) b) Loans and accrued interest receivable The bank has given loans and accrued interest receivables to companies who face the financial difficulties and provided related allowance for doubtful accounts in the consolidated and the bank financial statements as follows: Consolidated and Bank

Listed company which is under restructuring plan Company which is under default problem

Numbers

Total debts

Collateral

(Baht’million) Allowance for doubtful accounts

4 122 126

365 3,182 3,547

105 3,878 3,983

195 943 1,138

33. Related parties transactions The following material transactions were carried out with related parties

a) Income Bank 31 December 2005 31 December 2004 Baht’million Baht’million

For the year ended Fee and services income Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Brokerage/other income Kiatnakin Securities Co., Ltd. Interest, dividend income and gain on repurchasing of unit trust Kiatnakin Securities Co., Ltd Devonshire Kiatnakin Co., Ltd Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3

1.20 1.20 1.20 2.40 6.00

1.22 1.60 1.20 2.90 6.92

4.74

4.81

4.73 – – – – – – – 4.73

2.95 0.03 114.93 266.64 106.84 227.50 21.50 232.81 973.20

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

33. Related parties transactions (cont’d) The consolidated financial statements for the year ended 2005 included the brokerage income received from Kiatnakin Bank Public Company Limited and the directors and management at the position of department head and above amounting to Baht 2.43 million and Baht 2.54 million, respectively (2004: 3.72 million and 5.06 million).

b) Expenses Bank 31 December 2005 31 December 2004 Baht’million Baht’million

For the year ended

Interest and discounts on borrowing Kiatnakin Securities Co., Ltd. Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3 Directors and management at the position of department head including their related person have control or significant influences Rental and services expenses Amarin Plaza Co., Ltd. Other expenses Devonshire Kiatnakin Co., Ltd

2.51 6.02 10.09 9.23 3.10 1.83 8.52

1.80 1.15 4.48 2.26 0.59 0.36 3.91

34.78 76.09

3.52 18.07

17.05

23.07

–

0.19

c) Outstanding balances Bank 31 December 2005 31 December 2004 Baht’million Baht’million Loans to financial institutions / Other receivables / Other assets Kiatnakin Securities Co., Ltd. Devonshire Kiatnakin Co., Ltd Other liabilities - Accrued interest expenses Kiatnakin Securities Co., ltd. Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Asia Recovery Property fund 1 Asia Recovery Property fund 3 Thai Restructuring Fund

122 Annual Report 2005

21.04 – 21.04

166.78 0.22 167.00

0.37 0.28 0.42 0.40 – – – 1.47

10.87 0.07 0.16 0.09 0.01 0.13 0.01 11.34

Annual Report 2005 123

KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

33. Related parties transactions (cont’d) c) Outstanding balances (cont’d) Bank Weighted Average Balance 31 December 31 December 31 December 31 December 2005 2004 2005 2004 Baht’ million Baht’ million Baht’ million Baht’ million Borrowings and deposits Kiatnakin Securities Co., Ltd Asia Recovery Fund 1 Asia Recovery Fund 2 Asia Recovery Fund 3 Thai Restructuring Fund Asia Recovery Property Fund 1 Asia Recovery Property Fund 3 Asia Recovery Property Fund 5 Director and management at the position of department head including their related person have control or significant influences

174.29 271.72 458.43 425.10 138.36 68.02 400.03 –

365.54 355.50 1,265.36 669.71 159.18 76.51 1,115.49 –

21.54 305.00 455.00 425.00 – – – –

15.13 200.00 438.00 253.00 40.00 20.00 360.00 –

149.33 2,085.28

766.91 4,774.20

81.89 1,288.43

35.90 1,362.03

As at 31 December 2005, close members of directors are co-guarantors for loans amounted to Baht 54.4 million (31 December 2004 : Baht 54.4 million).

d) Pricing policies Transactions between the bank and related parties have been priced as follows: ●

Fee and services income, which the funds paid to the bank calculated at the rate specified in service agreement.

●

Income under commitment agreement under securities business receivables received on outstanding balance, which the bank could not claim from securities business receivables.

●

Other income based on actual cost incurred.

●

Interest income based on market price.

●

Dividend income received as the rate declared by the fund.

●

Gain on repurchasing of unit trust is calculated from net asset value of unit trust at the repurchased date deducted by the carrying value.

●

Brokerage commission charges at the same rate given to third parties

●

Interest and discounts on borrowing based on market price

KIATNAKIN BANK

KIATNAKIN BANK KIATNAKIN BANK PUBLIC COMPANY LIMITED NOTES TO CONSOLIDATED AND BANK FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2005 AND 2004

34. Benefits paid to directors and executives The company has no special benefits given to the directors and executives beyond the general benefits made as usual such as directors remuneration, executives salary and bonus (if any) included ESOP warrants as disclosed in Note 19. Monetary remunerations paid to directors are as follow: Consolidated 2005 2004 Baht Baht Monetary directors’ remunerations

7,215,000

10,706,667

Bank 2005 Baht 5,010,000

2004 Baht 8,125,000

35. Dividend At the Ordinary Shareholders’ Meeting date 7 April 2005, the shareholders resolved that dividends be paid from the operating results for the period from 1 July - 31 December 2004 at Baht 1.25 per share. Total dividends paid amount of Baht 610,242,797 was paid on 29 April 2005. Consequently an amount of Baht 110,424,499 was approved to transfer to the legal reserve. At the Board of Director’s Meeting no. 7/2548 held on 28 July 2005, the board resolved that the interim dividends be paid from the operating results for the period from 1 January - 30 June 2005 at Bath 1.00 per share. Total dividend paid amount of Baht 494,342,128 was paid on 25 August 2005.

124 Annual Report 2005

Annual Report 2005 125

û†

KIATNAKIN BANK PUBLIC COMPANY LIMITED BRANCHES 1. Chiang Mai Branch 33 Chiang Mai-Lampang Road, Chiang Mai 50000 Tel. 0-5321-8711-3 Fax. 0-5340-9625

9. Surat Thani Branch 22/144-146 Rad-Uthit Road, Surat Thani 84000 Tel. 0-7721-7405-7 Fax. 0-7721-7408

2. Chonburi Branch 7/41 Moo 4 Sukhumvit Road, Chonburi 20130 Tel. 0-3838-4946-9 Fax. 0-3838-4950

10. Ubon Ratchathani Branch 466 Suriyat Road, Ubon Ratchatani 34000 Tel. 0-4520-9260 Fax. 0-4520-9258

3. Hadyai Branch 24,24/1 Suwanwong Road, Had Yai, Songkhla 90110 Tel. 0-7434-6262 Fax. 0-7434-6260

11. Nakhon Sawan Branch Ng.33/58-59 Doaw-Dueng Road, Nakhon Sawan, 60000 Tel. 0-5622-0973-6 Fax. 0-5622-0977

4. Khon Kaen Branch 9/2 Prachasamosorn Road, Khon Kaen 40000 Tel. 0-4333-7725-32 Fax. 0-4333-7734

12. Udon Thani Branch 119/7-8 Moo 14, Soi Ban Kao Jan , Udon Thani 41000 Tel. 0-4222-4270-4 Fax. 0-4222-4275

5. Nakhon Ratchasima Branch 192/1-4 Jomsurangyart Road, Nakorn Ratchasima 30000 Tel. 0-4426-0401-8 Fax. 0-4426-0409

13. Chiang Rai Branch 56/5-6 Moo 13, Paholyothin Road, Chiang Rai 57000 Tel. 0-5371-9427-32 Fax. 0-5371-9434

6. Phitsanulok Branch 286/10 Pichaisongkram Road, Pitsanulok 65000 Tel. 0-5521-1683-6 Fax. 0-5521-1687

14. Nakhon Si Thammarat Branch 6/144-5 Pattanakarn-Koo-Khang Road, Nakhon Si Thammarat 80000 Tel. 0-7535-8531-6 Fax. 0-7535-8538

7. Ratchaburi Branch 286/25-26 Srisuriyawong Road, Ratchaburi 70000 Tel. 0-3231-0382-9 Fax. 0-3231-0391 8. Rayong Branch 375/4-5 Sukhumvit Road, Rayong 21000 Tel. 0-3880-8090-4 Fax. 0-3880-8095

15. Phuket Branch 101/2 Bangkok Road, Phuket 83000 Tel. 0-7622-3464 Fax. 0-7622-3550 16. Asoke Branch 209/1 CIMIC B Building Sukhumvit 21 Road, Bangkok 10110 Tel. 0-2625-5000 Fax. 0-2664-1454

KIATNAKIN BANK

KIATNAKIN BANK û†

KIATNAKIN SECURITIES COMPANY LIMITED BRANCHES Provinces 1. Chiang Mai Branch 33 Chiang Mai-Lampang Road, Chiang Mai 50000 Tel. 0-5322-0753-60 Fax. 0-5322-0763 2. Chonburi Branch 7/18 Moo 4 Sukhumvit Road, Chonburi 20130 Tel. 0-3838-4931-43 Fax. 0-3838-4794 3. Chonburi II Branch 342 Vachiraprakarn Road, Chonburi 20000 Tel. 0-3828-8145-50 Fax. 0-3828-8556 4. Hadyai Branch 200 Nipat - uthit 3 Road, Songkhla 90110 Tel. 0-7435-4470-9 Fax. 0-7423-9515 5. Khon Kaen Branch 9/2 Prachasamosorn Road, Khon Kaen 40000 Tel. 0-4333-7700-24 Fax. 0-4333-7721 6. Nakhon Ratchasima Branch 1242/2 The Mall Building th 6 Floor, Mitapab Road, Nakorn Ratchasima 30000 Tel. 0-4428-8424-37 Fax. 0-4428-8438 7. Phisanulok Branch rd 83/9 Top Land 3 Floor, Barom-Trai-Loknat Road, Phisanulok 65000 Tel. 0-5523-5000-6 Fax. 0-5523-5006 8. Rayong Branch 125/1 Jantaudom Road, Rayong 21000 Tel. 0-3861-7476-90 Fax. 0-3861-7490

126 Annual Report 2005

9. Samutsakorn Branch 1400/33 Ekachai Road, Samutsakorn 74000 Tel. 0-3442-7123-5 Fax. 0-3442-3565 10. Sriracha Branch th 86/4-5 4 Floor, Sukhumvit 6 Road, Chonburi 20110 Tel. 0-3832-8345-54 Fax. 0-3832-8354 11. Ubon Ratchathani Branch 434 Chayangkul Road, Ubon Ratchathani 34000 Tel. 0-4528-4596 Fax. 0-4528-4596 12. Yala Branch 27/7-9 Pisanuthitat-uthit Road, Yala 95000 Tel. 0-7325-5457-64 Fax. 0-7325-5465 13. Cha-Choeng-Sao Branch 508,510 Cha-Choeng-Sao-Bangpakong Road, Cha-Choeng-Sao 24000 Tel. 0-3851-7133 Fax. 0-3851-1213 14. Chanburi Branch 35/107-110 Sukhumvit Road, Chanburi 22000 Tel. 0-3930-3309 Fax. 0-3930-3453 Bangkok 1. Asoke Branch 159 Sukhumvit Road, Klongtoey, Bangkok 10110 Tel. 0-2204-1270-84 Fax. 0-2661-6329 2. Bangna Branch 12th Floor, Room H-1 Central City Bangna Tower, 1093/56 Bangna-Trad Road, Bangna, Bangkok 10260 Tel. 0-2745-6458-66 Fax. 0-2745-6457

Annual Report 2005 127

3. Ladprao Branch 1693 Central Plaza, Ladprao, Jatujak, Bangkok 10900 Tel. 0-2937-1240-54 Fax. 0-2937-1254 4. New Petchburi Branch 1550 New Petchburi Road, Bangkok 10400 Tel. 0-2207-0552-54 Fax. 0-2207-0801 5. Ngamwongwan Branch 11th Floor, The Mall Estate Building, 30/39-50 Ngamwongwan Road, Bangkhen, Nonthaburi 11000 Tel. 0-2550-0353-80 Fax. 0-2550-0354 6. Ratchaprasong Branch 6th Floor, 971, 973 President Tower, Ploenchit Road, Pathumwan, Bangkok 10330 Tel. 0-2656-0293 Fax. 0-2656 0289 7. Ratchadapisek Branch 202 LE Concorde 11th Floor. Room 1101 Ratchadapisek Road, Bangkok 10320 Tel. 0-2694-1788 Fax. 0-2694-1799 8. Sathorn Branch 90 Sathornthanee 15th Floor, Room 92/40 Sathorn Road, Bangkok 10500 Tel. 0-2266-8448 Fax. 0-2266-7370

KIATNAKIN BANK

List of Information required by the Office of the Securities and Exchange Commission Page 1. General Information 1.1 The company

1.2 Juristic entity in which the company holds 10% or more of the total registered shares

1.3 Other References

2. Financial Highlights

3. Nature of Business 3.1 Business Operations

3.2 Revenue Structure

3.3 Significant changes in the previous year

4. Risk Factors

5. Shareholding and Management Structure 5.1 Shareholders

5.2 Management

Management Structure

Director and Management Selection Process

Management Remuneration

Business Administration

Company Policy and Disclosure

Internal Control

5.3 Dividend Policies

6. Related Party Transactions

7. Management Discussion and Analysis

8. Financial Statement 8.1 Financial Statement 8.2 Auditor没s Remuneration

55-124 24