md&a 2011 english final...3.1 business overview 24 3.2 customer segments 24 3.3 product domains...

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Executive Summary Management Discussion and Analysis

For the Year Ending December 31, 2011∗

Amid global economic woes and domestic economic risks in 2011, KASIKORNBANKGROUP

(KGroup) strove to provide support to all customer segments, based on our organization-wide

teamwork and the “Customer-Centricity” strategy, with the aim of offering the total solutions to our

customers. In addition, having recognized business opportunities abroad – particularly in China –

KGroup has been successful in forming business alliances with several large banks there, wherein

KASIKORNBANK also became the first Thai bank to open a Chinese-Thai Business Center (CTBC) in

our country to provide comprehensive information and advisory services to both Thai and Chinese

investors.

Aside from our business expansion into China by opening of a new branch, KGroup has

sought to establish a business network with partner banks in various countries that will allow us to

meet not only the needs of foreign investors wishing to invest in Thailand, but also Thai companies

seeking to invest in other countries in Asia, including Japan, South Korea and Vietnam.

In light of the most extensive flooding in recent Thai history, KGroup has placed emphasis on

customer contacts and visits to assess the damage, so that we could render them the most timely

and appropriate assistance; we have also devised a number of complete assistance measures to

help both business and retail customers. To achieve marked success in strategies that differentiate

us from rivals, we have placed an emphasis on our development of support functions to work more

harmoniously via improvements in human resources and IT management, as well as technological

innovations via the K-Transformation program.

As a result of these efforts, KBank’s consolidated net income for 2011 totaled Baht 24,226

million, increasing by Baht 4,179 million, or 20.85 percent, over 2010, mainly attributable to increases

in net interest income and non-interest income. Regarding our financial position as of December 31,

2011, the Bank’s consolidated assets totaled Baht 1,722,940 million, increasing by Baht 176,276

million – an 11.40 percent increase – over the end of 2010. This was primarily due to over-year loan

growth of Baht 133,853 million – equivalent to 12.43 percent – to Baht 1,210,834 million, which drew

support from impressive growth in Corporate, SME and Retail Business loans. Our non-performing

loans continued to diminish over-year, amid increased loan extension and improved asset quality.

The Bank’s consolidated deposits equaled Baht 1,242,229 million, growing by Baht 142,193 million,

or 12.93 percent, over the end of 2010, as we continued to offer attractive deposit products at various

∗ In the Annual Report, this information is shown in the “Management Report” section.

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times. As for capital status, the Bank’s capital adequacy ratio was 13.81 percent, with Tier-1 and

Tier-2 capital ratios equaling 9.63 percent and 4.18 percent, respectively, which mirrors our capital

strength.

K Companies engaged in financial business all showed satisfactory quantitative and

qualitative performance in 2011, attributable to close-knit internal cooperation within KGroup.

KSecurities had an excellent performance, wherein their income and profit continued to grow over

2010. KAsset maintained superior growth in their assets under management (AUM), comparing to

the market average. Also, the company’s AUM represented the largest market share in the business.

KLeasing had impressive loan growth in 2011, while the company continued to focus on their asset

quality improvement. KF&E reported significant loan growth over-year. Meanwhile, MTL achieved

outstanding earned premium growth, and was able to maintain the national first-place rank in

bancassurance’s new business premiums.

We have adhered to recognized best practices in risk management strategies. Emphasis has

been placed on engagement within our consolidated risk management framework, as well as

complete and accurate disclosures of risk management and capital adequacy information on a

regular basis. Striving to be the best in all dimensions of our business development, we nevertheless

strictly adhere to good corporate governance principles. To this end, we achieved our higher

business goals in 2011, and were applauded widely at home and abroad, thus having been the

recipient of many awards of recognition extended to us in 2011.

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Content Page

1. Overview 1 1.1 Overview of Economy, Banking Industry and Regulatory Changes 1

Thailand’s Economy in 2011 and Outlook for 2012 1

Banking Industry and Competition 1

Regulatory Changes 2

1.2 Business Directions of KASIKORNBANKGROUP 6

KASIKORNBANKGROUP in 2011 and Outlook for 2012 6

Corporate Governance 9

2. Operating Performance and Financial Position Analysis 11 2.1 Operating Performance 11

2.2 Financial Position Analysis 14

2.3 KASIKORNBANK’s Loans and Deposits 17

2.4 Treasury Operations 18

2.5 Operating Performance of K Companies and Muang Thai Life Assurance Co., Ltd. 19

2.6 Capital Requirements and Credit Ratings 21

3. Operations of Core Businesses 24 3.1 Business Overview 24

3.2 Customer Segments 24

3.3 Product Domains and Sales Channels 28

3.3.1 Product Domains 28

3.3.2 Sales and Service Channels 37

4. Risk Management and Risk Factors 43

4.1 Overall Risk Management 43

4.2 Risk Management 45

Credit Risk Management 45

Market Risk Management 52

Liquidity Risk Management 55

Operational Risk Management 57

Strategic Risk Management 58

4.3 Capital Management 59

Capital Management 59

Performance Measurement using Risk-Adjusted Return on Capital (RAROC) and Economic

Profit (EP)

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Page

5. Operations of Support Groups 63 Human Resource Management for the Highest Business Efficiency of

KASIKORNBANKGROUP

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IT Management 64

K-Transformation 65 6. KASIKORNBANK’s Investments in Subsidiary and Associated Companies 66

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1. Overview

1.1 Overview of Economy, Banking Industry and Regulatory Changes

Thailand’s Economy in 2011 and Outlook for 2012 The Thai economy in 2011 expanded at only 0.1 percent over-year, dramatically decreasing

from the 7.8-percent growth of 2010, due to a number of negative factors at home and abroad,

including the devastating earthquake and tsunami in Japan that caused supply chain disruption of

industrial manufacturing, an economic slowdown in major economies as a result of the public debt

problems of the U.S. and Europe, as well as massive flooding in Thailand affecting a wide range of

economic activities and sectors. As risks to the Thai economy became more evident, the Bank of

Thailand’s Monetary Policy Committee (MPC) resolved to cut their policy rate during the final meeting

of 2011, following interest rate hikes during the first three quarters, as part of their efforts to maintain

economic stability. Meanwhile, the prolonged and widespread European debt crisis has raised

investor concern towards heightened economic risks and affected global financial market movements.

Regarding the economic

outlook for 2012, it is estimated

that the Thai economy will grow

by 4.5 to 6.0 percent over 2011,

boosted by private and

government spending for post-

flood rehabilitation activities, and

building of flood-mitigation

facilities, as well as investment in

megaprojects. Although the Thai

economy is expected to maintain

its growth momentum, international trade, particularly for exports, may be affected by the deceleration

of major economies globally. Meanwhile, the government’s policy implementation to increase income

and stimulate the economy, including increases in the minimum wage and civil servant income, and

energy-related policies, as well as potentially rising commodity prices, may pressure domestic

inflation and bring additional challenges to the Bank of Thailand’s monetary policy maneuvers

throughout 2012, particularly if the sovereign debt crisis in Europe grows worse than initially expected.

Banking Industry and Competition In 2011, operations of Thai commercial banks were affected by multiple downsides, with the

worst being the catastrophic flooding in the final quarter of 2011 that made banking services

7.8

0.1

4.5-6.0

3.3 3.8 3.5-4.5

0

2

4

6

8

10

2010 2011 2012*

Year

-on-

Year

Cha

nge

(Per

cent

)

Thailand Economic Growth Forecast

GDP Headline CPI

Source: National Economic and Social Development Board, Ministry of Commerce and KASIKORN RESEARCH CENTER CO., LTD.

Note: * Forecasted Figures.

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inaccessible within some areas, resulting in a temporary decline in banking transaction volume.

Looking over the entire year, however, core banking business maintained a fair level of operating

performance. This was largely driven by sound growth during the first three quarters. Loans within

the Thai banking sector achieved double-digit growth in continuation from 2010, amid higher loan

demand along with expanding international trade and other economic activity, despite upward

interest rate trend during the first three quarters. Supply-side push also contributed to impressive

loan growth, particularly after most commercial banks looked forward to meeting their loan targets

that year. Continued growth in fee and service income helped banks to sustain higher net profits and

net interest margins (NIM), despite the widespread flooding in the fourth quarter of 2011. Asset

quality remained healthy, with a continued decline in the ratio of non-performing loans (NPLs) to total

loans.

As for 2012, Thai commercial banks are expected to see more challenges in maintaining

their earnings and profitability, despite the potential for double-digit loan growth achieved on the back

of continued domestic spending and the tamed interest rate direction. In addition to loans,

competition in deposit and savings products will remain intense, in light of the stronger need of Thai

commercial banks to accumulate liquidity to brace for intensified competition in the deposit market,

especially with other savings and investment alternatives and a reduction in the deposit guarantee to

not more than Baht 1 million/customer/financial institution by the Deposit Protection Agency, effective

August 11, 2012. In addition, changes in relevant laws and regulations – including the implementation

of a financial sector liberalization policy, accounting standards and effects from the Emergency

Decree regarding the management of the Financial Institutions Development Fund (FIDF) debt

service – may inevitably affect Thai banking business operations, going forward.

Regulatory Changes1 Some important regulatory changes in 2011 that may affect KASIKORNBANK business

operations can be summarized, as below:

• Criteria for Establishment and Supervision of Overseas Branches of Thai Commercial Banks Pursuant to the Bank of Thailand (BOT) notification No. SorNorSor. 8/2554, on the criteria of

establishment and supervision of overseas branches of Thai commercial banks (which was published

in the Government Gazette on October 17, 2011, and came into force on the following date), BOT

approval is required for overseas branch opening of Thai commercial banks (in the form of overseas

1 Other details relating to regulatory changes during 2011 can be viewed in the report of Management Discussion and Analysis

(MD&A) for the quarters ending March 31, 2011, June 30, 2011 and September 30, 2011.

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offices holding branch status, for operating the commercial bank business within the permitted scope

of each country). In addition, a comparative analysis must be conducted in relation to expected

benefits, costs and risks for such branch opening. Within three years after the BOT approval in

principle, completion of the branch opening request must be achieved. Bank officers must be

assigned for an audit of branch business operations and assets at least biennially, while reporting

and document submittal must comply with the established regulations and conditions. In cases where

commercial banks wish to terminate or discontinue their branches overseas, they have to submit the

request form for the BOT’s permission. Upon approval of business termination, the business operation

license must be returned to the Ministry of Finance or the BOT (as the case may be).

Guidelines for overseas branch establishment have been better clarified by this regulation, thus

encouraging commercial banks with high potential to attain greater coverage of business operations

and customers. Moving forward, banks’ business operations will be enhanced with improved

efficiency and competitiveness, specifically important to the upcoming financial sector liberalization.

As KBank has been studying and analyzing all relevant issues circumspectly for our overseas

business expansion, our operations have not been significantly affected by this regulation.

• Permission for Thai Commercial Banks to Operate Trustee Business The BOT notification No. SorNorSor. 9/2554, concerning the permission for Thai commercial

banks to operate trustee business (which was published in the Government Gazette on November 16,

2011, and came into force on the following date) stipulates that permission is required from the Office

of the Securities and Exchange Commission (SEC) for trustee business to be operated by commercial

banks, in compliance with the Trust for Transactions in Capital Market Act, B.E. 2550, and other

relevant BOT regulations. Commercial banks can apply for any trustee business types, if their

qualifications meet the established standard and their practices comply with the specified conditions.

(Nevertheless, retail banks are not allowed to be a trustee functioning as investment manager.) In

addition, those commercial banks have to formulate policies, strategies, operational procedures, as

well as arranging written plans to support their trustee business operation, with the approval of their

Board of Directors. Moreover, assets of trust funds – in which commercial banks are entitled as their

trustee – shall not be consolidated with bank assets, in order to comply with the BOT supervision.

Meanwhile, the BOT is authorized to suspend or revoke the trustee business license in cases of

breach or non-compliance with the regulations or conditions, or any action that may affect the safety

or well-being of the general public.

With this notification, commercial banks will have more opportunities to offer a wider range of

financial services as per the objectives of the Financial Sector Master Plan II (FSMP II), aiming to

encourage leading banks to widen their financial business to meet all needs of customers, from

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mutual funds to venture capital funds and private funds. As for the trustee business which is new in

Thailand, KGroup has already undertaken a study, wherein its initial results indicate our potential and

readiness in incorporating this business. Although this study also suggests a variety of service

models suitable to different groups of customers, practical implementation remains pending clarity of

relevant regulations, including tax-related issues.

• The Financial Sector Master Plan II (FSMP II) The BOT’s Financial Sector Master Plan II (to be implemented during 2010 – 2014) consists

of three key policies: reducing system-wide operating costs, promoting competition and access to

financial services, and strengthening financial infrastructure, which includes market liberalization,

increased access for foreign financial institutions via grants of licenses for some business areas, and

permission for an increased number of branches and ATMs. By 2014, a business license for

establishment of new full-service commercial banks is planned. Furthermore, the authorities plan to

encourage large-sized commercial banks of ASEAN+3 (including China, Japan and South Korea) to

operate their business in Thailand more freely, as well as expediting the schedule of financial sector

liberalization.

In order to brace for such guidelines to liberalize the financial institution sector, KGroup has

conducted extensive analyses on this issue. So doing – plus our decade-long efforts to pursue

strategies that have strengthened our business fundamentals – has led us to believe that we will be

able to maintain our competitiveness over both existing and new players that may enter the market in

the future. These notable efforts included our thorough understanding towards the needs of our

customers under our “Customer-Centricity” strategy that has been continually improved, along with

developed products, services, and sales and services channels, suitable for each customer segment,

their life stages and lifestyles, as well as the nature of business operations in Thailand and the

changing economic environment.

• ASEAN Economic Community (AEC) A single market and production base among member countries is aimed to be achieved by

2015 as per the ASEAN Economic Community (AEC) establishment. Major progress of liberalization

has been evident in terms of international trade, whereas the service liberalization will be gradually

implemented later on. Regarding the financial service sector, the securities business – which Thailand

has been committed to liberalize – has reported significant movements. Under the securities business

liberalization, 100 percent foreign-equity ownership is permitted in existing firms, while foreign

shareholding of over 49 percent in commercial banks and insurance firms remains unbounded.

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Due to the fact that the full-service commercial banks may be affected by the development of

financial sector liberalization, particularly for securities business, along with a plan to expedite the

liberalization schedule, commercial banks should brace for any changing circumstances that may

affect their business operation, as well as their customers.

Realizing the significance of the AEC establishment that will bring greater opportunities,

albeit with heightened competition, KGroup has been closely monitoring the development of related

negotiations, as well as studying the opportunities and challenges that may affect the Bank and our

customers’ business operations. In 2011, KGroup expanded our cooperation with our business allies

who are leading commercial banks in ASEAN countries. Focus has been placed upon equipping our

customers with relevant knowledge, along with complete products and services to every customer

segment, in order to ensure that their business expansion within ASEAN will be supported by our

finest financial services. This effort also helps maintain their competitiveness, amid more intensified

competition in the future.

• Basel III Drafted by the Basel Committee on Banking Supervision (BCBS), the new regulations of

Basel III will take effect on January 1, 2013, and may result in changes in commercial banks’ capital

and liquidity risk management. As the BOT will likely comply with these guidelines, the

KASIKORNBANK Financial Conglomerate has been studying in preparation for the changes,

assessing impacts of compliance, and continuously monitoring the progress of Basel III

implementation at home and internationally, in order to ensure that compliance will not have any

impact on the capital level of the KASIKORNBANK Financial Conglomerate.

• Implementation of International Accounting Standards (IASs and IFRSs) KASIKORNBANKGROUP has complied with the International Accounting Standards (IASs)

and International Financial Reporting Standards (IFRSs) under the time frame specified by the

Federation of Accounting Professions. Also, the Bank has early-adopted some IASs and IFRSs,

before the regulations take effect officially, while we continue to prepare for the full implementation of

these new regulations, initially scheduled to be effective in Thailand during 2013-2015. So doing has

been undergone by assessing the possible impacts on management decisions, policy improvements,

as well as revision of relevant operational procedures and systems, on grounds of benefit

maximization for KGroup.

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• Reduced Corporate Income Tax According to the Royal Decree issued under the Revenue Code regarding Reduction and

Exemption from the Revenue Taxes (No. 530) which was published in the Government Gazette on

December 21, 2011, and came into force on the following date, the corporate income tax was

reduced from 30 percent to 23 percent for fiscal year 2012, and to 20 percent for fiscal years 2013

and 2014, in order to promote competitiveness and stimulate the overall economy.

The reduced corporate income tax will benefit KGroup in 2012 onwards. Due to our adoption

of the deferred income tax policy, this revised regulation thus had impact on only our Statement of

Financial Position for the fourth quarter of 2011 (related details can be viewed in No.43 concerning

Income Tax in the Notes to Financial Statements). As this consequence is regarded as an accounting

adjustment and bears no realized expenses for the Revenue Department, such adjustment has not

affected our business operation, profitability and capital.

1.2 Business Directions of KASIKORNBANKGROUP KASIKORNBANKGROUP in 2011 and Outlook for 2012

Against the backdrop of global economic woes in 2011, especially the European public debt

crisis and slow U.S. economic recovery, plus the widespread flooding in Thailand that dealt a severe

setback to the Thai economy – particularly through the industrial sector – late last year,

KASIKORNBANKGROUP has strived to provide support to all customer segments, based on our

organization-wide teamwork and the “Customer-Centricity” strategy, with an aim of offering total

solutions – comprising products and services from all six companies in KGroup – to our clients. To

this end, we introduced K-Value Chain Solutions to offer fully-integrated value-chain services to our

large business customers, with credit products and financial services that meet the specific needs of

each business, from upstream to downstream. Industry Solutions have been launched to respond to

the demands of our SME customers in eight major industries, in addition to enhancement of products

and services to promote international trade through the K-Trade Premier and SME Super Trade Credit

programs. With the coordinated effort between the Bank and KLeasing, K-SME Leasing Plus was

launched to meet the needs of our business clients. We also offered financial and non-financial

support – including knowledge and business network – through the K SME Care program that has

been continually pursued over the past five years.

For retail business customers, KGroup, in cooperation with six leading property developers,

launched a pilot project of an escrow agent service, acting as a neutral third party with fiduciary

responsibilities on behalf of home buyers and sellers. Also, based on our understanding of the

restrictions facing self-employed persons and freelancers in accessing credit facilities, we initiated

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the “Savings for Future Benefit” program that allows this group of customers to use their savings

records as part of their loan application.

Having recognized business opportunities overseas – particularly in China, where the ample

loan demand of local SME proprietors has yet to be met – KBank, as a leading Thai financial

institution with SME lending expertise, has embarked on business expansion to increase our market

share in the Chinese banking sector in sync with the economic development plans of China and

Thailand. In 2011, KGroup declared success in forming a business alliance with several large banks

in China, and KBank was the first Thai bank to open the Chinese-Thai Business Center (CTBC) in our

country to provide information and comprehensive advisory services for doing business in both

countries. Additionally, the Bank has continued to offer financial services to support Thai-Chinese

businesses, namely “China Direct”, which guarantees USD-denominated funds transfer to China

within the same day, and other RMB-related services.

Aside from our business expansion into China by opening of a new branch, KGroup has

sought to establish a business network with partner banks in various countries that will allow us to

meet not only the needs of foreign investors wishing to invest in Thailand, but also Thai companies

seeking to invest in other countries in Asia, including Japan, South Korea and Vietnam.

In light of the most extensive flooding in recent Thai history, KGroup has placed our

emphasis on customer contacts and visits for accurate assessment of damages, so that we could

render them the most timely and appropriate assistance. We have offered a complete range of post-

flood assistance measures, in the periods of damage assessment, business restoration and recovery

to full production capacity throughout the business cycle, including suppliers, producers and

consumers. For retail business clients, our aid measures involved reduction of monthly repayments,

provision of grace period, and reduced minimum repayment of all types of consumer loans.

KGroup has placed an emphasis on harmonious work relationships among support functions.

With regard to our human resources, we have recruited employees in a manner consistent with our

organizational and business strategies, developed leadership potential, and enhanced our

organizational culture based on our behavioral guidelines. On the IT front, the focus has been on

system development, security and system stability management, as well as business continuity

management (BCM), all of which aims at enhancing the success and effectiveness of business

strategy implementation, and responding to the needs of each business unit.

All of these aforementioned efforts not only supported KGroup in achieving higher business

goals in 20112, but also rewarded us with many marks of recognition from both domestic and foreign

agencies, including:

2 Complete details of marks of recognitions and rewards can be viewed in the “Awards and Commendations” section of the 2011

Annual Report.

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Awards for KBank Business Divisions and Other Important Awards

• Best SME Bank in Thailand award in The Asset Triple A Transaction

Banking Awards 2010 & 2011 from The Asset magazine

• Adman Award in the Silver category for the “Cookie Boy” TV commercial, which was the highest prize in the Finance & Insurance

category of the Adman Awards & Symposium 2011

• Best Deal of the Year award from Alpha Southeast Asia magazine

and Solar Best Deal of the Year award from Project Finance

magazine, for our efforts in offering advisory services and financial

support for the construction of solar power plant projects

• Best Project Finance Deal of the Year in Southeast Asia award as

a financial advisor, and Best Project Finance Deal of the Year in

Southeast Asia award as a syndicate loan provider, for 2010/2011,

from Project Finance magazine

• Best Retail Bank in Thailand award for the second consecutive

year, and Best Retail Banking Brand award from The Asian Banker

journal (KBank is the only Thai bank to receive this award in 2011.)

• Best Retail Bank of the Year 2011 award for the fourth consecutive

year, and the Most Attractive Booth award for the fifth consecutive

year, at the Money Expo 2011, from Money and Banking magazine

• VISA DEBIT INNOVATION AWARD 2010 from Visa International

(Asia Pacific) Ltd.

• Best Debt House 2011 award for the fourth consecutive year

and Best Domestic Bond House 2011 award in The Asset

Triple A Country Awards 2011, from The Asset magazine

• Best Local Currency Bond and Best Thailand Deal awards in

the FinanceAsia Achievement Awards 2011 project, for our

distribution of inflation-linked bonds, organized by FinanceAsia

magazine

• Best Trade Finance Bank award from Global Review magazine

• Best Foreign Exchange Bank 2011 award from FinanceAsia

magazine

• Asia Risk Awards 2011, House of the Year of Thailand, by

Asia Risk magazine

• Thailand’s Most Innovative Companies Award 2011 in the

Service category, from the Faculty of Commerce and

Accountancy, Chulalongkorn University

• Top Company for Leaders Award (TCFL), with KBank being

ranked in the Top 20 of the Asia-Pacific region, from Fortune

magazine in coordination with Aon Hewitt of Aon Corporation

In 2012, KGroup will adhere to our “Customer-Centricity” strategy by striving to satisfy the

needs of customers with the unsurpassed quality of financial products and services from all six

companies in KGroup, under K Excellence, as well as our K Now project that encompasses a broad

array of supports over and beyond financial services. Under the K Now project, customers’ quality of

life will be enhanced through our innovative and value-added products and services that better meet

all needs at each customer’s life stage. To achieve this end, we have tailored our main strategies into

three main areas: Product via creation of innovative products to meet the customers’ needs in a timely

manner; Branding and Marketing through clarity and consistency of the brand at all levels; and

Service Quality by the delivery of the finest service experience for all customers through our various

service channels.

In addition, KGroup has outlined our strategy to support the diverse needs of each customer

segment, as follows:

• Corporate Customers: Aiming to become the trusted partner of our customers, KGroup will

continue to emphasize enhancing value creation of our customers and their trade partners’

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businesses, from upstream to downstream, for their sustainable business success. In

achieving this objective, complete financial service solutions and advisory services will be

offered to meet the financial and non-financial needs of these customers.

• SME Customers: Determined to maintain our leadership in the overall SME market and in all

areas with potential, we will continually focus on effective and ongoing marketing

communications, together with increases in the number of customers with high potential, and

in holding of products generating high fee income. In addition to our efforts to improve

operational procedures, plus management of loan portfolio and asset quality, cordial

relationships with customers will be further strengthened, through our customer relationship

management – in both business and personal perspectives – by fostering more effective

collaboration with our sales and service channel units.

• Retail Customers: We continue to place an emphasis upon being the main bank for

customers and customers generating high income for KGroup. In achieving this goal, brand

communications and marketing capabilities will be further strengthened, in addition to more

effective management of the sales and service network, plus their service quality and

efficiency.

Aside from those aforementioned plans, KGroup has also paid attention to other

infrastructure enhancements, including efficient cost management, risk management that aligns with

external circumstances, human resource development and IT improvement, all of which will help

ensure that our strategic and business goals will be achieved as planned.

Corporate Governance KASIKORNBANK believes that good corporate governance is a key factor to sustain our

business undertakings and enabling the Bank to attain our ultimate goals for the maximum benefit of

shareholders. It will not only lead to sound and transparent management under a clear standard,

which will enhance the Bank’s competitiveness, but also result in greater confidence among local and

foreign shareholders, and all involved stakeholders. The Bank has, therefore, continued to place

significant emphasis on corporate governance practices.

Aside from the review of related principles, and arrangement of transparent and efficient

Annual General Meetings in accordance with the regulatory requirements and the Statement of

Corporate Governance Principles, the Bank’s notable actions in 2011 included the implementation of

corporate governance activities based on efforts to maintain our standards, and to develop corporate

governance on a continuous and sustainable basis. To promote corporate governance as our

organizational culture, internal communications were regularly made with directors, executives and

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employees on the topics of corporate governance principles and compliance with the Code of

Conduct. A notification system was set up for directors and executives, in order to minimize risks from

omission of duty or non-compliance. Moreover, the KGroup CG Index was initiated during the year for

monitoring and assessing the corporate governance performance of KGroup and companies

providing service support for KGroup.

In 2011, with our dedication and effort to continually promote corporate governance,

KASIKORNBANK was awarded many marks of recognition for outstanding corporate governance,

including the NACC Integrity Award for two consecutive years, from the National Anti-Corruption

Commission; and the SET Award of Honor for Continuous Excellence in Corporate Governance

Report 2008-2011, from the Stock Exchange of Thailand (SET) and Money & Banking magazine at

the SET Awards 2011 ceremony. In addition, the Bank has achieved “Excellence” in rating scores for

corporate governance and quality assessment results of the Annual General Meetings of

Shareholders of listed companies for many years running.3

KBank also continued to place importance on corporate social responsibility (CSR) activities.

The Board of Directors formulated a relevant policy to welcome participation of employees, customers,

society and the community towards sustainable development. During 2011, many CSR projects and

activities were carried out continuously, including K SME Care; the “Green Building” project to

enhance energy savings with fluorescent tubes and energy-efficient air conditioners; the project of

ATM, CDM and PUM slip size reduction; the project of “KASIKORN staff joined to Clean Chao Phraya

River” (arranged for the second consecutive year); the recognition program for employees, as well as

the Sino-Thai Forum project. These activities have emphasized our commitment to undertake

business based on good corporate governance principles, together with responsibility towards the

environment and society.

3 Details of marks of recognition and awards related to corporate governance can be viewed in the “Awards and

Commendations” section of the 2011 Annual Report.

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2. Operating Performance and Financial Position Analysis

2.1 Operating Performance The Bank’s consolidated net income for 2011 totaled Baht 24,226 million, increasing by Baht

4,179 million, equivalent to a 20.85 percent over-year growth. This increase was mainly attributable to

an increase in net interest income, as a result of loan growth and a consequence of asset and liability

management to align with interest rate trend. Consequently, our net interest margin equaled 3.75

percent in 2011. In the meantime, our non-interest income grew by 19.78 percent over-year, led by

continued growth of net fees and service income, in alignment with our “Customer-Centricity” strategy.

Meanwhile, our efficiency ratio stood at 47.53 percent for 2011, better than the previous year.

Operating Performance for 2011 (Units: Million Baht)

2011 2010 Change Million Baht Percent

Interest income 83,693 62,271 21,422 34.40

Interest expenses 27,202 15,527 11,675 75.19

Interest income - net 56,491 46,744 9,747 20.85

Fees and service income - net 20,637 18,227 2,410 13.22

Other income 45,087 35,394 9,693 27.39

Total operating income 122,215 100,365 21,850 21.77

Underwriting expenses 31,707 25,221 6,486 25.72

Total operating income - net 90,508 75,144 15,364 20.45

Total other operating expenses 43,019 38,003 5,016 13.20

Operating profit

(Before impairment loss on loans and debt

securities, and income tax expense) 47,489 37,141 10,348 27.86

Impairment loss on loans and debt securities 7,345 6,701 644 9.61

Income tax expense 13,962 9,094 4,868 53.53

Net profit 26,182 21,346 4,836 22.66

Net profit attributable to:

Equity holders of the Bank 24,226 20,047 4,179 20.85

Non-controlling interests 1,956 1,299 657 50.58

Net profit 26,182 21,346 4,836 22.66

In the report for the quarter ending September 30, 2011, according to the Cabinet’s

resolution, the Bank and subsidiaries disclosed the impact of a reduction in corporate income tax rate

from 30 percent of taxable profit to 23 percent in 2012 and 20 percent in 2013 to 2014. On

December 21, 2011, the Royal Decree was published announcing the adoption of the reduction in

12

corporate income tax rate. The Bank and subsidiaries recognized the item of deferred tax in the

income statement in the fourth quarter of 2011, in accordance with International Accounting

Standards. However, this is a one-time impact. Since this is an accounting item adjustment, it does

not involve the actual tax payment to the Revenue Department. Apparently, the Bank and

subsidiaries’ business undertakings, profitability and capital fund have not been affected. The Bank

and subsidiaries will thus benefit from this corporate income tax rate reduction from 2012 onwards.

Income Structure (Units: Million Baht)

Change

2011 2010 Million Baht Percent

Interest income

Interbank and money market items 7,178 2,363 4,815 203.77 Deposits 288 80 208 260.00

Loans without repurchase agreements 75 16 59 368.75

Repurchase agreements 6,815 2,267 4,548 200.62

Investments 8,414 6,929 1,485 21.43 Trading investments 285 279 6 2.15

Available-for-sale investments 4,259 3,602 657 18.24

Held-to-maturity investments 3,870 3,048 822 26.97 Loans 64,801 49,895 14,906 29.87 Finance leases 3,327 2,892 435 15.04 Others (27) 192 (219) (114.06) Total interest income 83,693 62,271 21,422 34.40 Total interest expenses 27,202 15,527 11,675 75.19 Total interest income - net 56,491 46,744 9,747 20.85

Non-interest income

Fees and service income 26,072 22,821 3,251 14.25

Fees and service expenses 5,435 4,594 841 18.31

Fees and service income - net 20,637 18,227 2,410 13.22 Gain on trading and foreign exchange transactions 5,214 4,465 749 16.77

Gain (loss) on financial liabilities designated at fair

value through profit or loss (54) (94) 40 (42.55)

Gain (loss) on investments 806 610 196 32.13

Share of profit from investments using equity method 13 6 7 116.67

Dividend income 784 661 123 18.61

Earned premium 37,118 29,090 8,028 27.60

Other operating income 1,206 656 550 83.84

Less Underwriting expenses 31,707 25,221 6,486 25.72 Total non-interest income 34,017 28,400 5,617 19.78 Total operating income - net 90,508 75,144 15,364 20.45

13

Net Interest Income The Bank’s consolidated net interest income for 2011 rose over the previous year, due mainly

to increased interest income – as a result of an increase in interest income from loans, following larger

average loan volume and higher lending rates during the period. Meanwhile, our interest expense

increased over-year, in light of increased interest expense on deposits that largely came from higher

interest expenses from our offering of special fixed-term deposit products, rising benchmark interest

rates, as well as an increase in average deposits. In addition, the Bank continued to maintain sound

asset and liability structure, ensuring its alignment with interest rate trends. As a result, our net

interest margin equaled 3.75 percent, higher than the 3.48 percent in 2010.

Non-Interest Income For 2011, the Bank’s consolidated non-interest income increased over the previous year. Of

note was an increase in net fees and service income, a Baht 1,542 million increase in earned

premium net of underwriting expenses from Muang Thai Life Assurance Company Limited (MTL),

equivalent to a 39.86 percent growth over-year. Additionally, the increase was attributable to gains

on trading and foreign exchange transactions, as well as other operating income that partly came

from gains on sales of non-performing assets in 2011.

The over-year increase in our net fees and service income was due primarily to the increase

in fees from sales of products and financial services, such as card businesses and transfer payments,

fees from securities underwriting representatives, as well as fees from loan-related business that drew

support from larger loan volume. All of which was a result of our “Customer-Centricity” strategy,

leading to continual growth in the number of new customers.

Other Operating Expenses The Bank’s consolidated other operating expenses for 2011 rose over the previous year.

This was mainly the result of an increase in personnel expenses, in tandem with increased salary and

number of staff, as well as special benefits to employees. Consequently, the efficiency ratio in 2011

equaled 47.53 percent, better than the 50.57 percent in the previous year.

Impairment Loss on Loans and Debt Securities For 2011, the Bank and our subsidiaries set aside higher allowances for impairment loss of

loans and debt securities than the previous year. This was mainly in response to the changing

economic environment.

14

2.2 Financial Position Analysis

Assets and Liabilities Structure

70% 80%

15%5%

7%

3%

3%5%

6%

70%

16%

2%6%6%

79%

6%

7%6%

Loans to customers and accrued interest receivables Investments - netInterbank and money market items - net (asset)CashOther assets

DepositsDebts issued and borrowingsInterbank and money market items (liability)Life policy reserve

Units: Million Baht

Dec. 31, 2010 Dec. 31, 2011

Other liabilities

2%

6%

Assets

As of December 31, 2011, the Bank’s consolidated assets totaled Baht 1,722,940 million,

increasing by Baht 176,276 million, or 11.40 percent, over the end of 2010. The increase was mainly

attributable to increases in loans, net interbank and money market items (asset), as well as net

investments, as follows:

• The Bank’s consolidated loans, at the end of 2011, totaled Baht 1,210,834 million,

growing by Baht 133,853 million over-year, or 12.43 percent, due primarily to increases

in commercial, housing, and working capital loans that aimed at providing liquidity

support to our business customers. Our consolidated loans were the fourth-largest

among the group of large commercial banks.

Meanwhile, our net non-performing loans4 (Net NPLs) ratio to total loans, at the

end of 2011, equaled 1.15 percent, down from 1.43 percent at the end of 2010.

Similarly, the gross NPL ratio to total loans was at 2.45 percent at the end of 2011,

dropping from 2.91 percent at the end of 2010. Such NPL ratio decreases were due to

growth in total loans and a decrease in bad debts.

4 Details of non-performing loans are shown in the “Non-Performing Loans and Debt Restructuring” of the “Credit Risk

Management” section.

15

• Net interbank and money market items (asset), at the end of 2011, amounted to Baht

111,969 million, up by Baht 14,409 million, or 14.77 percent, over the end of 2010. This

was as a result of the Bank’s liquidity management.

• Net investments, at the end of 2011, equaled Baht 264,143 million, increasing by Baht

13,063 million, or 5.20 percent, over the end of 2010, mainly due to investments from

MTL.

Investments

209,600 207,387

19,325 32,9918,2019,496

13,770 14,255

0

50,000

100,000

150,000

200,000

250,000

300,000

Dec. 31, 2010 Dec. 31, 2011

Units: Million Baht

Equity Securities Foreign Debt Instruments

Private Enterprise Debt Instruments Government and State Enterprise Securities

Liabilities and Equity The consolidated liabilities of the Bank, at the end of 2011, totaled Baht 1,555,974 million,

increasing by Baht 154,797 million, or 11.05 percent, over the end of 2010. The increase was mainly

the result of deposits, as well as interbank and money market items (liability). Meanwhile, debts

issued and borrowings dropped. Consolidated liabilities that had changed significantly relative to the

previous year included:

• Deposits, at the end of 2011, amounted to Baht 1,242,229 million, increasing by Baht

142,193 million, or 12.93 percent, over the end of 2010. This was due mainly to

increased special fixed-term deposits offering more alternatives for customers. Our

consolidated deposits were the third-largest among the group of large commercial

banks.

• Interbank and money market items (liability), at the end of 2011, equaled Baht 53,340

million, increasing by Baht 20,276 million, or 61.32 percent, over the end of 2010. This

was mainly the consequence of our asset and liabilities management, part of which was

from an increase in private repurchase transactions.

16

• Debts issued and borrowings, at the end of 2011, totaled Baht 70,303 million, down by

Baht 18,629 million, or 20.95 percent, from the end of 2010, largely as a result of bills of

exchange that came to maturity.

At the end of 2011, total equity attributable to equity holders of the Bank equaled Baht

154,799 million, increasing by Baht 19,856 million, or 14.71 percent, over the end of 2010. This

increase was the result of higher net operating income for 2011.

Relationship Between Sources and Uses of Funds At the end of 2011, the funding structure as shown in the consolidated financial statement

comprised Baht 1,555,974 million in liabilities and Baht 166,965 million in total equity, resulting in a

debt-to-equity ratio of 9.32. The major source of funds on the liabilities side was deposits, which

equaled Baht 1,242,229 million, or 72.10 percent of the total. Other sources of funds included

interbank and money market items as well as debts issued and borrowings, which accounted for 3.10

percent and 4.08 percent of the total, respectively.

The Bank and subsidiaries’ major use of funds was loans. At the end of 2011, loans

amounted to Baht 1,210,834 million, resulting in a loan-to-deposit ratio of 97.47 percent. Meanwhile,

the loan-to-deposit plus bills of exchange ratio was 94.72 percent. As for the remaining liquidity, the

Bank invested it in various selections of liquid assets, such as interbank and money market items, and

investments in securities.

The major sources and uses of funds, as of the end of 2011, are categorized by contractual

maturity periods shown in the following table:

The Bank and Subsidiaries’ Major Sources and Uses of Funds (Units: Million Baht)

Deposits Loans

Period Dec. 31,

2011 Percent Dec. 31,



2010 Percent

≤ 1 Year 1,195,278 96.22 998,405 90.76 587,763 48.54 545,588 50.66

> 1 Year to 5 Years 46,951 3.78 101,631 9.24 292,340 24.14 272,145 25.27

> 5 Years - - - - 330,731 27.32 259,248 24.07

Total 1,242,229 100.00 1,100,036 100.00 1,210,834 100.00 1,079,981 100.00

The Bank and subsidiaries’ deposits with remaining maturities of less than or equal to 1 year

at the end of 2011 totaled Baht 1,195,278 million, increasing by Baht 196,873 million, or 19.72 percent,

over the Baht 998,405 million at the end of 2010. Deposits with remaining maturities of over 1 year at

the end of 2011 were Baht 46,951 million, dropping by Baht 54,680 million, or 53.80 percent, from the

Baht 101,631 million at the end of 2010.

17

At the end of 2011, the Bank and subsidiaries had loans with remaining maturities of less

than or equal to 1 year totaling Baht 587,763 million, increasing by Baht 42,175 million, or 7.73

percent, over the Baht 545,588 million at the end of 2010. Loans with remaining maturities of over 1

year up to 5 years amounted to Baht 292,340 million, increasing by Baht 20,195 million, or 7.42

percent, over the Baht 272,145 million at the end of 2010. In addition, loans with remaining maturities

of over 5 years equaled Baht 330,731 million, increasing by Baht 71,483 million, or 27.57 percent,

over the Baht 259,248 million at the end of 2010.

From the above table, it can be seen that, as of December 31, 2011, deposits with remaining

maturities of less than or equal to 1 year were larger than loans with remaining maturities of less than

or equal to 1 year. This is considered normal for commercial banks in Thailand, as they normally fund

their lending or investments in long-term assets from short-term liabilities. However, since most

deposits are renewed upon maturity, it is considered likely that they will remain with the Bank longer

than their stated contractual term, thereby helping to support funding for the Bank’s lending.

In order to enhance flexibility and variety in the Bank’s funding structure, as well as provide

more alternatives in investments for the public and the Bank’s depositors, the Bank has offered “K-B/E

Investment” products to both retail and corporate customers, with their outstanding value totaling

Baht 36,072 million as of December 31, 2011.

2.3 KASIKORNBANK’s Loans and Deposits

Loans Classified by Business and Product Groups

KASIKORNBANK’s Loans Classified by Business and Product Groups*

(Units: Million Baht)

Dec. 31, 2011 Dec. 31, 2010**

Corporate Business

SME Business

Retail Business

Corporate Business

SME Business

Retail Business

Loans 351,694 439,076 253,991 321,487 393,733 213,164

Domestic credit loans 251,964 399,819 227,282 365,145

Trade finance loans 88,348 39,257 84,518 28,588

BIBF loans 11,382 9,687

Housing loans 184,900 159,751

Credit card loans 42,179 36,719

Consumer loans 26,912 16,694

Note: * Excluding non-performing loans and other loans, such as those of subsidiary companies and others.

** Revised to reflect regrouped customers.

18

Regarding the Bank’s loans classified by business and product groups, Corporate Business

loans increased by Baht 30,207 million, or 9.40 percent, over the end of 2010, as a result of loan

growth in all products, mainly from domestic credit loans, mostly seen in long-term credits of utility,

real estate, hotel and restaurant businesses. In the same direction, SME Business loans increased by

Baht 45,343 million, or 11.52 percent, over the end of 2010, due to increases in all products led by

higher domestic credit loans, seen in long-term loans of agriculture, trading, and processed

agricultural businesses. Our Retail Business loans, at the end of 2011, also reported healthy growth

of Baht 40,827 million, or 19.15 percent, over the end of 2010, in light of increases in all products, with

housing loans recording the highest growth rate in terms of loan volume, boosted by our efforts to

maintain good relationships with leading property developer allies, and our unique marketing

campaigns that meet the needs of all customer segments. Additionally, the increase in housing loans

was supported by our measures to relief flood-affected customers. Meanwhile, consumer loans

recorded the highest growth rate over the previous year, due to our continued efforts to offer sales

promotional campaigns that effectively meet the needs of target customers.

Deposits Classified by Type of Deposit Accounts

KASIKORNBANK’s Deposits* (Units: Million Baht)

Deposits Change

Percent of Total Deposits

Dec. 31, 2011 Dec. 31, 2010 Million Baht

Percent

Total Deposits 100.00 1,243,860 1,102,229 141,631 12.85 Current accounts 5.37 66,833 61,698 5,135 8.32

Savings accounts 55.32 688,037 688,650 (613) (0.09)

Fixed-term deposit accounts 39.31 488,990 351,881 137,109 38.96

Note: * Bank only

At the end of 2011, total deposits − comprising deposits of our Corporate, SME and Retail

Business customers − had increased by Baht 141,631 million, or 12.85 percent, over the end of 2010.

This was mainly attributable to increases in fixed-term deposits, as the Bank has offered special

deposit products carrying attractive returns in different periods that meet the varied needs of

customers.

2.4 Treasury Operations In 2011, the Bank maintained our focus on proper liquidity management, in response to

changing economic circumstances at home and abroad, as well as interest rate direction in the

money market as per the BOT’s monetary policy. As of the end of November 2011, the BOT resolved

19

to cut the policy rate by 0.25 percent to 3.25 percent after the continual hike during the first-nine

months of 2011. The Bank continued to pursue our strategy of increasing transaction volume with

other financial institutions to enlarge our borrowing and lending sources for regular adjustment of

liquidity position with the money market situations. This has also helped sustain our status of the

BOT-appointed primary dealer.

Meanwhile, the Bank continued to support the BOT’s effort to jointly develop the “Bangkok

Interbank Offered Rate” (BIBOR) with all primary dealers, by means of tackling the prevailing

problems and obstacles, increasing transaction volume in the money market, particularly for 3-month

tenors, as well as extending BIBOR-linked loans and derivatives, all of which has helped promote

BIBOR as another reliable reference rate in the money market.

Treasury Operations Income (Units: Million Baht)

Change Income Structure of Treasury Operations (Banking Book)

Percent of Total Income

2011 2010 Million Baht Percent

Interest income * Interbank and money market items ** 61.95 6,998 2,289 4,709 205.72

Investments 38.05 4,299 4,075 224 5.50

Total 100.00 11,297 6,364 4,933 77.51 Note: * Managerial figures

** Including loans

In 2011, total interest income, contributed from our treasury operations (banking book), was

Baht 11,297 million, rising by Baht 4,933 million, or 77.51 percent, from 2010. This was the

consequence of an over-year increase in liquidity of around Baht 60,000 million, coupled with an

upward interest rate trend during the first three quarters of 2011.

2.5 Operating Performance of K Companies and Muang Thai Life Assurance Co., Ltd.

Operating Performance of K Companies* and Muang Thai Life Assurance Co., Ltd. (Units: Million Baht)

Performance Measurement 2011 2010

KASIKORN FACTORY AND EQUIPMENT Co., Ltd.

(KF&E)

Outstanding Loans 8,013 3,912

KASIKORN LEASING Co., Ltd. (KLeasing) Outstanding Loans 63,832 53,908

Assets under Management (AUM) 741,827 634,834 KASIKORN ASSET MANAGEMENT Co., Ltd. (KAsset)

Market Share (Percent) 24.61 22.02

Trading Volume 411,392 429,985 KASIKORN SECURITIES PCL. (KSecurities)

Market Share (Percent) 3.29 3.47

20


Performance Measurement 2011 2010

Earned Premium 37,886 29,649 Muang Thai Life Assurance

Co., Ltd. (MTL) Market Share (Percent) 11.51 10.01

Note: * KResearch is not included, as the company does not engage in financial business.

During 2011, K Companies showed satisfactory quantitative and qualitative operating

performance, attributable to the earnest cooperation of all departments in KGroup.

Sound performance of KSecurities was witnessed through continued growth in their revenue

and profits by 18.42 percent and 24.19 percent, respectively, over 2010. For investment banking

business, the company focused on joining hands with the Bank in regularly introducing financial

solutions to satisfy our customers. Moreover, the company continued to make progress on opening

up new branches, located in KBank branch areas, for greater service efficiency. Other securities

products have been developed continuously, in order to meet all customer needs and to prepare us

for the securities business liberalization in 2012, as well as striving towards our goal in becoming the

market leader within three years.

During 2011, assets under management (AUM) of KAsset grew by 16.85 percent over-year,

significantly above the market average growth rate of 4.56 percent. The company also reported their

AUM market share of 24.61 percent, which was the largest market share in mutual, private and

provident funds business, under the synergy with the Bank for development of products that

efficiently meet the needs of customers, expansion of electronic channels and delivery of excellent

service quality.

KLeasing also reported satisfactory loan growth, although the automotive manufacturing

industry in Thailand was severely affected by Japan’s disasters and massive flooding in Thailand

during 2011. Meanwhile, the company has continued to improve their asset quality, with a lower-than-

expected ratio of NPLs to total loans of only 1.04 percent. Upon coordination with the Bank, the

company opened up two new branches to serve the wider group of customers, and offered various

sales promotional campaigns for both retail and SME customers, such as K-SME Leasing Plus. With

such dedication and efforts, the company’s business achievement was applauded and awarded

many marks of recognition, such as the Best Car Leasing of the Year award for the third consecutive

year, granted by Grand Prix International Co., Ltd., at the Bangkok International Motor Show.

KF&E reported significant loan growth over-year, in alignment with the company’s loan

growth target for overall 2011. In addition, the company has been working together with KBank

through relationship managers (RM), with an aspiration to become a market leader in the near future.

For MTL, their notable development included efficiency enhancement for bancassurance

services, and coordinated efforts with the Bank to jointly improve insurance policies to better match

21

customer needs, all of which resulted in outstanding growth in MTL’s earned premium from

bancassurance channel, and their ability to maintain the first-place rank in bancassurance’s new

business premium. In response to continued dedication in developing products and services, the

company was also awarded many commendations, including the First Winner of the Life Insurance

Company with Outstanding Management award for five consecutive years (2006-2010) from the

Office of Insurance Commission; the Superbrands Award for the fifth consecutive year (2006-2010)

from Superbrands Thailand; and the Trusted Brand Awards 2011 (Gold) for the second consecutive

year (2010-2011) by Reader’s Digest magazine.

2.6 Capital Requirements and Credit Ratings

Capital Funds As of December 31, 2011, the Bank had capital funds of Baht 175,246 million, consisting of

Baht 122,228 million in Tier-1 capital, and Baht 53,018 million in Tier-2 capital. The capital adequacy

ratio of the Bank was 13.81 percent, significantly above the Bank of Thailand’s minimum requirement

of 8.50 percent. Details of the capital adequacy ratio of the Bank are shown in the following table:

Capital Adequacy Ratio* (Units: Percent)

Capital Adequacy Ratio Dec. 31,

2011 Sep. 30,

2011 Jun. 30,

2011 Mar. 31,

2011 Dec. 31,

2010

Tier-1 Capital Ratio 9.63 9.72 9.18 9.43 9.37


Capital Adequacy Ratio 13.81 13.90 13.57 14.04 13.96 Note: * Excluding the net profits of each period, which under Bank of Thailand’s regulations, net profit in the first period is to

be counted as capital after approval by the Board of Directors as per Bank’s regulations. Net profit in the second

period is also counted as capital after approval of the General Meeting of Shareholders. However, whenever a net

loss occurs, the capital must be immediately reduced accordingly.

Capital Adequacy Ratio

(Including the net profit of each accounting period)

(Units: Percent)

Capital Adequacy Ratio Dec. 31,

2011 Sep. 30,

2011 Jun. 30,

2011 Mar. 31,

2011 Dec. 31,

2010



Capital Adequacy Ratio 14.73 14.45 14.62 15.42 14.83

22

Maintenance of Ratios The Bank maintains liquid assets, on average, of at least 6.00 percent of deposits and some

kinds of borrowing, in compliance with the Bank of Thailand’s regulations. As of December 31, 2011,

the Bank had cash in hand, cash at central cash centers, deposits with the Bank of Thailand and

eligible securities, totaling Baht 265,697 million.

Credit Ratings In 2011, Standard & Poor’s upgraded the Bank’s long-term counterparty credit rating and the

Bank’s long-term ASEAN regional scale rating to “BBB+” and “axA+” from “BBB” and “axA”,

respectively. Meanwhile, the Bank’s credit ratings given by Moody’s Investors Service and Fitch

Ratings remained unchanged from year-end 2010. Details are shown in the following table:

KASIKORNBANK Credit Ratings Credit Ratings Agency Dec. 31, 2011 Dec. 31, 2010

Moody’s Investors Service ** Foreign Currency Outlook Stable Stable

Long-term - Debt n.a.* n.a.*

- Deposit Baa1 Baa1

Short-term - Debt/Deposit P-2 P-2

Subordinated Debt Baa1 Baa1

Bank Financial Strength Rating (BFSR) D+ D+

Outlook for BFSR Stable Stable

Baseline Credit Assessment Baa3 n.a. Domestic Currency

Outlook Stable Stable

Long-term - Deposit A3 A3

Short-term - Debt/Deposit P-1 P-1

Standard & Poor’s **

Global Scale Ratings


Long-term Counterparty Credit Rating BBB+ BBB

Long-term Certificate of Deposit BBB+ BBB

Short-term Counterparty Credit Rating A-2 A-2

Short-term Certificate of Deposit A-2 A-2

Subordinated Debt (Foreign Currency) BBB BBB-

ASEAN Regional Scale Ratings Long-term axA+ axA

Short-term axA-1 axA-1

23

Credit Ratings Agency Dec. 31, 2011 Dec. 31, 2010 Fitch Ratings **

International Credit Ratings (Foreign Currency)


Long-term Issuer Default Rating BBB+ BBB+

Short-term Issuer Default Rating F2 F2

Subordinated Debt BBB BBB

Viability bbb+ n.a.

Individual C C

Support 2 2

Support Rating Floor BBB- BBB-

National Credit Ratings


Long-term AA(tha) AA(tha)

Short-term F1+(tha) F1+(tha)

Subordinated Debt AA-(tha) AA-(tha)

Note: * Moody’s Investors Service does not assign ratings to the Bank’s long-term debt.

** The base levels for investment grade on long-term credit ratings for Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings

are Baa3, BBB- and BBB-, respectively. For short-term credit ratings, the base levels for investment grade as viewed by these three

agencies are P-3, A-3, and F3, respectively.

24

3. Operations of Core Businesses

3.1 Business Overview KASIKORNBANKGROUP continued to pursue our “Customer-Centricity” strategy. This

strategic goal has been achieved through our harmonious efforts in effective business development

among all customer segments, product domains, as well as major sales and service channels. In

essence:

Eight Customer Segments

Corporate Business SME Business Retail Business

Four Product Domains

Operation &Transaction

Saving & Investing Funding & BorrowingProtection & Information

KASIKORNBANKGROUP

Sales & Service Channels

Multi-CorporateBusiness

MediumBusiness

Large CorporateBusiness

Small and Micro

Business

High Net Worth

Individual

Affluent Mass

• THE WISDOM Exclusive Center• THE WISDOM Corner• THE WISDOM K-Safe Deposit Box Center

• SME Business Center• Cheque Point• Overseas Office

Middle Income

• K-WePlan Branch• Corporate Business Center• Corporate & SME Service Center

• Domestic Branch• Foreign Exchange Booth• K-Safe Deposit Box Center

3.2 Customer Segments

Multi-Corporate Business The Bank strived to satisfy the needs of customers and their trade partners, from upstream to

downstream, with Value Chain Solution and Integrated Cash Management Solution featuring

innovations beyond financial products under the synergy within KASIKORNBANKGROUP. During

2011, our service solutions were provided to our target customers in infrastructure, real estate,

transportation, commerce, automotive and auto parts, petrochemical and food processing

businesses. Aiming at becoming the main bank for Multi-Corporate Business customers in many

industries and achieving quality growth, with sustainable customer relationships for future business

opportunities, we have strengthened relationships with our business allies at the personal and

organizational levels. In addition, the Bank continued to focus on becoming a knowledge-based

organization, while staff development was further implemented for their greater capability in offering

client-responsive products and services, specialized advice, as well as appropriate financial solutions

suitable to each customer and the nature of their business. As alternative or renewable energies were

among our main focus during the year, we were involved in providing advisory services and financial

25

supports to more than 20 solar and at least three wind power plant projects. Moreover, relevant

measures were launched to assist flood-affected customers, including those located in industrial

parks, as well as other involved companies, staff and industries.

Large Corporate Business Amid a number of negative factors, particularly the 2011 flood crisis, affecting our customer

businesses directly and indirectly, KBank offered relief measures including an unlimited credit line via

loans for business recovery, K-Equipment Leasing and K-Supplier Financing, by considering the

damages and needs of each business. So doing allowed the Bank to take part in rehabilitating

customers’ businesses and provided them with complete assistance, including advisory services for

reorganization and business expansion, acting as a facilitator for acquiring new markets and

alternative material sources, offering of cash and risk management, as well as expanding our

assistance to cover the staff of our customers. Also, KBank continuously focused on and provided

support for sustained growth of family businesses by setting up the “KFam Club”, a project to provide

business management courses and other beneficial activities to enhance family business connections

in Thailand and establish healthy business networks in the future.

Medium Business Realizing that SME businesses have faced a number of challenges, KBank has implemented

the strategy of Industry Solutions to meet the needs of customers in eight key industries, including

hotel, apartment, auto parts, processed agricultural products, logistics, international trade, contractor,

as well as electronics and electrical appliance parts. Our operating procedures and services at

branches and Corporate & SME Service Centers have been upgraded for faster service delivery, in

addition to the launch of our “24/7 Business Assistant” teams for entrepreneur customers. Meanwhile,

the Bank introduced two newly developed products and services, including K-Trade Premier and

“SME Super Trade Credit” programs that cover pre- and post-financing support for all international

trade customers in a more timely manner. Under the “ME Academy” project, the Bank has equipped

our entrepreneur customers with useful knowledge, while enhancing their business expansion

opportunities through business matching with important partners, such as TV Direct and 7-Catalog.

Small and Micro Business Determined to be the Bank for SMEs and to maintain our largest market share, development

has been undertaken for our more diverse, flexible and integrated financial products and services to

better meet all customer needs, throughout their business stages. Our notable efforts included

elimination of collateral limits, ensured adequacy of credit limits and extension of repayment terms, as

well as delivery of the finest service experience. In 2011, many sales promotional campaigns were

launched for K-SME Credit customers, such as the “SME Win All” and “SME Get Ready” campaigns.

26

In addition, the Bank has offered assistance measures to increase liquidity for flood-affected

customers. These measures included extended grace period for principal payment, P/N renewal

without required documents, as well as loans for business recovery, covering K-SME Flood Relief,

K-Equipment Finance and other credit facilities that were introduced jointly by the Bank and

specialized financial institutions (SFIs). Our focus was also on promoting business sustainability for

potential Thai SMEs by equipping them with knowledge via “Training Series” for the business owner

and successors. Over the past four years, 15 classes have been organized for SME customers under

these series. In addition, the Bank joined hands with the Department of Industrial Promotion to

arrange a project to support new entrepreneurs, while marketing campaigns were arranged with our

business allies. We took part in launching TV shows – “SME Tee Tak” and “SMEs Flying High with

K SME Care” – to offer business know-how and experience to SME entrepreneurs in all segments.

High Net Worth Individual Understanding and realizing the diverse and distinct needs of each customer in this segment,

KBank has adhered to the “When Your Wish is More than Wealth” concept in offering our “KGroup

Private Banking” services. In 2011, KGroup launched the “SET 50 Digital Bullish Note”, featuring

structured notes to satisfy customers who prefer to invest in stocks, but need full coverage against

potential losses, with choices of different return rates, maturity terms and risk appetite levels. KGroup

also offered the K SMART CLN 1 YEAR A fund, investing in credit-linked notes, with dividend

payments depending on credit rating or incidents that may affect repayment ability of assets.

Additionally, as part of our attempt to facilitate High Net Worth customers, wishing to diversify their

bank deposits amid the reduced deposit protection limit by the Deposit Protection Agency, the

“K Principal Protected Thai Fixed Income fund” was introduced. Apart from these offerings, the Bank

has organized a number of activities in connection with customer needs in their everyday life,

including Dhamma activities with the aim of soothing natural disaster victims, and seminar

arrangements on the overall economic environment and investment knowledge, amid volatile market

conditions.

Affluent Committed to our strategy of increasing the number of Affluent customers, we have strived to

expand our customer base and upgrade Middle Income customers, business owners and high-

ranking executives of SMEs into the Affluent segment, through cross-selling and increasing their

holdings of KGroup investment products. In 2011, promotional campaigns were regularly organized

for loan and insurance products, while the “Member Get Members” program served as a tool for

KBank branches to attract new customers through existing customers’ referrals. With the cooperation

of the Corporate and SME Business Divisions, KGroup’s investment advisory managers have been

delegated to make customers’ acquaintance, as well as participate in initiating new services and

27

sales promotions. Some of these notable projects included “Money Inflow Boost Up”, “K-VIP OD” and

“Exclusive SME Credit”, which uniquely catered to customers’ business and personal needs, and

helped differentiate us from peers. In addition, “THE WISDOM” brand was continually strengthened

for this customer segment, through various advertising media in leading business newspapers and

magazines, as well as “THE WISDOM of Wealth and Lifestyle” magazine, which was widely

distributed for increased awareness of customers and their acknowledgement of our list of privileges.

Another effort by the Bank for this customer segment included opening of THE WISDOM corners in

Bangkok and other large provinces, in order to deliver superior financial services to all Affluent

customers.

Middle Income The Bank has adhered to our strategy of customer-base expansion for the Middle Income

segment, targeting depositors, investors and credit cardholders, by tailoring products and services to

suit the prevailing market conditions and the needs of the targeted customers. Our efforts in

accessing those customers included arranging activities at their population centers and participating

in activities matching their lifestyles. In 2011, the launch of the “Savings for Future Benefit” campaign

enabled freelancer and business owner customers – having limitations in presenting income evidence

– to gain better access to our lending products through the use of their savings records as an input

for loan applications. Thus, the number of new customers is reported to have risen continuously.

Meanwhile, customers with potential in the Mass segment were upgraded, through our branch

officers’ introduction of appropriate products and services under the database marketing strategy.

Sales promotional campaigns were made via regular mail, email and SMS, for an increase in product

holdings and more frequent use of our services. For holders of deposits and/or investments with

KBank of more than Baht 2 million, the Bank has offered them our “KBank THE PREMIER” services,

with exclusive privileges. Tailor-made marketing campaigns have been designed specifically to

match this customer segment’s lifestyles.

Mass The strategy of acquiring new customers with potential in the Middle Income segment has

remained a priority for the Bank. Focus has been on university students and those starting their

careers, as well as the development of responsive products and services for this customer segment.

In 2011, the privileges of K-Debit Card were improved to better meet the customers’ lifestyles. In

addition, the Bank launched K-Bank to Post, allowing money transfer from KBank branches, so their

recipients can collect at post offices across the country. This service helps enhance convenience for

customers, who are fund recipients in remote areas where there is no bank branch or ATM nearby.

The Bank also developed personal loan products, in terms of a cash card under the K-Express Cash

28

service, aimed at helping customers in need of emergency cash. Special features of this product

include a service to credit the initial loan amount to a KBank deposit account within one business day

after the credit line approval, plus preferential interest rates. Also, the Bank joined hands with VISA

International Co., Ltd. to provide “Mobile Verify by VISA”, the world’s first payment system via mobile

phone, allowing customers to shop online via their mobile phones. Payments for such transactions

can be made by K-Credit Cards, or K-Debit Cards, under the Verified by VISA service. The

aforementioned development highlighted our leadership in technology and ensured customers of

payment transaction security.

3.3 Product Domains and Sales Channels

3.3.1 Product Domains To brace for heightened risk of global and domestic economic uncertainty, the Bank, in

2011, engaged in introducing and upgrading our responsive products and services and

delivering the finest service experiences to customers. Along with this effort, sales promotional

activities and knowledge-based support were launched to assist clients in their decision-

making. To this end, our notable efforts can be classified into four domains, namely Operation &

Transaction, Saving & Investing, Funding & Borrowing, and Protection & Information. In

essence:

Operation & Transaction Details

New Products and Services

• Introduction of Smart Package: Aiming to enhance customer convenience in

conducting daily transactions, this service solution was initiated in the form of a

transaction package, consisting of four main features – cash, mobile alert, cheque,

and internet services – to respond to the transaction needs of SME customers, both

payers and payees, more completely. Also, this has helped spur their transactions via

the Bank’s main sales and service channels.

• Introduction of Customer Solution Card: This card has been specifically personalized

for medium-sized SME operators, with special privileges provided, thus increasing

transaction volume of this target customer segment.

• Introduction of Cash Package 799 service: This package encompasses multiple

services to better facilitate customers’ financial transactions, allowing cost

management effectiveness, as well as strengthen service loyalty.

• Development of K-Bank to Post service: With our effort to expand channels for

receiving funds transfer at all areas across the country, particularly some remote areas

29

Details

out of the reach of our services, this service enables money transfer from K-ATMs, 24

hours/7 days, and the recipients can collect money at post offices across the country

during office hours. Also, KBank became the first bank in Thailand to introduce this

service, in January 2011.

• K-Auto Top Up: Firstly introduced to One-2-Call customers, the service automatically

tops up customers’ mobile phones, when their airtime value is lower than Baht 50, or

on a monthly basis.

• Introduction of K-Direct Debit: Without the needs to fill in an application form at KBank

branches, customers can apply for the direct debit service via K-ATM (KBank was the

first bank to offer this service), by entering their member code and pressing the ‘OK’

button for this service offering after their bill payment transaction at K-ATM is

completed. The supplementary service under this development includes SMS to notify

the customers of insufficient funds, if any, in their account, allowing customers to make

bill payment via other channels in a timely manner.

Product and Service Enhancements

• Enhancement of time guarantee service for global funds transfer: The Bank

guarantees one-day funds transfer to China, India and Australia. With this service, Thai

entrepreneurs will feel more confident that their recipients abroad will receive funds

transfer within same day, thus enhancing flexibility in their liquidity management,

without the need to prepare money for funds transfer a few days in advance as before.

• Enhancement of K-Corporate Mobile Payment service (in the form of push bill

service): Under this service, bill payment statements will be pushed into customers’

mobile phones, which not only increases retail customers’ convenience, but also helps

facilitate our entrepreneur clients by means of increased business potential and

flexibility.

• Development of K-My Debit Cards: Based on our focus on value proposition in

offering unique designs of debit cards for our target Gen Y and first-job customers, the

Bank introduced a K-Debit Card in the Paul Frank collection, and the Valentine’s

collection (rose-scented debit cards, with a special design). Also, the Bank launched a

new design of ‘GTH is me’ card, aiming at satisfying teenagers who love

actors/actresses and cartoon characters in the popular movies.

• Development of K-Max Family Debit Cards: This card features personal accident

coverage for customers and their loved ones, targeted specifically at our upper Mass

to Middle Income customers, wishing to provide for the health and security of their

family members.

30

Details

• Enhancement of card accepting merchant services: The Bank offered a multi-

currency card accepting service to new merchant customers, along with the Certified

Dynamic Currency Conversion (DCC) service that supports the highest number of

currencies (up to 31 currencies). In addition, the Bank has introduced the new EDCs,

with GPRS Desktop to meet merchants’ diverse needs and conditions, such as

merchants having no telephone line or those wishing to save on their telephone costs.

Meanwhile, dual SIM-card EDCs, with a system of comparable stability with the single

SIM-card EDCs, were installed to reduce relevant costs and the Bank’s expenses. For

flood-affected merchants, the Bank replaced damaged machines with new ones, free

of charge.

• Adjustment of withdrawal and funds transfer fees across other clearing districts via

our electronic channels, K-MOBILE BANKING and K-Cyber Banking: To comply with

the BOT’s policy, fees for these transactions conducted through both electronic

channels were reduced to Baht 15 per transaction, starting June 18, 2011, which is in

alignment with the earlier-adjusted fees charged from similar transactions made via

ATMs.

Enhancement of Business Operation Efficiency

• Enhancement of custodial and mutual fund supervisory services: The Bank is the

second service provider in the market to expand the custodial service to investment in

gold bullion (with the purity of 96.5 percent). Meanwhile, our mutual fund supervisor

service was slightly affected by the flooding, as some mutual fund customers has been

invested in property, factories and warehouses that were damaged by the flood, with

estimated accounting losses in these assets’ value reaching approximately Baht 2

billion.

• Fund Accounting: This complete service solution includes investment fund

management, as well as facilitating back office work, such as preparation of

Statements of Financial Position and updated investment status reports, for customers

particularly two insurance companies that merged with each other with a combined

asset value of more than Baht 7 billion.

• Improvement of registrar services for unit trusts, debentures and bonds: The Bank

has placed emphasis on improvement of the system and operational procedures for

increased efficiency in registrar services. So doing enabled us to better cope with

investment volume of KAsset’s fixed income funds with specific terms, which was

affected only slightly during the flooding, as well as high investment volume in LTFs

and RMFs at year-end.

31

Details

• Participation in project finance and related services: The Bank acts as a facility and

security agent for customers’ syndicated loan projects in energy, transportation and

telecommunication sectors. As a trusted service provider, it is expected that we will be

entrusted by a number of new customers in 2012.

• Enhancement of Phone-Based Relationship Managers (RMs): To increase customer

satisfaction, the Bank added a 24-hour/7-day phone-based RM service, enabling

customers to contact our officers at any time, while we also introduced financial

service solutions to encourage customers to use KBank as their main bank.

Sales and Marketing Promotional Programs

• Marketing activities for holders of K-Max Debit Cards, K-My Debit Cards and ‘GTH is

me’ Debit Cards: These activities were jointly organized by the Bank and our business

allies to provide these cardholders with numerous benefits, plus online payment

channels. This effort helped encourage customers to apply for our cards and spur their

spending through these cards.

• Introduction of EDCs together with KBank Smart Pay: This integration offers our

customers privileges of installment payment at a zero-percent interest rate. In order to

strengthen brand awareness for our large-sized merchant customers, their

advertisement messages were placed on the back of sales slips, which consequently

helped broaden our large-sized customer base, particularly petrol stations, automotive

dealers, and mobile phone sales agent businesses in 2011.

• Coordination with Anti-Money Laundering Office (AMLO): As an e-payment service

provider, the Bank is working together with AMLO to develop the system, allowing us

to conduct e-transfer or e-payment reports in compliance with the established

regulations.

Saving & Investing Details

New Products and Services

• Continuous launch of new deposit products: The Bank introduced various types of

saving products, with suitable returns amid the upward interest rate trend and

intensified competition, prior to the gradual decrease in deposit protection limit in

August 2011. The new products and campaigns include the “Deposit for Children’s

Day”, “Fixed Deposit Campaigns with Attractive Interest Rates”, “Step-up Fixed

Deposit”, special fixed deposit products, with different deposit periods, “Flexible Fixed

Deposit plus Family Protection” and “Paul Frank K-My Debit Card and Passbook

(limited edition)” that effectively attracted a number of Gen Y and Middle Income

32

Details

customers who are of working age. In addition, the Bank offered “5-month B/E”, as an

alternative investment product, with high returns catering for upper Affluent

customers. Obviously, the aforementioned products received a warm welcome from

our customers.

• New mutual funds: During 2011, the Bank joined hands with KAsset to establish and

offer 104 mutual funds, investing in domestic and foreign debt instruments. Our

notable mutual fund offerings included K Principal Protected Thai Fixed Income, an

investment alternative for depositors wanting higher returns under a comparable level

of risk appetite; K GOLD ETF, an exchange-traded fund investing in domestic gold

bars and incorporated in Thailand, allowing investors to know the price in real time,

making it different from other gold mutual funds; K-INDIA, a mutual fund investing in

equities and equity-linked securities of foreign countries; and K Gold Linked Complex

Return 1 Year A Fund (KGL1YA), a complex gold fund investing in structured notes.

• FX Linked Note: This B/E product, with special conditions linked with foreign

exchange rates, is suitable for corporate customers with some knowledge and

understanding of benchmark foreign exchange currencies and wanting higher returns

than deposit rates at a limited risk appetite. Moreover, the returns that the customers

will gain are tied up with their selected foreign currencies.

• Introduction of K-Smart Note Linked MLR, featuring bills with returns linked with MLR

lending rates.

• Launch of Dual Currencies Note: This bills product offers returns that are tied up with

foreign exchange rates, which is provided for those who would like to make a short-

term investment and expect foreign currency to depreciate against the Thai Baht, or

would like to exchange the Baht into foreign currencies at reference rates for higher

returns than a fixed deposit rate or B/Es. The investor must have a foreign currency as

underlying assets.

• Introduction of K-Smart Equity Linked Note: Bills with special conditions linked with

the SET50 index (SET 50 Digital Bullish Note) are suitable for investors with a limited

risk appetite, but wishing to invest in equity instruments.


• Enhancement of online investment system: The Bank developed an online system of

transactions (purchasing, redemption or switching of unit trusts), investment planning

services, related-registration services, setting up investment target and alert service

(when the returns on investment meet the target) and opening new funds, in order to

enhance convenience for customers’ investments. Other new service systems were

33

Details

also launched, such as an online purchase system of LTFs and RMFs for tax benefits

via K-Credit Cards, and the reporting system showing gains/losses and mutual fund

costs in customers’ portfolios.


• Launch of PR media on Deposit Protection Agency (DPA) Act: As the blanket

guarantee was reduced to not more than Baht 50 million/depositor/financial institution,

starting from August 11, 2011, this program is aimed at providing knowledge on DPA

among our customers and the general public, as well as assuring them of the Bank’s

financial stability and performance.

Funding & Borrowing

Details New Products and Services

• Introduction of a number of new products for SME entrepreneurs: Our notable

products included K-SME Retail Credit for retailers that have financial limitations and

limited access to loan facility; K-SME Fixed Rate Loan, offering loans with a fixed

interest rate for entrepreneurs, thus reducing risks from higher interest rates during

the first half of 2011; and K-SME Combo Credit catering to those in need of liquidity

for their business operations through an O/D line of up to full value of collateral.

• Launch of K-SME Tourism Solution: The project is to support small-sized tourism

businesses related to accommodations, restaurants, tour guides/spas, car and boat

rental, and souvenirs.

• Introduction of K-SME Leasing Plus: Providing for entrepreneurs buying new cars,

this loan facility consists of a credit line from KLeasing and a business credit line from

KBank.

• K-SME Commercial Real Estate: This loan facility, with the longest installment term of

30 years, was provided for SME customers in need of a workplace which can be used

as their housing as well.

• Development of K-Energy Saving Guarantee program: KBank offers equipment

leasing/hire purchase financing, in response to the government’s energy-saving

policies.

• Development of K-Exclusive SME Credit: Under this developed product, a credit line

of up to 150 percent of collaterals (fixed-term deposits) is provided, in order to

support short-term working capital for business proprietors, or directors of juristic

entities.

• Introduction of K-SME Flood Relief Loan for 2011: KBank offered a relief loan for

34

Details

qualified SME customers who operated their business in specified flood-hit areas.

Credit lines carrying a four-percent interest rate for the first three years and normal

rates on the following years were provided in accordance with individual customer

needs. The loan maturity is seven years (the total maturity including existing loan after

rescheduling must not exceed 10 years).

• Arrangement of many special projects: To meet the needs of all customer segments

more effectively, the Bank introduced the “K-Home Loan + Free Auto Loan”, and

“Savings for Future Benefit” campaigns targeting freelancers – having limitations in

presenting income evidence – to gain better access to our personal loans. Meanwhile,

KBank is the first bank in Thailand to launch the “escrow agent” project, in which the

Bank acts as a neutral third party with fiduciary responsibilities on behalf of home

sellers and buyers.

• Introduction of new personal loans: During 2011, the Bank launched K-Personal Loan

for Pensioners, featuring a new consumer loan facility provided for government

retirees. K-Express Cash for Payroll was also introduced, featuring working capital

facility, with favorable interest rates for enhanced convenience of loan applicants (as

only national ID card is required for the application).

• Development of Cash One Hour: This service aims at rapidly responding to the needs

of K-Express Cash customers by allowing them to receive cash within an hour after

approval in Money Expos.

• Launch of Bangkok Hospital Group-KBank Credit Cards: In addition to the launch of

THE WISDOM, THE PREMIER and Platinum cards which have been well received

among customers, KBank and Bangkok Hospital Group jointly offered multiple

privileges of high-quality medical and financial services that completely meet the

needs of health-conscious customers through these co-branded credit cards.

Moreover, other credit cards were launched to match all customer lifestyles, such as

the AirAsia-KBank Credit Cards, suitable for customers who are frequent travelers.

Product and Service Enhancements

• Improvement of K-Trade Premier: This product offers unsecured import and export

financing, with a three-year credit term, allowing the Bank to promote our position of

main credit account, expand our customer base, as well as maintain the existing

customer base, especially for customers with good credit record, aiming to expand

their businesses.

• Enhancement of Step-Up Program: This equipment leasing program helped lessen

our customers’ installment payment burden during the first three months. There are

35

Details

also more types of machines available in this program, to better respond to customer

needs and increase our competitiveness.

• Funding arrangement: The Bank provided customers with funds in terms of

syndicated loans, bonds, short-term B/Es, as well as financial advisory service. We

were also selected to be the underwriter and guarantor of bonds and the syndicated

loan provider for customers engaging in some major businesses in the sectors of

energy and infrastructure, food and beverage, real estate and construction,

construction material and banking businesses to support their operations, business

expansion and loan repayment.


• Adjustment of internal process for loan application: The relevant processes were

improved for offering faster service, with enhanced efficiency meeting the customer

needs, as well as supporting business expansion of customers. In addition, the Bank

joined hands with customers to arrange a financial support plan for one year ahead,

allowing both customers and our loan supervisors to have time for preparation of

integrated and excellent service solutions.

• Expanded service areas of K-Global Factoring: The relevant processes were

improved for faster service delivery, with expanded service coverage to all target

areas.

• Expanded service areas for factoring service: This service was expanded to cover all

potential business areas across the country.

• Expansion of retail home loan customer base to our business allies: To improve the

loan portfolio quality and increase new loan volume meeting the established goals,

KBank, in coordination with leading property developers, arranged many sales

promotional activities, such as “Easy Home Loan”, “D3 for D-Condo” and “Home Loan

with Free Shopping Spree and Air Tickets”, “ K-Home Loan Best for You”, as well as

“Miracle Ground-Breaking Zero-Percent Home Loan” campaign with a zero-percent

interest rate for up to 30 years.

• Opening of new K Home Smiles Club: The club is located in the Crystal Design

Center on Praditmanutham Road, (near Ekamai-Ramintra Expressway Road). In

addition, KBank is the only bank in Thailand, to offer comprehensive advisory services

related to home building, with innovations and modern technology.

• Customer assistance measures for flood victims: Financial assistance measures

included reductions in lending rates, monthly installment payment, and minimum

installment payment, along with suspension of principal and interest payments. Other

36

Details

assistance measures included a zero-percent rate for K-Home Loan for Multi Purpose

and K-Home Equity for house rehabilitation. The Bank set up an assistance center

and provided discounts and privileges from business allies. A Big Cleaning Day

activity was organized for clean-up of K-Home Loan customers’ houses.


• Arrangement of marketing campaigns to spur application for and spending through

K-Credit Cards: The Bank – in cooperation with our allies in major businesses,

engaged in shopping, dining, traveling, healthcare services and house renovation –

offered our K-Credit Cardholders exclusive privileges and promotional activities to

spur application for and spending through cards. Festival-related marketing activities

were provided for the entire year.

• Arrangement of marketing campaigns for personal loans: The relevant programs

included “K-Express Cash” and “Apply for Home Loan, Get Free K-Express Cash

Card”. Other promotional activities were also staged, via various media to increase

awareness and the use of K-Express Cash among our customers.

Protection & Information

Details New Products and Services

• Introduction of new products: Focusing on insurance coverage and returns in

response to the diverse needs of customers, the Bank launched various types of

insurance products, such as “Salary Man Life Insurance Package (Pro Saving 1525)”,

a savings plan for fixed income earners plus life and critical illness coverage with a

monthly premium payment starting at a low rate; “Pro Saving 1/10”, a life insurance

scheme with a single premium payment catering to Affluent customers and those with

higher income in need of life insurance with low risk and assured return; and the

“Private Pet Care” insurance product, which offers medical expense coverage for

customers’ pets in case of accidents and illnesses including third party coverage,

plus check-ups for insured pets, free of charge.

• Introduction of “Perfect Business Smart Plus”: This business loan protection product

provides additional benefits – including maturity benefits of 15 percent of premium,

with greater coverage in case of death from accident. We also launched an insurance

product with an endowment policy feature, including Perfect Business Plus (an

insurance scheme with seven-year premium payment for 15-year coverage) at the

end of the year, when customers normally seek tax benefits.

Product and • Extension of insurable age for Pro Saving 614 and Pro Life 90/5, to one month – 70

37

Details Service Enhancements

years old and for critical illness protection (Multiple CI) to 18-65 years old. So doing

helped broaden savings alternatives for senior customers in need of low-risk savings

with constant returns, while alleviating their medical expense burdens, amid the trend

of an aging society in Thailand.

• Launch of Total Solutions, aiming to provide our customers with funding sources plus

risk protection. In cooperation with KAsset, we also introduced a mutual fund investing

in RMB-denominated deposits which received an overwhelming response from

investors.

• Enhancement of LI products: We have extended the sum-assured coverage for Letter

of Indemnity (LI) up to 75 percent of LI limit, from 50 previously, to better meet the

customer demand for business risk protection.


• Raising awareness of hedging transaction benefits, via monthly seminars to keep our

customers abreast of beneficial information, especially that related to domestic and

international economies, movement in financial markets, as well as customer

businesses, to ensure more efficient decision-making for hedging transactions.

Seminars were also staged in provincial areas, including Chiang Mai and Songkhla,

which were well received by participating customers.

• Public relations media for insurance products catering to corporate customers: This

media included TV and print media to develop public awareness of benefits of our

insurance products as a tool for business risk protection.

• Development of life insurance premium payment system, via VEDC for endowment

and pension policy. Under this system, the Smart Pay service was also offered to

customers, which features installment payment of premium at zero-percent interest

rate for three months.

• Arrangement of training courses for relationship and team managers: These training

courses focused on understanding of customer attitude towards our products,

enhanced efficiency in sales techniques, as well as effective sales force management.

A ‘Products Box’ – a portable tool containing key details of insurance products – has

been arranged and distributed to these managers for their enhanced convenience

and effectiveness in product offering to customers.

3.3.2 Sales and Service Channels

Realizing that sales and service channels are one of the crucial elements connecting

the products and services of KGroup with each target customer segment, as well as delivering

38

a satisfactory experience in the use of services to all customers, KGroup has strived to enhance

our service potential and efficiency. Moreover, customer accessibility to our main sales and

service channels has been promoted, in order to respond to the needs of customers more

effectively and conveniently both at present and in the future. Our notable services offered

through each main channel in 2011 are summarized as follows:

Branches and Financial Service Offices/Centers Number of Locations

2011 2010

Key Implementations in 2011

Branch Network

816 805 • New branch opening at all target areas: This will provide greater

convenience to our customers located at our main potential areas and

our business allies who are located near our customers. We have also

expanded space for branches with high transaction volumes or

relocated branches to areas with impressive business expansion to

respond to the diverse needs of target customers. Focus has also been

on branch designs to create unique looks for different locations, such

as airport WISDOM Lounge window display employed at the Central Lat

Phrao branch, or the local-themed design used at the Cheom Panya

Trang branch in Trang province.

• Launch of new services: In cooperation with True Corporation Plc., we

introduced the “Ultra Wi-Fi Experience@KBank” project which allows

customers to use wireless Internet service for communications and

information search while conducting transactions at branches.

Foreign Exchange

Booths

99 100 • Convenience enhancement for the use of our services, via

arrangements of foreign exchange booths and mobile exchange

booths at major tourist spots in provincial areas.

Corporate & SME

Service Centers

62 61

Cheque Points 24 23

Corporate Business

Centers

8 6

SME Business

Centers*

95 95

• Service enhancement at Corporate & SME Service Centers: After

International Trade Service Offices were renamed as Corporate & SME

Service Centers, the Bank has expanded the scope of services to cover

both domestic and international trade transactions. These services

include Domestic Business Services offering K-Cash Management

Solutions for the highest efficiency in cash management of our

customers; International Trade Services for greater convenience,

confidence, and business flexibility of our customers with a more timely

service delivery and for the highest benefits of our clients; and BIZ

39

Number of Locations

2011 2010


Clinic to provide advisory and consulting services with regard to

business planning, plus domestic and international trade transactions,

free of charge. Note: * Excluding Corporate & SME Service Centers

Electronic Banking Services

Number of Units 2011 2010


K-ATM 7,366 7,471 • K-ATM service enhancement: To improve our service efficiency and

differentiate ourselves from peers, KBank installed more ATMs with the

innovative “Personalize Your Financial Experience with K-My ATM” in

our potential areas, putting the total number to 3,500 at the end of

2011, from 2,200 at the end of 2010. We also replaced conventional

ATMs and relocated the machines to more appropriate areas for

enhanced customer convenience. Thus, the number of our K-ATMs

decreased from the previous year.

• Public relations to prevent ATM crime/fraud: A warning via pop-up

message on ATM screens and advisory sticker have been provided on

ATM terminals to raise awareness of such fraudulent acts targeting our

customers, especially when conducting money transfer transactions at

ATMs.

• Facilitating financial transactions during the widespread flood: The

Bank arranged K-Mobile ATMs and installed ATMs on elevated

platforms to provide 24-hour/7-day services at 22 submerged spots, as

part of our efforts to alleviate hardship for our flood-affected customers.

K-CDM

(Cash Deposit

Machines)

1,067 1,014 • New K-CDM installation: To differentiate the Bank from peers, new

K-CDMs have been installed to offer one-stop services, wherein both

deposit and withdrawal can be conducted within the same machine, to

better cope with the trend of increased service uses by customers.

• Development of K-CDM for interbank Online Retail Funds Transfer

(ORFT): This service enhancement enables customers to use our CDM

ORFT services 24 hours/7 days, for their greater convenience.

• Enhancement of cost management efficiency: Activities to minimize

40

Number of Units 2011 2010


global warming were arranged under the CDM Short Slip project,

including reduction in the size of CDM receipts.

K-PUM

(Passbook Update

Machines)

917 906 • Increase and relocation of K-PUM: The Bank added to the number of

K-PUMs and relocated some of them to a more suitable area, in order

to better facilitate the use of the service.


K-Cyber Banking • Introduction of new service: K Cyber Service – combining three KGroup online services,

including K-Cyber Banking, K-Cyber Trade and K-Cyber Invest – was introduced to help

enhance customer convenience by means of a single User ID and Password when logging

in to the service.

• System development: The K-Cyber Banking webpage has been modernized and upgraded

to meet the KBank website standard. For instance, displayed information and service

explanations have been simplified to be more concise and easy to use, whereas new public

relations media have been introduced, so that customers can learn about the use of K-Cyber

Banking by themselves. Also, the Bank delivered E-Newsletters for recommending

customers to conduct financial transactions via K-Cyber Banking during the flood situation.

• Arrangement of sales promotions: This activity aimed at stimulating application and

payment, or mobile top-up transactions during the Money Expos, or other E-Commerce

events nationwide.

K-MOBILE BANKING

SMS • Development and public relations program arrangements for new mobile top-up services:

A new service under the “Speed Top-Up” system was introduced to customers for facilitating

self-service instant airtime refill, through the mobile networks of KBank business allies.

• Launch of sales promotional activities: The program “K-MOBILE BANKING SMS – Term Mee

Hey (Good News for Mobile Top-up)” has been launched to spur application volume and the

use of the service, whereas the K-Salary Benefit 2011 campaign has been introduced to

offer a refund credited to the accounts of customers making transactions via K-MOBILE

BANKING as per the established conditions.

K-MOBILE BANKING

ATM SIM • Continued service enhancement: An alternative channel to apply for our “Due Alert” service

has been added via K-Contact Center, while the interbank funds transfer system has been

updated after the merger of some commercial banks.

• System efficiency enhancement: In addition to a replacement of database server, the Bank

has added a new participating merchant, including the Expressway Authority of Thailand

(EXAT), the operator of the Easy Pass service.

41


K-MOBILE BANKING

PLUS • Continued service enhancement, for compatibility with Android and Blackberry OS6-based

mobile phones and iPads, thus enabling customers to make financial transactions 24 hours/

7 days. Moreover, menus have been added for self-operation and setting-up of email

addresses for receiving transaction results.

• Service improvements: A new application channel via mobile phones has been added. Also,

the database server for this service has been replaced with a new one, while new

merchants, such as the Expressway Authority of Thailand (EXAT), the operator of the Easy

Pass service, were added to the system of K-MOBILE BANKING PLUS. In addition, the

K-MOBILE BANKING PLUS screen for smartphones was developed for friendlier use, with a

screen personalization feature.

• Arrangement of sales promotion campaigns: KBank joined hands with our business allies to

offer an e-coupon, a privilege for customers using services of participating merchants, as

well as organizing other sales promotional projects to spur customer applications and

financial transactions in each area.

K-Payment Gateway • Development of payment system via mobile phones: KBank and VISA International Co. Ltd.,

jointly launched the “Mobile Verified by VISA” service for enhanced customer convenience

and security for online shopping via mobile phones. With this service, customers can make

payments with K-Credit Cards, or K-Debit Cards, based on VISA service with One-Time

Password (OTP). This service is also the first of its kind in the world.

• Service system improvements: To be in line with additional requirements of VISA and/or

MasterCard, the template of DCC (Dynamic Currency Conversion) has been changed to

show fee rates more clearly.

• Arrangement of marketing campaigns: The Bank joined hands with our airline business

allies to offer a zero-percent installment payment for the purchase of air tickets via the

website.

• Continued provision of K-Payment Gateway Clinic: This is to provide online merchants with

monthly advisory services about the online credit card payment system. In addition,

information on e-commerce and e-banking has also been presented in seminars arranged

for executives and business proprietors, for a broadened customer base.

42

K-Contact Center Key Implementations in 2011

K-Contact Center • Introduction of new services under “Personal Banking, 24 hours, daily by K-Contact

Center”: Without having to visit the Bank, customers can use our 11 services that can be

divided into two groups, i.e., 1) services that can be completed by K-Contact Center,

including K-Econ Analysis application by our Affluent customers or above, and our direct

debit services for making funds transfer and bill payments; and 2) services that are

performed through K-Contact Center, including opening of mutual funds accounts, the

purchase of KAsset LTF and RMF investment units, opening of deposit account and

purchase of foreign currencies and travel insurance.

• Introduction of KGroup Private Banking Contact Center, specially catering for High Net

Worth Individual customers. Through this channel, many special services have been made

available, including limousine, Meet & Assist service at airports, as well as medical and

personal concierge assistance services.

• Expanded Service Scope for KAsset customers: Our customers can now request tax-

related certificates and process password resetting for the K-Cyber Invest service, as well

as receive information of highly popular funds, such as K-Oil or K-Gold.

43

4. Risk Management and Risk Factors5 4.1 Overall Risk Management KASIKORNBANK’s risk management has been carried out with an aim of supporting our

business growth and sustainable profitability, as well as maximizing shareholders’ and investors’

returns. To ensure risk management effectiveness, the Bank adheres to risk management strategies

that are in line with best practices.

The Bank has engaged in a consolidated risk management framework which emphasizes not

only the management of major risk types, including credit, market, liquidity, operational, strategic and

other risk management, but also the accuracy and completeness of risk management and capital

adequacy disclosure.

Key Developments to Strengthen Risk Management Having realized the importance of effective and timely risk management in response to a

changing business environment, KASIKORNBANK has continuously enhanced policies, tools and

processes to manage various types of risk. Notable developments in 2011 can be summarized as

follows:

• Assessment of possible loss and capital adequacy under stressed situations: This

assessment was carried out by integrating various types of risks. The assessment results are

used for effective and timely portfolio management and business decisions, while

contingency plans have been developed to ensure viable capability in the event of stress. For

instance, a liquidity contingency plan was developed for sudden deposit outflow.

• Efficiency enhancement for credit processes: Our notable improvements were seen in the

credit underwriting process, of which criteria was designated and improved to better suit

customers’ risks and returns through statistical testing. An improved credit risk management

tool that prioritizes debt-collection to achieve greater efficiency in the debt collection and

recovery process is another example of the Bank’s enhanced credit process.

• Emphasis on management of liquidity risk at an acceptable level: So doing helped ensure

sufficient liquidity under normal and stressed situations. Along with this, the Bank has

enhanced the balance of our liquidity management cost, by fostering close communication

between liquidity managers and business units, conducting an in-depth analysis of cash flow

transactions through the use of models and statistical tools, as well as developing a system

5 In the annual report, this chapter is shown in the “Risk Management and Risk Factors” section. In addition, details of various risk

management and other related information, in accordance with Pillar 3 requirements of the Bank of Thailand and disclosure

principles, are shown in the “Information Disclosure under the Basel II Pillar 3 Principle” report posted on the Bank’s website.

44

for risk monitoring and an effective early warning system. In addition, the Bank has arranged

a managerial plan to ensure that our liquidity management suits each problem at different

degrees of severity.

• Enhancement of market risk management efficiency: In order to achieve a higher level of

efficiency, we have undertaken the development of advanced tools and measurements,

which consider market behavior during extreme event, to be used as an early warning system.

In addition, close attention has been paid to foreign exchange rate movements, due to

concerns over the European sovereign debt crisis, which may increase volatility in

movements of the U.S. Dollar and other major currencies.

• Enhancement of operational risk management structure: To achieve higher efficiency and

effectiveness in our operational risk management, the Bank established the Operational Risk

Sub-Committee comprising high-ranking executives from various divisions to be responsible

for supervising relevant parties. So doing helped ensure that they perform their duties, in

accordance with the established operational risk management guidelines under close

monitoring.

• Enhancement of risk model governance: This endeavor is to ensure risk models’

completeness, transparency, and credibility, while helping to ascertain that the existing risk

models or those to be adopted in the future will be accurate and function in accordance with

the set objectives. Risk model governance policy and process have been comprehensively

established to include risk model development, validation, approval, application and

maintenance.

KASIKORNBANK Risk Management amid Great Flooding during 2011 The massive flooding in 2011 affected the Bank’s and our customers’ business operations.

In order to prepare for and mitigate any adverse impacts, the Bank has continued to implement

Business Continuity Management (BCM) to ensure uninterrupted business operation and services

provided to customers during the flooding. Moreover, the Business Continuity Plans (BCP) was also

continually developed through a working team that was responsible for outlining necessary strategies

and operational directions, as well as setting aside appropriate resources and budgets for related

units.

For customers directly and indirectly affected by flooding situation, the Bank has managed

our credit risks, through stress tests and the survey of flooding impacts on each customers, as well as

launches of post-flooding assistance measures, particularly in terms of grace period, repayment

period extension and interest rate reduction. In addition, the Bank has offered financial support – both

commercial and retail loans – to affected customers for their business and asset rehabilitation, while

45

we have continued to monitor and assess risk levels of these participated customers closely, so as to

ensure the sound credit quality of our overall portfolio. 4.2 Risk Management

Although credit risk is deemed as the key risk, the Bank’s risk management aims to develop

all types of risk management, including credit, market, liquidity, operational, strategic, and other risks,

as follows:

Credit Risk Management “Credit risk” refers to the risk that a counterparty or borrower may default on contractual

obligations or agreements. Such a default may be caused by the counterparty’s inability to pay

because of financial difficulties, or intention not to abide by the agreements, resulting in a loss to the

Bank.

The Bank places emphasis on organizing a proper credit risk management structure,

covering policies that are in line with our strategies and acceptable risk appetites, check-and-balance

organizational structure, and effective and efficient credit procedures and system, under the

supervision of the Risk Management Committee, and the Credit Policy and Risk Management

Subcommittee.

Credit Risk Management Process The Bank has established the whole credit risk management process and procedure, from

beginning to end. The process and procedure has been developed to appropriately reflect the

prevailing risk for enhanced efficiency in customer responsiveness in a prudent manner. Steps

under credit risk management process and procedure are as follows:

• To continually monitor and oversee credit quality of customers on a case-by-case basis and at the portfolio level

• To design portfolio target setting and diversification in various dimensions to meet the Bank’s desired risk appetite and concentration

Portfolio Management

Monitoring Collection & Recovery

Underwriting & Approval

• To collect and recover debts in a swift and efficient manner to minimize potential losses

• To develop credit underwriting process and supporting tools, appropriate for associated risks of each specific customer group

46

• Portfolio Management Process Focusing on active portfolio management, the Bank has defined loan targets

consistent with the Bank’s business goals. To this end, audit and monitoring have been

conducted regularly to meet the Bank’s desired risk appetite and concentration. Portfolio

quality and return have also been monitored on a regular basis.

In addition, the Bank has conducted stress tests for setting appropriate risk

management guidelines to cope with expected impacts on the Bank’s portfolio, to

ensure sustainable growth of the portfolio.

• Credit Underwriting and Approval Process The Bank’s credit management is based on up-to-date transparent and

standardized information. The credit underwriting process and system has been

designed to fit customers’ unique needs in different segments. For example, for large-

scale corporate customers with complex financial needs and medium business clients,

relationship managers with a solid understanding of corporate financial needs and risks

are assigned to conduct analyses and to propose loan facility structure, credit products

and services appropriate for customers, as well as setting prices according to their risk

ratings determined by our quantitative and qualitative tools. Relationship managers are

also responsible for preparing credit risk reports submitted for approval to underwriters

under relevant delegated authorization based on their total credit exposure. These

relationship managers are required to monitor the status of their supervised customers

on a regular basis.

A similar approval process and structure has been employed for institutional

clients with transactions in financial markets.

In the underwriting and approval processes of retail lending, which includes

housing loans, credit card services, plus other personal loans, the Bank utilizes a credit

scoring system based on the Bank’s customer credit history. Emphasis has been placed

on verification of personal data and assessment of income-liability consistency for each

case. A customer credit history-based model has also been utilized for effective

customer risk assessment which results in concise and swift underwriting and approval

processes, thus meeting customer needs and achieving their satisfaction.

The Bank continuously places emphasis on efficiency enhancement of credit

underwriting process with our strict adherence to risk control within the specified risk

appetite.

47

• Post-Credit Approval Operations In achieving standardized and efficient credit operations, the Bank has

centralized all necessary functions for post-credit approval operations, including

contract documents, legal contract-related operations, collateral agreement preparation,

credit-line establishment, credit-related document storage, and credit data support.

Meanwhile, the credit quality monitoring process has been upgraded, focusing on

customer credit use behavior, their business performance, compliance with credit

contracts, as well as monitoring of debt servicing ability.

• Debt Quality Monitoring Process The debt collection process for large business customers will begin immediately

after the detection of any negative signals in their respective businesses, which may

affect their debt servicing ability or lead to defaults on debt payments. The Bank’s

Corporate Portfolio Monitoring Unit (CPMU) has been assigned to assess debt quality to

ensure close and regular portfolio monitoring. For medium business and retail customers,

collection scoring has been adopted to achieve the fastest and most efficient debt

monitoring process. Debt quality monitoring of all customer segments has been regularly

conducted before being reported to the Management on a monthly basis.

• Debt Recovery Process The debt recovery process will start as soon as defaults on debt payments, both

of corporate and individual accounts, have occurred. Relevant guidelines, methods or

tools adopted − aimed at helping customers to resume their debt servicing ability in

order to minimize the impact on the Bank’s lending portfolio, while also maximizing

benefits for both the borrowers and the Bank − must be in compliance with the Bank of

Thailand’s regulations. Upon the completion of debt restructuring, debt quality

monitoring will be regularly conducted for further reporting to the Management every

month.

• Asset Quality Review The Bank considers the review and evaluation of asset quality a necessary

process for improvement in credit management standards to achieve the business goals

of the KASIKORNBANK FINANCIAL CONGLOMERATE. This is the responsibility of the

Risk Asset Review Department, having been assigned to review the quality of the Bank’s

credit policy and processes, from credit write-up, to underwriting, contract preparation,

48

and monitoring of credit quality, which will then be contributed as information for credit

risk management.

Credit Risk Position

− Outstanding loans As of December 31, 2011, the Bank’s consolidated outstanding loans stood at Baht

1,210,834 million, increasing by Baht 133,853 million, or 12.43 percent, compared to Baht

1,076,981 million at the end of 2010.

As of December 31, 2011, 56.91 percent of the Bank’s outstanding loans to customers

were loans exceeding Baht 20 million. Credit extended to the 20 largest borrowers, excluding

Phethai Asset Management Company Limited and the K Companies, accounted for Baht 57,901

million, or 4.82 percent of the Bank’s total loan portfolio, which is a small ratio. Classified by

customers and terms, juristic persons accounted for Baht 706,098 million, or 58.78 percent, of

outstanding loans; while sole proprietorship and individual customer credit accounted for the

remaining 41.22 percent. In terms of maturity, credit with maturities of less than or equal to 1

year accounted for 48.35 percent of the Bank’s total loans.

The Bank’s Consolidated Lending Portfolio – Profile

.0%

.20%

.40%

.60%

.80%

.100%

Type of Customer

Credit Maturity

Credit Amount

Less than 20 MB Over 20 MB

Business entities Individual

Less than or equal to 1 year Over 1 year

As of Dec. 31, 2011

As of Dec. 31, 2010

As of Dec. 31, 2011

As of Dec. 31, 2010

As of Dec. 31, 2011

As of Dec. 31, 2010

43.03% 56.97%

43.09% 56.91%

59.11% 40.89%

58.78% 41.22%

50.54% 49.46%

48.35% 51.65%

49

The Bank’s Consolidated Lending Portfolio

54.26%

5.65%

10.69%

15.48%

11.42%2.51%

As of Dec. 31, 2011 As of Dec. 31, 2010• Agricultural & Mining• Manufacturing & Commerce• Real Estate & Construction• Utilities & Services• Housing Loans• Others

• Agricultural & Mining• Manufacturing & Commerce• Real Estate & Construction• Utilities & Services• Housing Loans• Others

As of Dec. 31, 2011

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

0%

20%

40%

60%

80%

100%

เกษตร อุต อสังหา สาธา ท่ีอยู อื่น

Of the Bank’s consolidated lending portfolio, 95.80 percent was classified as ‘Normal’

loans. Classified by type of business, Manufacturing & Commerce accounted for 51.23 percent

Consolidated Loans Classified by Type of Business and Loan

Classification

Percent of Consolidated Loans Classified by Type of Business and Loan

Classification Unit: Million Baht

Man

ufac

turin

g &

Com

mer

ce

Hous

ing L

oans

Utilit

ies &

Ser

vices

Real

Esta

te &

Cons

truct

ion

Othe

rs

Agr

icultu

ral &

Mini

ng

Man

ufac

turin

g &

Com

mer

ce

Hous

ing L

oans

Utilit

ies &

Ser

vices

Real

Esta

te &

Cons

truct

ion

Othe

rs

Agric

ultur

al &

Mini

ng

Normal Special Mention Sub-Standard Doubtful Doubtful and Loss

50

of total consolidated lending, which was the highest ratio. Of this figure, 92.25 percent was

classified as ‘Normal’ loans.

− Non-Performing Loans and Debt Restructuring Non-Performing Loans As of December 31, 2011, the Bank’s consolidated NPLs stood at Baht 31,736 million,

equal to 2.45 percent of total outstanding credit, including that of financial institutions. For Bank-

only NPLs, the amount totaled Baht 29,868 million, accounting for 2.31 percent of total

outstanding credit, including that of financial institutions, which decreased from the end of 2010.

These NPL figures are shown in the table below:

Non-Performing Loans (Units: Million Baht)

Year Ending Dec. 31, 2011 Dec. 31, 2010

The Bank’s consolidated NPLs 31,736 33,175

Percent of total outstanding credit, including that of financial institutions 2.45 2.91

The Bank-only NPLs 29,868 31,053


Net Non-Performing Loans As of December 31, 2011, the Bank’s consolidated net NPLs stood at Baht 14,698

million, equal to 1.15 percent of total outstanding credit, including that of financial institutions.

For the Bank-only net NPLs, the amount totaled Baht 13,675 million, accounting for 1.07 percent

of total outstanding credit, including that of financial institutions, which decreased from the end of

2010. The net NPL figures are shown in the table below: Net Non-Performing Loans


Debt Restructuring In 2011, the Bank’s consolidated pre-written off, restructured debts totaled Baht 49,151

million, increasing by Baht 2,162 million when compared to 2010. Losses from debt restructuring

stood at Baht 3,574 million, or 7.27 percent of total restructured debts, which was equivalent to

Year Ending Dec. 31, 2011 Dec. 31, 2010

The Bank’s consolidated net NPLs 14,698 16,022


The Bank-only net NPLs 13,675 14,806


51

an increase of Baht 984 million compared to Baht 2,590 million in 2010, or 2.09 percent of total

restructured debts. Non-Performing Loans of Asset Management Company, and Foreclosed Properties Non-Performing Loans of Phethai Asset Management Company Limited

− Phethai Asset Management Company Limited

As of December 31, 2011, Phethai AMC had resolved and/or restructured NPLs

amounting to Baht 72,968 million, or 98.59 percent of the total initial unpaid principal balance,

with an expected recovery rate of 48.00 percent.

The details of NPL resolution and/or restructuring over the past four quarters are shown

in the table below:

Loans Resolved/Restructured at Phethai Asset Management Company Limited


Year Ending Dec. 31, 2011

Sep. 30, 2011

Jun. 30, 2011

Mar. 31, 2011

Dec. 31, 2010

Phethai Asset Management Company Limited

Cumulative loans resolved/restructured 72,968 72,931 72,807 72,790 72,750

Percent of the total initial unpaid principal balance 98.59 98.54 98.37 98.35 98.29

− Thai Asset Management Corporation

The Bank has transferred the sub-quality debts of borrowers, who all had characteristics

matching those in the Emergency Decree on the Thai Asset Management Corporation (B.E. 2544)

and the Asset Transfer Agreement, to Thai Asset Management Corporation (TAMC).

In exchange for the transferred assets, TAMC issued the Bank a ten-year, non-

transferable, callable note, guaranteed by the Financial Institutions Development Fund (FIDF).

The notes’ yields include an annual coupon, reset quarterly, at the weighted average of deposit

rates of five major Thai commercial banks, paid for by a one-year, extendable, non-transferable,

FIDF-guaranteed note.

Despite the asset transfer to TAMC, the Bank remains exposed to a proportion of risk in

our share of TAMC’s potential losses. According to the Emergency Decree on the Thai Asset

Management Corporation (B.E. 2544) and the Asset Transfer Agreement, at the end of the fifth

and tenth years dating from July 1, 2001, TAMC and the Bank would share gains and losses

arising from the resolution of the Bank’s transferred assets.

Apparently, June 30, 2011, was marked as the tenth-year completion. A gross book

value of the total transferred assets, calculated until the end of December 2011, equaled Baht

14,882 million. These transferred assets were priced at Baht 9,747 million, and the Bank has

already received the same amount of notes paid by FIDF. At present, liquidation processes has

52

been undertaken by the Liquidation Committee, which must be completed within the twelfth year

since the effective date of the Emergency Decree on the Thai Asset Management Corporation

(B.E. 2544).

As of December 31, 2011, according to primary information as suggested by TAMC, the

Bank had approximately Baht 107 million in gains arising from these sub-quality debt account

management at the end of the tenth year. However, final revision of this figure shall be made by

TAMC, after the remaining assets are completely managed.

Foreclosed Properties

As of December 31, 2011, the Bank’s consolidated foreclosed properties had a book

value of Baht 15,103 million, accounting for 0.88 percent of total assets.

As of December 31, 2011, consolidated allowances for impairment of foreclosed

properties stood at Baht 1,679 million, equivalent to 11.12 percent of the cost value of those

foreclosed properties, which is believed to be sufficient to cover holding, maintenance and

disposal expenses, as well as losses on the liquidation of foreclosed properties.

Allowance for Doubtful Accounts and Allowance for Impairment of Assets

As of December 31, 2011, the Bank’s consolidated allowance for doubtful accounts and

revaluation allowance for debt restructuring totaled Baht 40,343 million. This amount was equivalent

to 149.92 percent of the level required by the Bank of Thailand.

Market Risk Management “Market risk” is risk incurred from changes in interest rates, exchange rates, securities prices,

commodity prices, and credit derivatives. These changes affect the Bank’s present and future income

or financial assets and liabilities values.

KASIKORNBANK has consistently developed fundamental and necessary processes with an

aim of proper and timely management of market risks from transactions related to derivative products

and new financial instruments. The Bank has set product management processes for both existing

and new financial products, covering the objectives and procedures in transaction executions, as well

as related market risk factors. Analyses and impact assessment of potential risks have been

conducted, while risk evaluation and controls have also been put in place.

In 2011, the financial market encountered high volatility, amid numerous risk factors both

domestically and abroad, resulting in the Baht’s movements being dictated by the sovereign debt

crisis in Europe and economic and political problems in the U.S., leading to its credit rating

downgrade. In addition, Thailand’s worst-ever flooding in the second half of 2011 was responsible for

a slowdown in the domestic economy, prompting the BOT to cut their policy rate. These factors

significantly affected movements and directions of money and capital markets.

53

The Bank has continued to develop market risk management tools for enhanced efficiency of

our risk assessments and analyses in a more complete array of perspectives, in order to cope with

market volatility. In 2011, the Bank utilized the Value-at-Risk tool to measure and monitor market risk

for loan syndication. Amid high volatility in the money and capital markets that may significantly affect

business operations of counterparties, especially financial institutions in Europe, the Bank decided to

place greater importance on monitoring the risk position of those financial institutions closely. The

Bank also established a new decision-making and management process to cope with any negative

signals about the financial position of those counterparties to ensure the effectiveness and timely

implementation of our risk management.

The Bank has realized the importance of performance measurement and compensation

schemes of business units. We have, thus, set a policy for fair-value appraisal of financial instruments

and derivative contracts for trading-book activities. The policy has been implemented as a key

mechanism to maintain the balance of risk management, performance measurement, and

compensation schemes for business units involved with trading book activities. With the new policy,

the fair-value assessment of financial instruments and derivative products has been conducted

completely, precisely, and trustworthily. This includes gradual revenue recognition for illiquid

products, and valuation adjustment of financial instruments and derivative products based on various

types of risk (such as counterparty risk and risk from large position holding). The Bank adopted the

fair value option in structured notes valuation. So doing has not only allowed booking of structured

notes to better reflect their current prices, but has also fortified the Bank’s statement of income

against volatility, with improved appropriateness of the Bank’s value.

Developments of note for market risk management during 2011, as well as related

information categorized by trading and banking book activities, are shown as follows:

• Market Risk in Trading Book Activities KASIKORNBANK is currently exposed to three main types of risk in trading book activities,

including interest rate risk, foreign exchange risk, and equity risk. As the Bank has chosen not to

retain any position dealing with commodity prices and credit derivatives, they have been managed

under a back-to-back policy. In addition, the Bank exposes ourselves to equity risks only, in order to

serve the equity underwriting business. The Bank measures, controls, and maintains related market

risks at acceptable levels, under the supervision and control of the Enterprise Risk Management

Division, as well as the Risk Management Committee.

In 2011, the VaR for one-day holding period, 99-percent confidence level of trading book,

was Baht 50.84 million on average, meaning that the daily potential loss of trading business is less

than Baht 50.84 million on 99 days out of 100 business days.

54

• Market Risk in Banking Book Activities KASIKORNBANK is exposed to risks from interest rates and capital market securities of

transactions in banking book activities, as follows:

− Interest Rate Risk in Banking Book Activities In 2011, domestic and international factors, particularly the European public

debt crisis and economic impacts of the flooding situation at home, had a significant

impact on domestic interest rate movements. However, the effect on the Bank’s interest

rate risk profile was minimal, as the Bank has adjusted our Statement of Financial

Position structure to be consistent with interest rate risk, and also within a specified risk

appetite, as a preemptive measure against potential loss from significant changes in

interest rates. Amid a possible downward interest rate trend to assist economic growth

and post-flood recovery in 2012, the Bank will re-adjust our Statement of Financial

Position structure to better accommodate future interest rate trends, with consideration

placed on a possible change in net income and underlying economic value, under a

specified risk appetite.

In addition, the Bank has closely monitored interest rate movements and

behavior of our customers, ensuring maximum accuracy of information used as input for

modeling of our interest rate risk management.

The Bank has monitored interest rate risk in banking book activities regularly

(on a monthly basis), including raising the frequency of risk position monitoring if there is

any significant change in the structure of assets and liabilities. In addition, the Bank has

prepared a report on interest rate risk gap to monitor interest rate risk and assess net

interest income sensitivity over the next 12 months, based on an assumption of a 1.00-

percent change in interest rate of all types of assets and liabilities at their different re-

pricing periods. The results of interest rate risk assessment are as follows:

55

The Effect of Changing Interest Rate on Net Interest Income (Units: Million Baht)

For the Period Ending Dec. 31, 2011

+100 bps

THB (372)

Foreign Currencies 277

Total Effect of Interest Rate Change (95)

− Equity Risk in the Banking Book The Bank currently has no policy of extending our equity investments, and

continues to reduce the size of these investments that are not directly related to our core

businesses. In this endeavor, data analysis and assessment of the prevailing situation

have been conducted to ensure maximum benefit to the Bank.

Liquidity Risk Management “Liquidity risk” is defined as the risk caused by the Bank’s inability to meet obligations when

they come due – because of an inability to convert assets into cash, or to obtain sufficient funds to

meet cash needs at appropriate costs within a limited time period – which may then result in a loss to

the Bank.

The main objective of liquidity risk management is to ensure that our liquidity level sufficiently

facilitates business undertakings under appropriate operating costs. The Bank has established a

liquidity risk management system that is efficient, flexible and adaptable to the current market

conditions, with a proactive and proper asset and liability structure, as well as liquidity risk control

consistent with the Bank’s risk appetite and appropriate operating costs.

In the first half of 2011, manufacturing activities at home showed a gradual recovery,

following subsiding impacts of the devastating earthquake and tsunami in Japan, whereas the Thai

export sector and domestic spending continued to maintain growth momentum, thus supporting the

BOT’s policy rate hikes to keep price stability in check and curb inflationary pressure. Nevertheless,

global economic uncertainty – caused by the European public debt crisis and the U.S. – has resulted

in increased volatility in the money and capital markets.

In the latter half of 2011, volatile money and capital markets remained prevalent globally,

following the lingering global economic risks, as well as cooling economic momentum at home that

was dampened significantly by the massive flooding in Thailand during the final quarter of 2011. This

flooding not only largely impacted the manufacturing sector, but also impeded the country’s exports,

which consequently led the BOT to cut their policy rate. As downside risks to growth seem to

56

outweigh inflationary risks, it is believed that a policy rate hike is unlikely to occur, at least in the near

term.

The aforementioned situation indirectly heightened consequential risk in line with growing

operational risk. However, the Bank adopted a Business Continuity Plan (BCP) to alleviate the

corresponding effects, or other factors that could disrupt the Bank’s key operations and systems, thus

allowing the Bank to fulfill its obligations. The BCP contains key operational procedures, including a

contingency plan to cope with a liquidity crisis caused by substantial deposit outflows (bank run) and

other factors. Under the BCP, the Bank arranged facilities, necessary documents, technologies,

personnel, communication channels/processes and services needed for operations to ensure the

continuity of our liquidity management system should any unexpected and severe incident occurs.

The Bank has strictly followed the BCP procedures during the period of heightened risk.

The Bank has assessed and analyzed liquidity risk continuously to ensure adequate liquidity

for business operations during normal and crisis situations. In 2011, the Bank conducted additional

stress tests for the events of both market-wide liquidity crisis and combination liquidity crisis, aside

from our regular stress tests for a Bank-specific liquidity crisis. In addition, in light of the phasing out

of deposit protection during 2011-2012 that may have a wider impact on liquidity in the commercial

banking system, the Bank has made analyses and assessments of possible impacts in various

scenarios, ranging from base to worst cases, wherein the obtained results have been used for

mapping out necessary operational plans and strategies.

In addition, the Bank has continued to focus on reviewing and further refining our liquidity

risk management procedures, so as to be in alignment with world-class standard practices, as well as

our business growth directions. In 2011, the Bank developed a new tool to measure and monitor

foreign-currency liquidity risk, aside from our existing tool to measure and monitor overall liquidity risk.

In terms of liquidity risk management, the Bank has regularly reviewed and improved our

management process in line with changing economic conditions and our business performance. We

have also reviewed the structure of our funding sources to suit the changing market conditions and

liquidity directions in the commercial banking system, so as to brace for global economic conditions

and rapid change in asset prices. In addition, the Bank has continued to monitor, analyze and

manage foreign-currency liquidity risk, along with procuring short- and medium-term funds regularly,

to ensure that our liquidity is adequate for both current and future requirements. We have considered

strategies to maintain a proper minimum level of foreign-currency liquid assets. One of those

strategies is to bolster the volume of foreign-currency liquidity via deposits, which are considered a

high quality liquidity source, to brace for heightened liquidity risk stemming from volatility in the global

economy.

57

The Bank has closely monitored major factors that may impact liquidity and interest rate risks

in the future, as follows:

• The global and Thai economies in the short- and long-term periods.

• Timeframe and directions of the BOT’s policy rate adjustments.

• Direct and indirect foreign capital inflows, influenced by the overall confidence towards

domestic consumption and investment.

• Intensified competition in savings and investment products of financial institutions, which

could impact the liquidity of the Thai commercial banking system.

• Potentially rising trend of credit demand, in accordance with the Thai economic recovery,

which may put additional pressure on the liquidity of the Thai commercial banking system.

Operational Risk Management “Operational risk” refers to the risk of direct or indirect losses in bank earnings and capital

funds, resulting from failure or inadequate processes, personnel, operating and IT systems, or

external events. Having realized the importance of operational risk management, the Bank has always

placed a great emphasis on effective operational risk management, and has continually improved our

risk management framework. The objective of this framework is to implement systematic operational

risk management practices with a single standard across the entire KASIKORNBANK FINANCIAL

CONGLOMERATE, with proper risk assessment and prevention.

The Bank’s operational risk management has been implemented, through systematic and

effective risk identification, assessment, management, and monitoring processes. All units of the Bank

are required to continuously report their operational risk exposures, designed controls, and risk

prevention initiatives. Meanwhile, many modern risk management tools – such as key risk indicators,

risk event database and other IT systems – have been employed, in order to enhance the

effectiveness for risk monitoring and prevention, as well as managing risks in a timely manner before

damage occurs to the Bank and customers.

Meanwhile, the Bank has strengthened cooperation between the operational risk

management team and Internal Audit Department, in order to increase the efficiency and

effectiveness of risk management and internal control process for relevant units through sharing

important information and arranging workshops between those relevant parties. This project has

contributed to enhanced efficiency of risk management and internal audit procedures, while being

accountable as a key component in risk management evaluation procedures – which not only leads to

continuous improvements in operational risk management, but also enables the Bank to cope with

rapid changes more effectively, under the foundation of our desired corporate culture.

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The Bank has continued to put an emphasis on enhanced efficiency and operating cost

reduction. To this end, guidelines for operational risk management have been applied with the Lean

and Six Sigma concepts to create balance between the control of risks within the acceptable risk

appetite, rising costs and effectiveness of operational procedures. These efforts help ensure that

work procedures have been continually developed in alignment with enhanced business

competitiveness and effective operational risk management. Business and support units within

various business divisions of the Bank have jointly implemented this project.

In 2011, the Bank focused on enhancement of directions and organizational structure for

operational risk management. An Operational Risk Sub-Committee was set up to supervise the

operational risk management of the KASIKORNBANK FINANCIAL CONGLOMERATE to ensure that it

is in alignment with the established framework, and to monitor closely the progress of key risk

management. Additionally, the Sub-Committee manages and controls key operational risks of the

Bank through the Corporate Level Initiative project, emphasizing on major operational risk factors,

such as business continuity management (BCM). This BCM includes management of risk from IT

system interruption, preparation for external events, e.g., natural disasters, and management of risk

from fraud that is a key risk within key products of financial institutions, such as credit cards, ATM

cards, cheques and internet services. Factors to be considered consist of appropriate management

structure, adequate resources and processes, and suitable management tools, for the purpose of

attaining customer satisfaction towards the Bank’s products and services.

The Bank also enhanced operational risk tracking process via the use of the Operational Risk

Management Dashboard, which indicates an effectiveness of operational risk management of each

product, as concerns effectiveness of risk identification and self-assessment, implementation of the

established risk prevention initiatives, and risk level monitoring via risk indicators and operational loss

events. Such a report has been aimed at presenting to senior executives the overview and directions

of risk management as crucial information for efficient decision-making and maintaining compliance

with the Bank of Thailand’s regulations, as well as other relevant laws and international standards.

Strategic Risk Management “Strategic risk” is incurred from formulation of strategies and business plans, as well as

inappropriate implementation of such strategies and work plans, or actions inconsistent with internal

factors and external environments, which will affect earnings, capital funds, or sustainable business

undertakings of the KASIKORNBANK FINANCIAL CONGLOMERATE.

Strategic risk management of KGroup is under the supervision of the Board of Directors and

Management Committee. Meanwhile, the Corporate Strategy Department is responsible for strategic

plan formulation and revision, as well as monitoring of KGroup’s performance. Also, the department

59

has to present KGroup strategic directions to the Management Committee, consisting of executives of

related divisions who will oversee and determine appropriateness and feasibility of each strategic

issue. Finally, the approved strategic plan and budget arranged by the Financial Planning

Department will be presented to the Board of Directors for approval.

Throughout 2011, KGroup has tracked and evaluated actual performance as compared with

business and budget plans by means of monthly segment monitoring meetings, Balanced Scorecard

and multi-level performance assessments. Evaluation results were analyzed vis-a-vis the business

goals, in order to identify relevant causes and, thus, seek possible resolutions, prior to close

monitoring of corrective actions.

4.3 Capital Management As equity capital is of significant value to business operation of financial institutions, effective

capital management must therefore be ascribed the highest priority to achieve financial strength and

sustainable credibility.

Placing great emphasis on capital management, the Bank’s capital management framework

is consistent with international practices, as well as being in accordance with Basel II requirements

which have been implemented since December 31, 2008. Three applicable pillars under Basel II

comprise minimum capital requirements (Pillar 1), supervisory review (Pillar 2) and market discipline

(Pillar 3). The Risk Management Committee supervises overall risk management to ensure that the

Bank’s risk level is maintained within the acceptable risk appetite. Additionally, in 2011, the Bank

established the Capital Management Sub-Committee to oversee capital adequacy, as well as the

Bank’s capital planning.

Following the announcement made by the Basel Committee on Banking Supervision (BCBS)

on the Basel III framework, which will be implemented in Thailand in the near future, the Bank’s

taskforce for Basel preparation has prepared for our compliance through discussion with the BOT.

Additionally, future capital adequacy under the Basel III framework has been assessed to ensure that

there is no impact on the Bank’s capital and business undertakings once the BOT revises the capital

requirement criteria. The taskforce for Basel preparation has regularly monitored and reported

progress on Basel III implementation, both domestically and internationally, to senior executives for

timely planning and management.

Capital Management As of December 31, 2011, total capital amounted to Baht 175,246 million, consisting of Tier-1

capital of Baht 122,228 million, and Tier-2 capital of Baht 53,018 million.

60

Capital Structure As of Dec. 31, 2011

Baht 175,246 million

Tier-2 CapitalBaht 53,018 million

Tier-1 CapitalBaht 122,228 million

The minimum capital required for all risk types under Basel II amounted to Baht 107,889

million, equivalent to the risk-weighted assets value of Baht 1,269,282 million. Credit risk constitutes

the principal risk of the Bank, or 89.81 percent of total minimum capital requirement.

Basel II Minimum Capital Requirement

As of Dec. 31, 2011

Credit RiskBaht 96,891 million(89.81%)

Operational RiskBaht 8,938 million

(8.28%)

Market RiskBaht 2,060 million

(1.91%)Baht 107,889 million

The difference between the Bank’s minimum capital requirement under the Basel II Accord,

totaling Baht 107,889 million, and the current available capital of Baht 175,246 million, indicates Baht

67,357 million of capital above the minimum requirement. This level of capital beyond regulatory

requirements is adequate for future business growth, under both normal and stressed conditions, and

reflects our capability to maximize returns to shareholders.

61

Capital Adequacy

As of Dec. 31, 2011

0 20 40 60 80 100 120 140 160 180 200

เงินกองทุนขั้นต่ําท่ีตองดํารง

เงินกองทุนท้ังส้ินของธนาคาร

At 13.81 percent Capital Adequacy Ratio (CAR) and 9.63 percent Tier-1 Capital Ratio,

exceeding the Bank of Thailand’s minimum requirement of 8.50 percent, the Bank’s capital is

considered to be within the Bank’s effective capital management framework. Should the net profits

for the second period of the year be counted as capital, wherein the Bank of Thailand allows such

inclusion after the approval of the Bank’s General Meeting of Shareholders, the Bank’s capital

adequacy ratio would be 14.73 percent, with the Tier-1 capital ratio reaching 10.56 percent.

Performance Measurement using Risk-Adjusted Return on Capital (RAROC) and Economic Profit (EP)

In 2011, KASIKORNBANK FINANCIAL CONGLOMERATE has continued to implement the

Value-Based Management (VBM) framework, which is a management practice aiming for the highest

value creation for our shareholders, in accordance with our business strategies and goals. In

achieving this endeavor, the Risk-Adjusted Return on Capital (RAROC) and Economic Profit (EP) –

showing net profit after adjusting for both the risk charge and the cost of capital – have been adopted

as key measurements.

Moreover, we have developed guidelines of performance measurements, consistent with

various management aspects, including business targeting, and strategic and business planning that

takes into consideration complete risk-adjusted returns, risk-based pricing and efficient resource

management. In addition, the Bank has measured our business performance and analyzed value-

based profits, based on the “Customer-Centricity” concept, in order to strengthen our competitive

advantage in the dimensions of customer segments, product domains, as well as linkage between

customer segments and product domains. Meanwhile, related business units have adopted the

(Units: Billion Baht)

Minimum Capital Requirement

Total Capital Base

Credit Risk Market Risk Operational Risk

108

175 Capital above

Minimum BOT

62

value-based analyses for their business viability assessment of investment projects, allowing them to

effectively adjust their business strategies in alignment with the fast-changing market environment.

63

5. Operations of Support Groups

To efficiently pursue our “Customer-Centricity” strategy, the Bank continued to upgrade all

necessary support functions in the dimensions of organizational culture enhancement and

clarification of desirable behaviors as per KGroup Core Values through human resource management.

IT management and implementation of the K-Transformation project also helped facilitate this strategy.

In 2011, notable developments included:

Human Resource Management for the Highest Business Efficiency of KASIKORNBANKGROUP

During 2011, the Bank continued to strengthen K-Culture, promote desirable behaviors as

per KGroup Core Values, develop human resources and arrange programs to build positive emotional

attachment to the organization. These efforts aimed to promote advancement for employees and

business sustainability for the Bank. For human resource management, the number of employees has

been increased in response to our business expansion, particularly in China. Employee potential has

been enhanced as follows:

• Recruitment and Allocation of Staff: To support business expansion in Thailand and China,

the Bank organized “K-Career Day” activities, the “Staff Referral” program, as well as the

“China Project Career Day” program, in a bid to meet the Bank’s staff recruitment and

allocation plans. With a large number of candidates, the Bank was able to recruit qualified

staff, as planned.

• Staff Potential Development: Employees with consistently high performance and potential,

plus satisfactory behaviors in line with K-Culture and KGroup Core Values, have been

selected to participate in the Leadership Development program. Under this process, the

Bank has provided individual development plans and monitored the performances of such

employees. As a result, a number of these employees have been appointed as KBank

leaders and executives. In addition, a succession plan was formulated to develop personnel

with potential to fill vacancies, for which required knowledge and skills for each job position

were specified. Meanwhile, assessment and learning programs in the form of class training

and E-Learning courses were organized for employees, in addition to training programs on

some specific knowledge and skills needed for the examination for a salesperson license

issued by government agencies.

• Staff Retention: Realizing the significance of employee feedback, the Bank arranged for an

employee survey. The survey results will be used to improve employee satisfaction and to

create engagement with the organization. The needs and potential of staff in each generation

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have been managed to promote higher efficiency, happiness and a sense of pride in being a

part of the KGroup team. KBank also provided welfare benefits as per the Labor Protection

Law and the current situation. Our notable efforts included the provision of temporary

accommodations, home renovation loans, as well as high-pressure water washers and

cleaning tools, for flood-affected employees. Meanwhile, the Bank joined hands with other

organizations to support many CSR activities, allowing employees to help and strengthen

relationships among those within the Bank and in society at large. Such activities included

those organized by the KASIKORN Foundation, the eyeglasses donation project,

environmental projects in coordination with Kuiburi National Park, and projects to provide

natural food sources for elephants and artificial coral reefs for fish, with overwhelming

participation by our employees.

• Efforts to Support Business Expansion in China: The China Business Division and China

Strategy Development Unit – Special Project were established to map out business

expansion strategies that suit each customer segment, current competition, as well as an

operational system and procedures that are in strict compliance with related laws and

regulations issued by Thai and Chinese officials. Meanwhile, the organizational structure and

positions/functional titles of the China Business and Overseas Office Management

Department and Shenzhen Branch were reorganized, in order to enhance the efficiency of

strategic formulation and human resource management for business operations in China.

The structure of relevant departments has been improved to better facilitate customer base

expansion in China and promote income for the Bank, part of which was achieved through

closer relationships with Chinese firms investing in Thailand.

IT Management • IT Security Policy and Infrastructure

Aside from the development of data security and service systems of relevant units during

2011, the Bank implemented various measures to cope with the impacts of the massive flooding,

ensuring uninterrupted business operations and IT system continuity to support customers’ service

use. Our efforts included data center protection and enhancement of the remote working system as

per the Bank’s standards on security control, thus enabling employees responsible for some key

transactions to continue their operations during adverse circumstances.

• IT Outsourcing In 2011, revisions were made to the IT outsourcing contracts, concerning the areas of

application maintenance, plus application development and enhancement, to ensure clearer working

65

scopes for better service quality and flexibility, at a more reasonable price. During the flooding

situation, the Bank closely coordinated with IT outsourcing vendors to brace for any disruptive event

as per our established plans. These plans involved preparation of Critical Skeleton staff to ensure

uninterrupted operations of our critical services, as well as business continuity management, in order

to meet all customer needs with smooth operations, thus allowing us to effectively deliver high-quality

products and excellent service to our customers.

K-Transformation The K-Transformation program has been progressing as per KGroup’s long-term strategy of

Customer Centricity, particularly in the areas of business management and other important process

development. Meanwhile, the new sales and service system has created faster customer

responsiveness and a consistent customer experience across channels.

Throughout 2011, major progress was seen in the Multi-Channels Sales & Service (MSS)

project. The new branch infrastructure platform rollout was completed. Having been deployed to all

Bangkok branches during 2011, the new sales and service solution will be gradually put in place at all

branches nationwide by early 2012. Moreover, the newly finished MSS, integrated with Know Our

Customer (KOC) capabilities, has increased the effectiveness of campaign execution through the

branch platform, thus leading to creation and development of new products, cross-selling and up-

selling, better campaign response rates, as well as higher product holding and sales

amount/transaction volume per customer.

Regarding the IT Capital (ITC) program, the new core banking system development has

reported ongoing progress. The Bank is now in the process of system testing to ensure quality and

higher security of business operations. As per the Bank’s plan, the new core banking system will be

launched in 2013, with full functionalities to be completed by 2014. With all of these efforts, the

Bank’s business goals will be reached more efficiently and effectively, through our expanded ability to

respond to the needs of customers and differentiate our products and services, thus resulting in

higher income than that of our rivals.

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6. KASIKORNBANK’s Investments in Subsidiary and Associated Companies

Subsidiary and Associated Companies Definitions of subsidiary and associated companies are in alignment with those specified in

accounting standards, wherein the Bank discloses such details in the Notes to the Financial

Statements.

Investment Policy The Bank’s investment policy can be summarized as follows:

• Strategic Investments The Bank invests in companies for strategic benefit. The Bank and these companies

collaborate on the review of business strategies and synergies, through the sharing of various

resources, equipment, tools and channels, in order to efficiently meet the needs of customers, with

minimal operational redundancies.

• Outsourcing Investments The Bank invests in companies that support the Bank’s operations. These are

companies providing services that are not the core business of the Bank, and that would face

inflexibility if they were to remain a part of the Bank. Bank executives are appointed as directors of

these companies to oversee their management and operating policies, with one director having

control over the firms’ operations. This helps ensure standardized service quality, as well as maximum

efficiency and benefits for the Bank.

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Disclaimer

Certain statements shown in this document are forward-looking statements in respect of financial position or

performance of KASIKORNBANK Public Company Limited (“KBank”). KBank has prepared such statements based on

several assumptions, and has relied on the financial and other information made available from public sources as of

the date these statements were made. Statements with words such as “expect”, “believe”, “estimate”, etc., are types of

forward-looking statements involving uncertainties and subject to change at any time due to future events, including

but not limited to, changes in the global/national economic, political and regulatory environment. KBank is under no

obligation to update these forward-looking statements to correspond to the current situation. Thus, recipients shall

carefully review these statements and make an independent decision prior to investing or entering into any transaction.

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