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BOT Notification No 20-2558 (8 September 2017)-check

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Notification of the Bank of Thailand No. FPG. 20/2558

Re: Requirements on Accounting for Financial Institutions

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1. Rationale

In general, financial institutions, like other juristic persons, shall prepare accounting information in accordance with the accounting standards and financial reporting standards prescribed by the Federation of Accounting Professions. However, the business of financial institutions has some specific characteristics that are different from other businesses. Thus, for some transactions, there is no specific accounting standard and financial reporting standard, or the existing accounting standards and financial reporting standards may not clearly define for a particular circumstance that need interpretations and judgments, or some accounting standards and financial reporting standards provide various alternatives for accounting practice. Consequently, this may lead to unclear and inconsistent accounting practice among different financial institutions. As a result, the Bank of Thailand deems necessary to prescribe the requirements for financial institutions, in order to standardize and align the accounting practices for financial institutions, in addition to the accounting standards and financial reporting standards as prescribed by Federation of Accounting Professions. However, the requirements prescribed by the Bank of Thailand are in line with the Conceptual Framework for Financial Reporting, as well as related accounting standards and financial reporting standards prescribed by the Federation of Accounting Professions. In case where the Federation of Accounting Professions does not prescribe a specific accounting standard and financial reporting standard, the Bank of Thailand shall prescribe the requirements on accounting and financial reporting based on International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).

In this Notification, the Bank of Thailand deems necessary to revise the regulation on fair value measurement by repealing the regulation on fair value measurement in Section 2 Investment, and the regulation on fair value measurement for derivatives in Section 4 Translation of Foreign Currencies to Thai Baht, and require financial institutions to apply Thai Financial Reporting Standard No. 13 for fair value

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measurement in order to ensure that the regulation on fair value measurement under this Notification is in line with the financial reporting standard.

2. Statutory Power

By virtue of Section 62 and Section 66 of the Financial Institutions Businesses Act B.E. 2551 (2008), the Bank of Thailand issues the requirements on accounting and financial reporting and financial institutions shall comply accordingly.

3. Scope of Application

This Notification shall be applied to all financial institutions under the Financial Institutions Businesses Act.

4. Notification to be Repealed

The Notification of the Bank of Thailand No. FPG.21/2555 dated 17th December 2012 Re: Requirements on Accounting for Financial Institutions shall be repealed.

5. Content

Section 1 Sale of Foreclosed Properties

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1. Under this section,

“ Person with power of management” means

(1) a manager, a deputy manager, an assistant manager or an executive director of a financial institution or a company, as the case may be, or any person holding an equivalent position, which is called otherwise;

(2) a person, according to an agreement with a financial institution or a company, having partial or full power of management; or

(3) a person having de facto power to control or dominate a manager or a director, or the management of a financial institution or a company to comply with his order in formulating policy or conducting business of the financial institution or the company.

“Executive director” means a director who has a duty on the management of a financial institution or a company in accordance with the rule as prescribed in the Bank of Thailand Notification.

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“Financial business group” means the financial business group prescribed in the Bank of Thailand Notification Re: Regulations on Consolidated Supervision.

2. The regulations prescribed under this section shall be applied to all types of the sale of foreclosed properties except for the foreclosed debt and equity securities.

3. Revenue recognition criteria for sale of foreclosed properties

Financial institutions shall recognize revenue from sale of foreclosed properties when all of the following criteria are met. This requirement is in accordance with Thai Accounting Standard No. 18 Re: Revenue of the Federation of Accounting Professions.

(1) Significant risks and rewards of ownership of the foreclosed properties have been transferred to the purchaser;

(2) Financial institution retain neither continuing managerial involvement to the degree usually associated with ownership nor having direct or indirect control over the foreclosed properties sold;

(3) The amount of revenue from the sale of foreclosed properties can be measured reliably;

(4) It is highly probable that the financial institution will receive the economic benefits associated with the sale of foreclosed properties;

(5) The costs incurred or to be incurred in respect of the sale of foreclosed properties can be reliably measured.

4. Accounting for sale of foreclosed properties

4.1 Sale of foreclosed properties that does not meet the criteria prescribed in Clause 3 shall be recorded as deposit receipts.

4.2 Except for sale of foreclosed properties prescribed in Clause 4.3, the sale of foreclosed properties that meets the criteria in Clause 3 shall be classified into 2 cases as follows :

4.2.1 The sale of foreclosed properties to general public at the price higher than 10 million Baht

Financial institutions shall recognize profits as revenue in full, if all of the following criteria are met.

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(1) Financial institution receive cash payment not less than 20% of selling price

(2) The purchaser has ability to make his full payments

For the sale transactions that do not meet criteria (1) and (2) above, financial institutions shall partially recognize profit as revenue based on the proportion of cash received to selling price until the transaction meet both criteria; then, financial institutions can recognize profit as revenue in full. For example, a financial institution receives cash payment less than 20% of selling price since it lends more than 80% to purchaser. In this case, the financial institution shall recognize profit as revenue based on the proportion of cash payment received until the financial institution receives cash payment up to 20%; then, full amount of profit can be recognized as revenue.

For the sale transactions that the price is higher than 10 million Baht, financial institutions shall consider on contract level of each purchaser which may include only one or many sale transaction(s) per contract.

4.2.2 The sale of foreclosed properties to business with related interest, director, person with power of management of financial institution, major shareholder, or related person of such person. Financial institutions shall comply as follows:

(1) In case where there is no loan from financial institution or companies in financial business group of such financial institution

(1.1) If financial institution receives the full amount of cash payment, the whole amount of profit shall be recognized as revenue.

(1.2) In case of installment payments, financial institution shall recognize profit as revenue in full when all payments under contract are received (Cost recovery method).

(2) In case where financial institution or companies in financial business

group of such financial institution lends ,

(2.1) If financial institutions lend to purchaser for full payment of foreclosed asset, financial institution shall recognize profit as revenue in full when all payments under contract are received (Cost recovery method).

(2.2) If financial institutions lend to purchaser for a partial payment of foreclosed asset sale,

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(2.2.1) For the portion paid in cash, financial institutions shall partially recognize profit as revenue based on the proportion of cash received to selling price.

(2.2.2) For the portion financed by loan, financial institutions shall recognize profit as revenue in full when all payments under contract are received (Cost recovery method).

In this regard, the rules and procedures for sale of foreclosed properties to director, person with power of management of financial institution, major shareholder, or related person of such person shall be in accordance with Section 48 (4) of the Financial Institutions Businesses Act B.E.2551 (2008) and the Bank of Thailand Notification Re: Regulations on Selling, Granting or Leasing Assets to Directors and Other Persons as Prescribed in Section 48 (4) or Purchasing or Renting Assets from Such Persons.

Examples of accounting entries for the sale of foreclosed properties in Clause 4.2 are demonstrated in Attachment 1.

4.3 For sale of foreclosed properties being paid by the promissory note issued by the Bangkok Commercial Asset Management Company Limited that fully owned by Financial Institutions Development Fund, if such transaction meets all criteria prescribed in Clause 3, financial institutions shall comply as follows :

4.3.1 Recording promissory note received from the Bangkok Commercial Asset Management Company Limited as Other receivables under Other assets category in financial statement at the fair value calculated from future cash flow discounted by the interest rate as prescribed in Thai Accounting Standard No. 18 Re: Revenue of the Federation of Accounting Professions, since such promissory note is considered debt payment by selling foreclosed properties, not loan generated from normal banking business.

In case where the interest rate mentioned above is not available, financial institutions shall use government bond yield curve as a reference. If the government bond having the same maturity as such promissory note is also not available, financial institutions shall interpolate the interest rate from government bond yield curve.

4.3.2 If sale of foreclosed properties meets the criteria prescribed in Clause 3, financial institutions shall recognize profit from sale of foreclosed properties in full, since the Bangkok Commercial Asset Management Company Limited is fully owned by Financial Institutions Development Fund; thus, there will not be any issue regarding cancellation of sale or ability to make payment.

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4.4 Sale of foreclosed properties that financial institutions are liable to purchaser and such obligation has a significantly impact on profit from sale of such foreclosed properties; for example, obligation to relocate residents, obligation to demolish of structures, financial institutions shall deduct expected costs of fulfilling obligation from profit from sale before recognizing profit as revenue. Financial institutions shall estimate the expected costs in accordance with the rules as prescribed in Thai Accounting Standard No. 37 Re: Provisions, Contingent Liabilities and Contingent Assets of the Federation of Accounting Professions.

4.5 If there is a loss on the sale of foreclosed properties, financial institutions shall recognize loss in full immediately in the income statement and other comprehensive income statement.

5. Disclosure for sale of foreclosed properties

Financial institutions shall disclose the information about sale of foreclosed properties in the notes to financial statements.

Section 2 Investments

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1. The regulations as prescribed under this section shall be applied to accounting for investments in debt and equity securities, but excluding investments in receivables.

2. Accounting for investments

Financial institutions shall record investments in debt and equity securities in accordance with Thai Accounting Standard No. 105 Re: Accounting for investment in debt securities and equity securities, and Thai Financial Reporting Standard No. 9 Re: Financial Instruments (when the standard becomes effective) prescribed by the Federation of Accounting Professions as follows :

2.1 Debt security means a security that evidences that the issuer is liable, directly or indirectly, to pay cash or other assets to the security holder at the amount and condition, explicitly or implicitly, specified. Debt securities includes (1) Bond (2) Treasury bill (3) Other securities issued by Thai Government, State organization, State enterprise, or juristic person established under specific law, for raising funds (4) Debenture issued for raising funds (5) Bill of exchange or promissory note issued by commercial bank in connection with interbank borrowing or for raising funds from public in accordance with the regulations as prescribed by the Bank of Thailand (6) Bill of exchange or promissory note issued by finance company for raising funds from public (7) Bill of exchange or promissory note issued by other

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businesses for raising fund raising and having features similar to a debenture (8) Floating rate note or Floating rate certificate of deposit or any other debt securities having features of debenture or similar to debenture that receive approval of offering from the Securities and Exchange Commission and Stock Exchange of Thailand (9) Structured product issued by commercial banks in accordance with the regulations as prescribed by the Bank of Thailand ; for example, Credit linked notes and Structured notes and (10) Promissory note that financial institutions receive from the Thai Asset Management Corporation as a payment for the transfer of impaired assets.

2.2 Equity security means a security that evidences the ownership in equity of business of investee firm. Equity securities include (1) Common stock (2) Preferred stock and also include security giving holder the option of purchasing an underlying equity security (underlying asset) i.e. stock warrant.

3. Fair value measurement for investments

Financial institutions shall measure fair value of investment in debt and equity securities in accordance with Thai Accounting Standard No. 13 Re: Fair Value Measurement of the Federation of Accounting Professions.

4. Equity securities obtained from debt restructuring

In case of debt restructuring, when financial institutions accept debtor’s equity security for the payment to settle debt resulting from debt-for-equity swap and there is restriction on the holding or sale of such equity security, financial institutions shall set out a clear shareholding policy from the date they obtain such equity security by considering whether it should be classified as general investment or investment in affiliated companies or subsidiaries, and record accounting transaction in accordance with related accounting standards.

Section 3 Purchase or Receipt of Transfer of Receivables

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1. The regulations as prescribed under this section shall be applied to accounting for purchase and receipt of transfer of loan receivable of financial institutions.

2. Fair value measurement for investment in loan receivables

2.1 Financial institutions shall measure fair value of the investment in loan receivables based on the present value of expected future cash flows discounted at the

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interest rate consistent with inherent risk of individual loan. Discount rate can be calculated by adding a risk premium to the Minimum Loan Rate (MLR). In the calculation of risk premium, financial institutions shall comply as follows:

(1) The method of calculation shall be written that allow the Bank of Thailand’s financial institutions examiner to audit.

(2) The calculation must be reasonable with supportive reference; for example, referring to credit rating of debtor. In this connection, MLR plus risk premium must be distinctly higher than normal interest rate charged.

(3) Same risk premium can be applied to debtors having the same characteristic and risk profile

2.2 In case where the estimate the expected future cash flows of investment in loan receivables cannot be determined, or the expected future cash flows can be determined but discount rate cannot be reliably determined, financial institutions shall comply as follows:

(1) For collateralized loan that financial institutions have legal right to force the sale of collateral to pay loan.

In this case, financial institutions shall use the value of collateral as a fair value of investment in loan receivables. Regarding collateral appraisal, financial institutions shall comply with the Bank of Thailand Notification Re: Loan Classification and Provisioning for Financial Institutions and the Bank of Thailand Policy Statement Re: Valuation of Collateral and Foreclosed Properties Obtained from Debt Repayment of Financial Institutions.

In this regard, collateral value being used to measure fair value of investment in loan receivables shall not exceed the remaining principal under the contract of the loan purchased or transferred.

(2) For uncollateralized loan, the fair value of investment in loan receivable is zero.

3. Impairment of investment in loan receivable

Financial institutions shall determine the impairment of investment in loan receivable in accordance with the rules prescribed in Thai Accounting Standard No. 105 Re: Accounting for investment in debt securities and equity securities and Thai Financial

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Reporting Standard No. 9 Re: Financial Instruments (when the standard becomes effective) prescribed by the Federation of Accounting Professions.

4. Recognition of profit from reclassification between investment in loan receivables and loan

Financial institutions are allowed to reclassify between investment in loan receivables and loan. However, if there is profit arising from the reclassification between investment in loan receivables and loan, financial institutions shall consider the certainty of receiving future cash flows when recognizing such profit for accounting purposes.

5. Supervisory measures for the loan purchased or received from transfer

5.1 Asset classification and provisioning

(1) For the debtor classified as loan, financial institutions shall classify and set aside provision for such debtor using the same approach as applied to general loan, which is in accordance with the Bank of Thailand Notification Re: Loan Classification and Provisioning for Financial Institutions.

(2) For the debtor classified as investment, financial institutions shall classify and set aside provision for such debtor using the same approach as applied to investment in debt and equity securities, which is in accordance with the Bank of Thailand Notification Re: Loan Classification and Provisioning for Financial Institutions.

5.2 Supervision of large exposures (single lending limit)

For the debtors both classified as loan and classified as investment, financial institutions shall include them in the calculation of single lending limit, which is in accordance with the Bank of Thailand Notification Re: Regulations on Supervision of Large Exposures.

In addition, financial institutions shall strictly comply with laws related to lending; for example, prohibition on granting credits to financial institution’s director, person with power of management, or related person as prescribed in Section 48(1) of the Financial Institutions Businesses Act B.E.2551 (2008).

5.3 Accounting treatment for interest revenues

Financial institutions shall record interest revenues of debtors that classified as loans and those classified as investments using the same approach as applied to general

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loans, which is in accordance with the regulation on recognition of interest revenue from lending prescribed in Section 5 of this Notification.

Section 4 Translation of Foreign Currencies to Thai Baht

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1. The regulations as prescribed under this section shall be applied to the translation of transactions in all foreign currencies into Thai Baht.

2. Translation of transactions in all foreign currencies into Thai Baht

2.1 Foreign exchange spot transactions (spot positions)

Financial institutions shall translate (1) all foreign exchange spot transactions (2) financial statements of all foreign entities that shall be included in consolidated financial statements of financial institutions and (3) foreign exchange position spot transactions data in the financial institution dataset (FI dataset) when preparing all reports that shall be submitted to the Bank of Thailand at the end of every month, using the average of average buying rates – transfer and average selling rates published on the Bank of Thailand’s website (www.bot.or.th) on the balance sheet date or on the last day of reporting month.

(1) In case where the average buying rates – transfer and the average selling rates are not available, financial institutions shall use the average of buying rate and selling rate of foreign exchange rates in foreign markets, which have been converted into Thai Baht and published on the Bank of Thailand’s website (www.bot.or.th) on the balance sheet date or on the last day of reporting month.

(2) In case where financial institutions engage in transactions in other foreign currencies than those published on the Bank of Thailand’s website, financial institutions shall translate the transactions into USD using foreign exchange cross rates from reliable source, such as Thompson Reuter, Bloomberg, and Telerate ; then, translate USD to Thai Baht using the average of average buying rates – transfer and average selling rates of the counter rate quoted by commercial banks published on the Bank of Thailand’s website (www.bot.or.th) on the balance sheet date or on the last day of reporting month.

Using foreign exchange rates mentioned above, financial institutions shall select and apply the rates consistently and keep evidences for an inspection by the Bank of Thailand’s financial institutions examiner.

http://www.bot.or.th/



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2.2 Foreign exchange forward transactions

Financial institutions shall translate foreign exchange forward positions at the month-end closing date using the forward exchange rates according to the remaining maturity of the positions or of the contracts. Financial institutions can choose if they will use the discounted values or not.

If financial institutions are not ready to comply with the aforementioned regulation for calculating foreign exchange forward position, they shall comply with the accounting standard or the guidance on accounting practices as prescribed by the Federation of Accounting Professions as follows:

(1) Applying the premium / discount amortization approach to the interest rate portions of the forward contracts

(2) Applying the spot transaction approach to the foreign exchange forward positions in the banking book

Nevertheless, when Thai Financial Reporting Standard No. 9 Re: Financial Instruments becomes effective, financial institutions shall comply with such financial reporting standard.

2.3 Derivatives transactions

For foreign exchange derivatives, except those mentioned in Clause 2.2, financial institutions shall comply with Thai Financial Reporting Standard No. 13 Re: Fair Value Measurement of the Federation of Accounting Professions when measuring the fair value of such derivatives.

3. Recognition of gains or losses from translation of foreign currency transactions

Financial institutions shall comply with Thai Accounting Standard No. 21 Re: The Effects of Changes in Foreign Exchange Rates of the Federation of Accounting Professions.

4. Translation of foreign currency transactions for maintaining liquidity reserves

Financial institutions shall translate foreign currency transactions for maintaining liquidity reserves at the end of the day instead of the end of the month and comply with the Bank of Thailand Notification Re: Liquidity Reserve Requirements for Commercial Banks.

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Section 5 Recognition of Interest Revenue from Loans and Hire Purchase Installments

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1. The regulations as prescribed in this section shall be applied to the recognition of interest revenues from loans and hire purchase installments.

2. Revenue recognition requirements

2.1 Financial institutions shall record the transactions on an accrual basis at the end of every month.

2.2 For debtors whose interests or installments are past due for no more than 3 months, financial institutions shall recognize revenues based on the amounts they received.

2.3 In case where financial institutions receive partial interest payments, financial institutions shall deduct the amounts from the accrued interest receivables that previously recognized as revenues before deducting them from the accrued interest receivables that have not been recognized as revenues.

2.4 In case where financial institutions have suspended the recognition of revenue prescribed in Clause 4, financial institutions may recognize revenues on an accrual basis again when debtors pay the principal and interests that have already been recognized as revenues and have not been recorded as revenues, or pay all overdue installments.

3. Revenue recognition for hire purchase transactions

Financial institutions shall recognize revenues from hire purchase transactions in accordance with the approach as prescribed in related accounting standards.

4. Suspension of revenue recognition

Financial institutions shall cease the recognition of revenue and reverse all accrued interest revenue from loan or overdraft or installment from hire purchase that financial institutions has recognized as revenue under Clause 2 and Clause 3, when the past due debtor fall into the following criteria :

4.1 Debtor from direct loan, debtor from loan guarantee, or debtor from acceptance, aval, or intervention for honor in bill of exchange, who has failed to pay interest for more than 3 months from due date.

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4.2 Overdraft without limit, or the overdraft limit has been recalled or overdraft in excess of the approved limit, on which interest has been past due and unpaid for more than 3 month from interest payment due date or interest is partially paid but accrued interest is still past due more than 3 months.

4.3 Hire purchase debtor has failed to pay installment for more than 3 consecutive months from due date.

4.4 Debtor from direct loan, debtor from loan guarantee, debtor from acceptance, aval, or intervention for honor in bill of exchange, overdraft debtor with overdue interest payment, or hire purchase debtor who has failed to make payment for not exceeding 3 months from due date but classified as loss, doubtful of loss, or doubtful according to the Bank of Thailand Notification Re: Loan Classification and Provisioning for Financial Institutions.

Examples of approach for determining the timing of recognition of revenue from accrued interest and accounting entries for reversing accrued interest that previously recognized as revenue from related accounts, are demonstrated in Attachment 2.

Section 6 Trading of Bills and Trade Finance Transactions

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1. Under this section,

“Bill” means a promissory note and bill of exchange, excluding a bill issued for funding as prescribed in Clause 2.1 of Section 2 Investment.

2. The regulations as prescribed under this section shall be applied to the purchase and sale of bill and trade finance transaction.

3. Accounting for purchase, purchase by discounting or rediscounting of bills and trade finance transactions by purchasing, discounting or rediscounting documents under letters of credit (L/C)

Financial institutions shall record the transactions as loans in accordance with related accounting standards, unless the Bank of Thailand prescribes otherwise.

4. Accounting for sale, sale by discounting or rediscounting of bills

Financial institutions shall record the transactions in accordance with the related accounting standards for sale, sale by discounting or rediscounting of bill.

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In case of sale, sale by discounting or rediscounting of bills and where purchasers have recourse, financial institutions shall disclose the outstanding balance of such sale, sale by discounting or rediscounting of bills in the notes to financial statements under the contingent liabilities section. In addition, financial institutions shall take into account the obligation that may incur form such transactions and also comply with Thai Accounting Standard No.37 Re: Provisions, Contingent Liabilities and Contingent Assets of the Federation of Accounting Professions.

Section 7 Bad Debt Recovery ---------------------------

1. The regulations as prescribed under this section shall be applied to the accounting for recovery of bad debts for which financial institutions have made debt restructuring agreements after they have been already written off, which is in accordance with the Bank of Thailand Notification Re: Loan Classification and Provisioning for Financial Institutions.

2. Accounting for bad debt recovery

Financial institutions shall record revenues from bad debt recovery only when the repayments have been received in order to comply with the conservative principle and under the same standards.

Nevertheless, if the auditors of financial institutions deem that bad debt that has been restructured should be recognized as revenues as they meet the requirements for revenue recognition under the framework for financial reporting of the Federation of Accounting Professions, financial institutions shall record revenues from such bad debt recovery immediately.

Section 8 Dividend Payment ---------------------------

1. The regulations as prescribed under this section shall be applied to dividend policy of financial institutions.

2. Consideration of dividend payment

Financial institutions may recognize profits from asset revaluation, reclassification of financial assets and other transactions, which are unrealized gains arising from changes in

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interest rate, exchange rate, and fair value measurement, or financial institutions may recognize higher-than-normal profits or lower-than-normal losses, then; such profits shall be include in net profit (loss) for the current period and retained earnings (deficits) that will be the determinant of dividend payments. Thus, to provide a buffer against future losses arising from such risk, the Bank of Thailand prescribes the requirements on dividend payments for financial institutions as follows:

(1) Financial institutions should not pay dividend from unrealized profits or profits without real cash flows. For example, mark-to-market profits and gains on reclassification of financial assets.

(2) Financial institutions should not pay dividend from gains from sale of assets not considered a true sale which would result in higher-than-normal profits or lower-than-normal losses. For example, gains from sale of foreclosed properties that financial institutions can repurchase or have rights to repurchase such properties in the future.

6. Effective Date

This Notification shall be applied to the financial statements beginning on or after 1st January 2015.

Announced on 4th December 2015

(Mr. Veerathai Santiprabhob) Governor

Bank of Thailand Regulatory Policy Department Tel. 0 2283 5313, 0 2283 5303

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Attachment 1

Examples of Accounting Entries for Sale of Foreclosed Properties

1. Sale of foreclosed properties to general public Case 1 Received cash payment for not less than 20% of selling price and the purchaser has ability to make payments A financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. The financial institution receives a cash payment of 4,000,000 Baht and lends 8,000,000 to the purchaser which requires 2 monthly payments of 4,000,000 Baht plus interest at 12% per annum On the date of sale Dr. Cash/Bank deposit 4,000,000 Loan receivable 8,000,000 Cr. Foreclosed properties (building) 10,000,000 Gain from sale of foreclosed properties 2,000,000

At the end of 1st month Dr. Cash/Bank deposit 4,080,000 Cr. Loan receivable 4,000,000 Interest revenue (8,000,000 * 12% * 1/12) 80,000

At the end of 2nd month Dr. Cash/Bank deposit 4,040,000 Cr. Loan receivable 4,000,000 Interest revenue (8,000,000 * 12% * 1/12) 40,000

Case 2 Purchaser pays less than 20% Financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. Financial institution receives a cash payment of 2,000,000 Baht and lends 10,000,000 Baht to the purchaser which requires 2 monthly payments of 5,000,000 Baht plus interest at 12% per annum

In this case, financial institutions shall recognize the full amount of gain of 2,000,000 Baht as revenue when receives cash payment for not less than 20% of selling price, which is 12,000,000 x 20% = 2,400,000 Baht. Therefore, on the date of sale, financial

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institutions may recognize gain as revenue based on the proportion of cash received to selling price, which is (2,000,000/12,000,000) x 2,000,000 = 333,333 Baht

On the date of sale Dr. Cash/Bank deposit 2,000,000

Loan receivable 10,000,000 Cr. Foreclosed properties (building) 10,000,000

Deferred gain from the sale of foreclosed properties 1,666,667 Gain from sale of foreclosed properties (cash received portion) 333,333

[2,000,000/12,000,000) x 2,000,000]

At the end of 1st month Purchaser paid another 5,000,000 Baht, which made total payment received not less than 20% (2,400,000 Baht); thus, financial institutions can recognize the whole amount of gain.

Dr. Cash/Bank deposit 5,100,000 Deferred gains from the sale of foreclosed properties 1,666,667

Cr. Loan receivable 5,000,000 Gain from sale of foreclosed properties 1,666,667 Interest revenue (10,000,000 * 12% * 1/12) 100,000

At the end of 2nd month Dr. Cash/Bank deposit 5,050,000

Cr. Loan receivable 5,000,000 Interest revenue (5,000,000 * 12% * 1/12) 50,000

2. Sale of foreclosed properties to business with related interest, director, person with power of management of financial institution, major shareholder, or related person of such person Case 1 Financial institution and companies in financial business group of such financial institution do not finance the sale.

1. Total payment is received in cash Financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. On the date of sale

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Dr. Cash/Bank deposit 12,000,000 Cr. Foreclosed properties (building) 10,000,000

Gain from sale of foreclosed properties 2,000,000

2. Payments are received in installments Financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. Payments for the loan will be made in 2 monthly installments of 6,000,000 Baht plus interest at 10% per annum On the date of sale Dr. Account receivable 12,000,000

Cr. Foreclosed properties (building) 10,000,000 Deferred gain from the sale of foreclosed properties 2,000,000

At the end of 1st month Dr. Cash/Bank deposit 6,100,000

Cr. Account receivable 6,000,000 Interest revenue (12,000,000 * 10% * 1/12) 100,000

At the end of 2nd month Dr. Cash/Bank deposit 6,050,000 Deferred gain from the sale of foreclosed properties 2,000,000

Cr. Account receivable 6,000,000 Gain from sale of foreclosed properties 2,000,000 Interest revenue (6,000,000 * 10% * 1/12) 50,000

Case 2 Financial institution and companies in financial business group of such financial institution finance the sale.

1. Full financing

Financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. Purchaser borrows from the financial institution to pay for the foreclosed property and agrees to pay 2 monthly installments of 6,000,000 Baht plus interest at 10% per annum On the date of sale Dr. Loan receivable 12,000,000

Cr. Cash/Bank deposit 12,000,000 Dr. Cash/Bank deposit 12,000,000

Cr. Foreclosed properties (building) 10,000,000 Deferred gain from the sale of foreclosed properties 2,000,000

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Deferred gain from the sale of foreclosed properties 2,000,000 Cr. Loan receivable 6,000,000

Gain from sale of foreclosed properties 2,000,000 Interest revenue (6,000,000 * 10% * 1/12) 50,000

2. Partial financing Financial institution sells foreclosed property (building) with a book value of 10,000,000 Baht for 12,000,000 Baht. Purchaser borrows 8,000,000 Baht from the financial institution and agrees to pay 2 monthly installments of 4,000,000 Baht plus interest at 12% per annum. The remaining balance will be paid in cash on the date of sale On the date of sale Dr. Cash/Bank deposit 4,000,000

Loan receivable 8,000,000 Cr. Foreclosed properties (building) 10,000,000

Deferred gain from the sale of foreclosed properties 1,333,333 Gain from sale of foreclosed properties (cash received portion) 666,667 (2,000,000*4,000,000/12,000,000)




Deferred gain from the sale of foreclosed properties 1,333,333 Cr. Loan receivable 4,000,000

Gain from sale of foreclosed properties 1,333,333 Interest revenue (4,000,000 * 12% * 1/12) 40,000

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3. Sale of foreclosed properties not considered true sale

Financial institution sells foreclosed property (building) with a book value of 5,000,000 Baht for 6,000,000 Baht but seller still have control over the foreclosed properties sold. On the date of sale Dr. Cash/Bank deposit 6,000,000

Cr. Down payment from sale of foreclosed properties 6,000,000

When the seller no longer has control over the asset Financial institution shall recognize gain from sale as revenue. Dr. Down payment from sale of foreclosed properties 6,000,000

Cr. Foreclosed properties (building) 5,000,000 Gain from sale of foreclosed properties 1,000,000

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Attachment 2

Examples of approach for determining the timing of recognition of revenue from accrued interest and accounting for reversing accrued interest

1. In case where debtor is required to make monthly interest payment

Debtor signed loan agreement on 1st January 2013 and the first interest payment will be due on 31st January 2013. If the debtor does not make interest payment as scheduled, 31st January 2013 shall be the first day of payment past due. Financial institutions may continue to recognize accrued interest as revenue for the next 3 months until 30th April 2013. From 1st May 2016 onwards, financial institutions shall cease to recognize accrued interest as revenue and also reverse all accrued interest that financial institutions has previously recognized as revenue.

2. In case where debtor is required to make a semi-annually interest payment

Debtor signed loan agreement on 1st January 2013 and the first interest payment will be due on 30th June 2013. If the debtor does not make interest payment as scheduled, 30th June 2013 shall be the first day of payment past due. Financial institutions may continue to recognize accrued interest as revenue for the next 3 months until 30th September 2013. From 1st October 2016 onwards, financial institutions shall cease to recognize accrued interest as revenue and also reverse all accrued interest that financial institutions has previously recognized as revenue.

3. In case where debtor is required to make monthly interest payment and the payment is overdue for less than 3 months and the debtor makes partial payment

Debtor signed loan agreement on 1st January 2013 and the first interest payment will be due on 31st January 2013. If the debtor does not make interest payment as scheduled and also left the next 2 interest payments unpaid, which are due on 28th February 2013 and 31st March 2013; but later on 30th April 2013 the debtor made his first payment that cover payment of 1-month accrued interest; then, on 31st May 2013, he left the payment due unpaid again. In this case, financial institutions may recognize accrued interest as revenue until 31st May 2013. From 1st June 2016 onwards, financial institutions shall cease to recognize accrued interest as revenue and also reverse all accrued interest that financial institutions has previously recognized as revenue.

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4. In case of overdraft without limit, or overdraft limit has been recalled or overdraft in excess of the approved limit without movement on the account

On 31st January 2013, financial institution started charging interest from debtor, as there is no movement on the account. Financial institutions may to recognize accrued interest as revenue until 30th April 2013. From 1st May 2016 onwards, financial institutions shall cease to recognize accrued interest as revenue and also reverse all accrued interest that financial institutions has previously recognized as revenue.

5. In case of overdraft without limit, or overdraft limit has been recalled or overdraft in excess of the approved limit with partial interest payment

On 31st January 2013, debtor made partial interest payment but not fully paid. Financial institutions may recognize accrued interest as revenue but not more than the payment that debtor has to pay within 4 months. When such accrued interest exceeds the payment received from the debtor, financial institutions shall cease to recognize accrued interest as revenue and also reverse all accrued interest that financial institutions has previously recognized as revenue.


Question – Answer related to the Bank of Thailand Notification Re: Requirements on Accounting of Financial Institutions

No. Question Answer Section 1: Sale of Foreclosed Properties

1 What are the requirements on pricing of foreclosed properties sold by a financial institution to an asset management company in which the financial institution has shares, either directly or indirectly, for more than 50% of total issued shares of such asset management company? And what are the requirements on consideration for removal of foreclosed properties from the financial statements of the financial institution transferring the properties?

The existing requirements are still applied (as prescribed in the Circular No.BOT. FPG.(01)W.3258/2543 Re: Requirements on Practices for Asset Management Companies dated 27 November 2000), as follows: 1. In selling assets to an asset management company, a financial institution shall use any one of the following prices:

1) Fair value according to accounting standards

2) Book value after deducting allowances according to the regulations as prescribed by the Bank of Thailand

3) In case of transferring assets to an asset management company in which the Financial Institutions Development Fund has shares for more than 50% of total issued share of such company – use the price as approved by the fund’s board of directors 2. Transfer of assets of a financial institution to an asset management company is considered the outright sale of such assets, where the financial institution transferring the assets can remove such assets from its financial statements only when the transfer is in accordance with the accounting practices with respect to transfer and taking transfer of financial assets and the amendments thereof as prescribed by Federation of Accounting Professions. If the transfer of assets is not in accordance with the above practices, a financial institution shall record such transfer as borrowing secured by the transferred

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No. Question Answer assets, and the amount of borrowing must not exceed the fair value of assets that are collateral or book value, as the case may be.

Section 2: Investments

2 Does the posting of debt securities or financial assets in the held-to-maturity (HTM) portfolio as collateral or using them to engage in repos or security borrowing and lending (SBL) transactions contradict to relevant accounting standards? If so, such debt securities or financial assets can no longer be classified into the HTM portfolio?

Posting of financial assets as collateral or using them to engage in repos or securities and lending (SBL) transactions will not make such financial assets ineligible in respect of intention and capability to hold them until maturity, if the financial institution anticipates that it will retrieve such financial assets when the contract matures (as prescribed in the Guidance on Implementing IAS39: B.18) According to the above requirement together with enquires with audit firms and the existing transactions of financial institutions, the BOT deems that a financial institution can post debt securities or financial assets in the HTM portfolio as collateral or use them for engaging in repos or SBL transactions, where, in general, the financial institutions will retrieve the debt securities or financial assets posted as collateral, therefore, this does not contradict to the accounting standards on classification of debt securities and financial assets into the HTM portfolio.

3 What is the classification for the cross holding of certificates of deposit between financial institutions? Is this considered the investment?

In case where a financial institution holds certificates of deposit of other financial institutions, such certificates will be classified as “Interbank and money market transactions” not “Investments”

4 For the investment that a financial institution receives from the conversion of debts into equity, can it be classified according to accounting standards? Can

A financial institution must classify the investments received from the conversion of debt into equity according to Section 2: Investments – Item 4 as prescribed in this

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No. Question Answer the financial institution disregard if such investment has restrictions on holding or distribution of it, which will be classified into “General investments” or “Investments in associates or subsidiaries”? Can the investment with such restrictions be classified into “Available for sale investments”?

Notification in order that the transactions are clearly and accurately presented. For investments with restrictions on holding and distribution, which are the investments with a condition that a financial institution cannot sell them during certain period of time or a financial institution must sell them to the issuers of securities first or with other restrictions on holding and distribution, they shall be classified into “General investments” or “Investments in associates or subsidiaries” and must not be classified into “Available for sale investments”.

5 Does the definition of debt securities cover convertible bonds?

The definition of debt securities covers convertible bonds, but only the debt securities equivalent amount, excluding values of conversion rights.

6 Will the notes issued by indicating the term “this note is a security …”, which is in accordance with the regulations of the SEC, for public offering and private placement be classified into “Investments”?

Notes issued by indicating the term “securities” according to the regulations of SEC for funding will be classified into “Investments”

7 What is the type of securities for investments in unit trusts?

As the holders of unit trusts would be considered the co-owners of the trusts, therefore, a financial institution should apply the same regulations as for equity securities, as prescribed in Section 2 of this Notification, to the unit trusts.

Section 3: Purchase or Receipt of Transfer of Receivables

8 What are the guidelines that a financial institution should apply for accounting and classification of purchased or transferred receivables?

A financial institution shall record and classify purchased or transferred receivables as lending unless the financial institution intends to sell such receivables in the future or intends to receive returns other than cash

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No. Question Answer flows according to the contracts of such lending for a significant amount, where the financial institution shall classify such receivables into “Investments”. However, for receivables purchased or received before 1 January 2016, a financial institution shall classify them as follows: 1) If there are no new agreements for purchased or transferred receivables and there are no additional loans granted, such receivables shall be classified into “Investments in receivables”, to which the same guidelines as for investments in debt and equity securities according to relevant accounting standards shall be applied. 2) If there are additional loans granted , which may be the loans granted under remaining credit lines according to the old or new contracts: 2.1) If the portion of purchased or transferred receivables can be clearly separated from additional loans: (1) For the portion of receivables purchased under the old contracts, where there are no additional contracts or amendments made to the old contracts, it shall be classified as “Investments in receivables”, to which the same guidelines as for investments in debt and equity securities according to relevant accounting standards shall be applied. (2) For the portion of additional loans granted under the new contracts or debt restructuring contracts in addition to the old contracts, it shall be classified as

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No. Question Answer “General loans” 2.2) If the portion of purchased or transferred receivables cannot be clearly separated from additional loans as they are revolving credits, such as overdrafts, credit card loans or other loans with the same features, it shall be classified into “Loans” in full. 3) If there are amendments to the conditions or new agreements on repayment by making new contracts in addition to or in replacement of the old contracts or by making debt restructuring contracts, it shall be classified as “Loans” in full. 4) If there are additional loans granted by making new loan contracts in replacement of the old contracts, it shall be classified into “Loans” in full. 5) If purchased or transferred receivables have been classified as loans, but later, such receivables cannot comply with the new agreements, they shall be classified as “Loans” and must not be reclassified from “Loans” to “Investments”.

9 If a financial institution has purchased or received the transfer of receivables after 1 January 2013 (2556) and intends to sell such receivables in the future, what should be the accounting practices for these transactions? Is the financial institution required to prepare the evidence indicating the intention to sell such receivable?

In case where a financial institution purchases or receives the transfer of receivables with the intention to sell such receivables in the future, the financial institution may classify them as “Investments in receivables” As there is no active market for trading receivables in Thailand, therefore, to indicate the intention to sell receivables for consideration of classification of purchased or transferred receivables, a financial institution should refer to the agreements to sell /

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No. Question Answer purchase that are clearly written. Such evidences must be kept for an inspection by the Bank of Thailand’s examiners.

10 If a financial institution has purchased or received the transfer of receivables after 1 January 2013 (2556) and intends to receive returns from such receivables, other than cash flows under the contracts, for a significant amount, in the future, what should be the accounting practices for these transactions?

If a financial institution purchases or receives the transfer of receivables with the intention to receive other returns from such receivables, the financial institution may classify such receivables as “Investments in receivables”. However, the “other returns” must meet the following conditions: 1. is not the receipt of cash flows under the loan contracts (including debt restructuring contracts) and other contracts with the same features as loan contracts 2. an amount to receive is significant so that it can be considered the investment in assets

11 If a financial institution had purchased syndicate loans before 1 January 2013 and classified them as “Investments in receivables”, and later (after 1 January 2013) the financial institution additionally purchased the same loans, what should be the classification for such loans?

In considering the classification of loans, a financial institution should comply with the following: 1. If a financial institution can clearly separate the receivables purchased or transferred before 1 January 2013 from those additionally purchased: 1) For receivables purchased according to the old contracts, where there are no new contracts or amendments made in addition to the old contracts, they shall be classified as “Investments in receivables” as before and shall be applied with the same guidelines as for investments in debt and equity securities according to relevant accounting standards. 2) For receivables additionally purchased, they shall be classified according

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No. Question Answer to the principles as prescribed in this Notification and practices for transferring or receiving the transfer of financial assets and the amendments thereof as prescribed by the Federation of Accounting Professions. 2. If a financial institution cannot clearly separate receivables purchased or transferred from those additionally purchased, such receivables shall be classified according to the principles as prescribed in this Notification in full.

12 What should be the practices for calculating the number of days the loans have been overdue in order to determine the loan classification for purchased or transferred receivables classified as loans?

1. If a financial institution purchases or receives the transfer of receivables from other financial institutions: The financial institution should classify receivables, which are classified as loans, and set aside allowances for them in the same manner as for general loans. That is, the number of days is counted from the day the receivables default on debt repayment to the financial institution. However, the financial institution should consider qualitative factors for the loan classification, other than the number of days the loans have been overdue. 2. If a financial institution purchased and received the transfer of receivables before 1 January 2013, which were classified as “Investments in receivables” and later, after 1 January 2013, the classification for such receivables were changed from “Investments in receivables” to “Loans. If receivables default on debt repayment before the change to classification, the financial institution shall classify and set aside allowances for such

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No. Question Answer receivables by counting the number of days the loans have been overdue continuously before the change to classification. For example, if Mr. A defaults on payments of principal or interest for 2 months counted from the due date, if later, the financial institution changes the classification to “Loans”, and if Mr. A still defaults on payments for another 1 month, the number of days the loans have been overdue in this case is 3 months. 3. If a financial institution purchased and received the transfer of receivables after 1 January 2013 with the intention to sell such receivables (with evidences), therefore, it classified such receivables as “Investments in receivables”, but later reclassified as “Loans” upon certain reasons, the financial institution shall count the number of days the loans have been overdue from the day such receivables are reclassified as “Loans”

13 Is the reclassification from “Investments in receivables” to “Loans” considered the transfer of financial asset category? What are the accounting practices for this?

The reclassification of receivables from “Investments in receivables” to “Loans” is considered the transfer of financial asset category. Therefore, the day the receivables are reclassified from “Investments in receivables” to “Loans”, a financial institution must use fair values on the date of reclassification for the accounting and immediately realize the difference between book values and fair values on that date as profit or loss in the comprehensive income statements.

Section 4: Translation of Foreign Currencies to Thai Baht

14 If a bank has positions in foreign Such approach can be applied if a financial

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No. Question Answer currency forward contracts in both the trading book and banking book, can the bank apply the premium / discount amortization approach for positions in the banking book, while using the rates according to maturity for positions in the trading book?

institution is not ready to use foreign exchange rates for forward contracts according to maturity for the calculation of positions in foreign currency forward contracts in the banking book.

Section 5: Recognition of Interest Revenue from Loans and Hire Purchase Installments

15 In recording the removal of revenues from interests on loans, overdrafts and installment payments from hire purchases that a financial institution has recorded as revenues from the statement when the debtors have overdue loans or loans with features as prescribed by the Bank of Thailand, for transactions before 1 January 2000, are they still under the exemption as prescribed in the previous regulations?

The transactions occurred before 1 January 2000 and still remain are under the exemption as prescribed in the previous regulations, where a financial institution is exempted from recording the removal of revenues that have been recorded.

16 The termination of recording loans as revenues according to Item 4.4 when the loans are classified as “Loss”, “Doubtful of loss” or “Doubtful”, irrespective whether the payment of interests is not overdue for more than 90 days, in practice and currently, a financial institution applies the more prudent practices for loan downgrading, as a result, there may be a significant increase in debtors according to Item 4.4. In such case, for O/D loans with payments overdue less than 90 days, which are classified by the financial institution as “Loss”, “Doubtful of loss” or “Doubtful”, a financial institution must not record them as revenues, as a

According to Item 4.4, if debtors have not made payments of interest for more than 3 months but classified as “Loss”, “Doubtful of loss” or “Doubtful”, a financial institution must terminate the recording of such transactions as revenues on an accrual basis, where the recognition of revenues is terminated according to the sound accounting practices. However, if the debtors can still make the installment payments of interests, the financial institution can record interests received as revenues on a cash basis. Even though, a financial institution must terminate the recognition of accrued interests as revenues according to the regulations, the financial institution can still manage loans and demand repayments

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No. Question Answer result, the financial institution cannot calculate compound interests, according to Item 4.4, which would be beneficial to debtors that can, still, make the monthly installment payments.

according to the contracts.

Section 6: Trading of Bills and Trade Finance Transactions

17 What should be the accounting practices for trading of bills and trade finance transactions by purchasing, discounting or rediscounting documents under L/C?

In recording transactions with respect to trading of bills and trade finance transactions by purchasing, discounting or rediscounting documents under L/C, a financial institution shall apply the “risk and reward” accounting practices according to accounting standards, which should be in line with the internal guidelines for risk analysis and management of the financial institution. On this, a financial institution must prepare the clear and written policy guidelines on accounting and must apply such guidelines on a consistent basis.

18 What should be the accounting practices under the risk and reward principle?

In referring to the risk and reward principle, a financial institution should consider those that the financial institutions has rights to take recourse according to the laws and whose credit profiles are analyzed by the financial institution, for example: 1. In case where a financial institution purchases bills and documents under L/C not in accordance with international standards: A financial institution should record those that the financial institution has recourse according to the laws, such as other financial institutions that give avals or acceptances to bills; if there are no other financial institutions that give avals or acceptances to bills, the financial institution should:

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No. Question Answer 1) If a financial institution has recourse against the bearers of bills (or L/C): a financial institution should record the bearers of bills (or L/C) 2) If a financial institution does not have recourse against the bearers of bills (or L/C): a financial institution should record those obliged to make payments to the financial institution. 2. In case where a financial institution purchases bills and documents under L/C in accordance with international standards: A financial institution should record those that the financial institution has recourse according to the laws, which the financial institution has analyzed risk profiles as if they are debtors according to the risk and reward principle and in accordance with general standards (from whom the financial institution can demand the repayments), such as issuing banks or confirming banks (including multilateral development banks giving avals or acceptances as the financial institution can demand such banks to make repayments in place of debtors)

19 What should be the accounting practices in case where a financial institution purchases domestic L/C issued by the financial institution itself before maturity, as follows: 1. There is no issuance of bills of

exchange under such L/C 2. There is the issuance of bills of

exchange under such L/C (no acceptance of bills of exchange)

3. There is the issuance of bills of

In case where a financial institution purchases or discounts L/C (international and domestic L/C) issued by the financial institution itself or its branches (in both cases where there is the issuance or no issuance of bills under such L/C), the financial institution would have obligation only with the buyer of goods. Therefore, for the issuance of L/C for trade transactions, the financial institution shall record the obligation with the buyer of goods and, when the financial institution purchases

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No. Question Answer exchange under such L/C and the financial institutions gives acceptances to such bills

L/C, it shall record the buyer of goods as a debtor (to remove the obligation with the buyer of goods) On this, if a financial institution gives acceptances to bills of exchange under L/C issued by the financial institution itself and buys them back, it is considered there are no acceptances given.

20 What should be the accounting practices in case where a financial institution purchases bills to which the financial institution gives acceptances or avals?

In case where a financial institution giving acceptances or avals or guarantees to bills is of the same legal entity as a financial institution purchasing such bills, it is considered that there are no acceptances or avals or guarantees given. Therefore, the financial institution shall record those whose credit profiles have been analyzed by the financial institution and that the financial institution has recourse against them as debtors.

21 In case where a financial institution purchases / discounts sight bills, for the period during which the documents are being examined and confirmed by an issuing bank if such L/C is in accordance with international standards or guidelines (the documents are in line with the conditions of L/C), can the financial institution record the issuing bank as a debtor? And if the issuing bank declines the payment, the entries will be reversed by recording an entity selling the bills as a debtor in case of purchasing such bills with recourse, or by recording an entity buying goods as a debtor in case of purchasing such bills without recourse?

A financial institution can record an issuing bank as a debtor only in case where it can be indicated that documents are in line with the conditions of L/C (an issuing bank has accepted such documents). If an issuing bank does not the reply within 5 business days from the day the documents have been submitted, a financial institution can record the issuing bank as debtor. This practice is in accordance with international standards or guidelines (UCP 600), which prescribe that an issuing bank must notify its objection within 5 business days from the day the documents have been submitted.

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No. Question Answer

22 In case where a financial institution does not have a credit line with an issuing bank or confirming bank, what should be the accounting practices?

If a financial institution has considered and found that by which person the risks and returns of such transactions are taken, and where the financial institution has recourse against them according to the laws, the financial institution may record those persons as debtors, such as exporters etc. The financial institution should have clear accounting practices on this and apply them on a consistent basis.

23 How to present the transactions in case where a financial institution records other financial institutions as debtors as they give acceptances, avals or guarantees to bills or trade finance transactions?

In case where a financial institution records other financial institutions as debtors as they give acceptances, avals or guarantees to bills or trade finance transactions, the financial institution shall present such transactions in the item “Interbank and money market transactions” unless the BOT prescribes otherwise.

24 What should be the accounting practices for trade finance transactions secured by trade credit insurance?

Trade finance transactions secured by trade credit insurance are considered secured loans, where a financial institution must record them in the same manner as loans for businesses.

25 Is a financial institution required to amend the financial statements to be in line with the BOT reports?

A financial institution is not required to amend the financial statements in accordance with the amendments to the reports in the Data Set. However, in the notes to the financial statements, a financial institution must classify the interbank and money market transactions into the following categories: Ordinary interbank and money market transactions; and interbank and money market transactions existing from avals to / acceptance of bills, trade finance or factoring transactions. This is to allow the

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No. Question Answer users of financial statements can better carry out the benchmarking.

Section 7: Bad Debt Recovery

26 As the BOT prescribes the requirement on the record of recovery of written-off loans as revenue, if a financial institution receives the repayments for loans that have been written off, is the financial institution required to record such repayments as the revenues only? As the accounting standards allow other practices.

In recording the recovery of written-off loans, a financial institution should comply with relevant accounting standards. However, if a financial institution chooses to record such recovery as revenue, the financial institution should take into consideration the framework for reporting of financial transactions with respect to the contingency and credibility of valuation. This is to ensure that the financial institution would not overestimate the revenues.

Section 8: Dividend Payment

27 What are the guidelines that a financial institution must comply with for setting out dividend policy?

The BOT asks for cooperation of a financial institution to comply with the BOT regulations on dividend policy, as follows: 1. The BOT Notification Re: Regulations on Accounting of Financial Institutions (Section 8: Dividend Payment); and 2. Circular No. BOT.RPD.(21) 391 – 414 / 2552 dated 24 February 2009 Re: Concerns with Respect to Dividend Policy of Financial Institutions.

27.1 The requirement that a financial institution should not take into consideration unrealized gains and profits from sale of assets not considered a true sale for determining dividend payments as, currently, there are many profits (losses) that are considered unrealized gains, which might affect the dividend policy of a

1. Unrealized gains include items resulted from changes in interest rates, exchange rates and fair values or there is the overestimation of profits and losses, as follows: 1) Net profits from mark-to-market of investments in trading debt securities and equity securities (net losses occurred cannot be reversed) 2) Net profits from mark-to-market of

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No. Question Answer financial institution. What are the items that a financial institution should take into consideration? And if there are both profits and losses, can they be offset before making determination of dividend payments?

derivatives (net losses occurred cannot be reversed) 3) Net profits from translation of foreign currency (net losses occurred cannot be reversed) 4) Profits from reclassification of investments (losses cannot be reversed) 5) Other items as additionally prescribed by the BOT 2. Profits from sale of assets not considered a true sale, such as sale of assets not considered a true sale according to accounting standards (losses cannot be reversed)

27.2 If a financial institution applies Thai Accounting Standard No.12 Re: Income Tax, is the financial institution required to use profits (losses) from deferred income tax to adjust net profits during the year when determining dividend payments?

A financial institution is not required to use profits (losses) from deferred income tax recognized in the profit and loss statement to adjust annual net profits when determining dividend payments. This includes profits and losses occurred from tax accounting approach, which directly affect retained earnings, when applying Thai Accounting Standard No.12 Re: Income Tax, they cannot be used in determining dividend payments.

Other issues

28 Certain contents of the Thai Accounting Standard No.105 Re: Accounting for Investments in Debt Securities and Equity Securities contradict to the IAS 39, what should be the application in this case?

The Thai Accounting Standard No.105 is still in effect until the Thai Accounting Standards according to the IAS 39 come into effect.

29 For embedded derivatives of TAMC: TAMC notes for which a bank has paid for purchase of loans have risks as the TAMC can transfer credit risk of loans

In case of TAMC notes, they are considered not having embedded derivatives, and, currently, they are classified as investments

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No. Question Answer purchased from the bank back to the bank, can the bank consider that such notes have embedded credit derivatives? Is the bank required to decompose and value such embedded derivatives, since the valuation of credit risk is quite difficult and complicated?

in debt securities.

30 Trade date vs. Settlement date: When will the BOT issue the Notification to prescribe accounting standards for investments to be recorded by trade date only?

For accounting practices, a financial institution shall comply with accounting standards. However, the BOT regulations, for certain regulations, such as BOT Notifications Re: Calculation of Risk-Weighted Assets for Capital Requirements require the financial institution to include assets according to their trade date. Therefore, for calculation of capital adequacy ratio to be submitted to the BOT, if a financial institution uses the settlement date for recording assets in the financial statements, the financial institution must adjust such investment items as if the trade date is used in order that the capital requirements of financial institutions are under the same standards.

unofficial translation this translation is for the ...€¦ · bot notification no 20-2558 (8...

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