BOT Notification No 12-2561 (27 August 2018)-check

Unofficial Translation With collaboration between the Bank of Thailand and the Association of International Banks

This translation is for convenience of those unfamiliar with Thai language. Please refer to the Thai text for the official version.

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BANK OF THAILAND

22 June 2018 (B.E.2561)

To Manager All commercial banks * 1 All finance companies and credit foncier companies

No. FPG.(01)Wor.67/2561 Re: Dispatch of the Bank of Thailand Notification Re: Regulations on Risk Supervision of Financial Business Groups

The Bank of Thailand dispatches the Bank of Thailand Notification Re: Regulations on Risk Supervision of Financial Business Groups dated 22 May 2018 (B.E.2561), which has been published in the Government Gazette, General Issue - Volume 135, Special Section 146 Ngor, dated 22 June 2018 (B.E.2561) and will come into effect as from 18 June 2019 (B.E.2562).

The essence of the Notification is that regulations on supervision of corporate governance of financial business groups are amended to ensure that the board of directors of the parent company, which is responsible for setting the group’s business directions, has put in place a framework for overseeing that the group operates business with good corporate governance and that the group’s business standards are uplifted as the management is sound, transparent and fair by placing high priority on the risks of the financial business group and interests of all stakeholders. This would ensure that the financial business group has long-term stability, while it can support the sustainable economic growth. The amendment covers regulations on roles and responsibilities of the board of directors of the parent company, composition of the board of directors of the parent company including sub-committees of the financial business group, as well as regulations on the disclosure of data to the public, which will promote market discipline mechanism. On this, all the amended regulations are in line with regulations on corporate governance of financial institutions (on a solo basis).

Please be informed and comply with accordingly.

1* except foreign bank branches

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Yours sincerely,

(Miss Mathinee Subhaswadikul) Senior Director, Regulatory Policy Department

for Governor

Enclosure: The Bank of Thailand Notifications No. FPG. 12/2561 Re: Regulations on Risk Supervision of Financial Business Groups dated 22 May 2018 (B.E.2561)

Regulatory Policy Department Tel. 0 2283 6938, 0 2283 5839

Remark: [ ] The BOT will arrange a clarification meeting on … at … [X] No clarification meeting will be arranged.

Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved.

BOT Notification No 12-2561 (27 August 2018)-check

Unofficial Translation With collaboration between the Bank of Thailand and the Association of International Banks

This translation is for convenience of those unfamiliar with Thai language. Please refer to the Thai text for the official version.

--------------------------------- Bank of Thailand Notification

No. FPG. 12/2561 Re: Regulations on Risk Supervision of Financial Business Groups

____________________________ 1. Rationale

In implementing regulations on supervision of financial business groups, the Bank of Thailand is with the intention to ensure that financial institutions and their financial business groups operate business appropriately and prudently, which will contribute to the stability of the overall financial institution system. And, in order that the supervision of financial institutions and their financial business groups are in line with international standards, and as the supervision on a solo basis may not sufficiently address various types of risk from business operations in form of the financial business group, as well as risks from intra-group transactions, such as credit risk, market risk, liquidity risk, operational risk and reputation risk, where, if any particular company encounters a problem, it may spread out over the entire financial business group, including the financial institution, especially if that company requires intensive market recognition, the problem may lead to liquidity problems, and, eventually, the stability and trustworthiness issues of the financial institution and the group, the parent company must, therefore, be aware of risks facing each company in its financial business group and the overall risks of the group to ensure that those risks are properly managed, the Bank of Thailand hereby specifies Regulations on Risk supervision of financial business groups so that companies within financial business groups shall apply as minimum risk management requirements. According to those regulations, the parent companies must be responsible for supervising the management of risks of their financial business groups as well as set out policies on management of various types of risk, namely credit risk, market risk, liquidity risk and operational risk.

At the early stage of the implementation of those regulations in 2008 (B.E.2551), the Bank of Thailand required financial business groups to comply only with qualitative requirements, such as requirements on risk management, risk monitoring and internal control so that the financial business groups could make preparations for complying with the regulations as specified by the Bank of Thailand. Later, in 2010

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(B.E.2553), the Bank of Thailand required financial business groups to further comply with quantitative requirements, such as capital requirements, the limit on the amount of lending, investments, contingent liabilities and credit-like transactions that financial business groups can lend to/enter into with companies within/outside their financial business groups.

For this amendment to regulations on risk supervision of financial business groups, the Bank of Thailand revises regulations on supervision of corporate governance of financial business groups to ensure that the board of directors of the parent company, which is responsible for setting the group’s business directions, has put in place a framework for overseeing that the group operates business with good corporate governance and that the group’s business standards are uplifted as the management is sound, transparent and fair by placing high priority on the risks of the financial business group and interests of all stakeholders. This would ensure that the financial business group has long-term stability, while it can support the sustainable economic growth. The amendment covers regulations on roles and responsibilities of the board of directors of the parent company, composition of the board of directors of the parent company, including sub-committees of the financial business group, as well as regulations on disclosure of data to the public, which will promote market discipline mechanism. On this, all the amended regulations are in line with regulations on corporate governance of financial institutions (on a solo basis).

2. Statutory Power

By virtue of Section 4, Section 31, Section 34, Section 55, Section 57, Section 59 and Section 71 of the Financial Institution Business Act B.E.2551, the Bank of Thailand hereby issues regulations on risk supervision of financial business groups, which shall be complied with by financial institutions, parent companies, subsidiaries, and affiliated companies of financial institutions within financial business groups

3. Repealed Notification

The Bank of Thailand Notification No. FPG. 8/2560 Re: Regulations on Risk Supervision of Financial Business Groups dated 27 April 2017 (B.E.2560)

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4. Scope of Application

This Notification shall apply to financial institutions, parent companies, subsidiaries, and affiliated companies of financial institutions within financial business groups according to the Financial Institution Business Act, except foreign bank branches

5. Contents

5.1 Definitions

“Consolidated supervision” refers to the supervision of a financial business group of a financial institution for both qualitative and quantitative aspects, by taking into consideration risks that may arise from business operations of the financial business group that may affect companies and financial institution within the group, irrespective of whether those risks have been represented on financial statements of the financial institution or companies within the financial business group or not. This is to ensure that the financial business group will appropriately and prudently operate its business.

“Financial institution” refers to any of the following:

A. A locally registered commercial bank, which may also be a retail bank or subsidiary of a foreign commercial bank, excluding a foreign bank branch

B. A finance company

C. A credit foncier company

“Financial business” shall refer to that as specified in the Bank of Thailand Notification Re: Regulations on Structure and Scope of Business of Financial Business Groups.

“Supporting business” shall refer to that as specified in the Bank of Thailand Notification Re: Regulations on Structure and Scope of Business of Financial Business Groups.

“Subsidiaries within the solo consolidated group” shall refer to that as specified in the Bank of Thailand Notification Re: Regulations on Structure and Scope of Business of Financial Business Groups.

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“Subsidiaries outside the solo consolidated group” shall refer to that as specified in the Bank of Thailand Notification Re: Regulations on Structure and Scope of Business of Financial Business Groups.

“Total capital of financial institution” shall refer to that as specified in the Bank of Thailand Notification Re: Capital Components for Locally Registered Commercial Banks, the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) standard for Credit Foncier Companies, as the case may be.

“Director” shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

“Independent director” shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

“Executive director” shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

“Non-executive director” shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

“Person with power of management” shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

“Advisor” shall refer to an advisor to any company within the financial business group who performs on duties to the advisor of financial institutions as specified in the Bank of Thailand Notification Re: Governance of Financial Institutions.

“Major shareholder of a company within the solo consolidated group” refers to an person that holds or possesses shares of a financial institution or a subsidiary within the solo consolidated group, as the case may be, more than 5 percent of total paid-up shares of that financial institution or subsidiary, including shares held by its related parties. If this particular personis a holding company, securities company, life insurance company or non-life insurance company that is the parent company of financial business group, the major shareholder of that holding company, securities company, life insurance company or non-life insurance company shall be considered the major shareholder of a company within the solo consolidated group.

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“Related business of the solo consolidated group” refers to a company outside a financial business group, that a financial institution or subsidiary within the solo consolidated group, directors of the financial institution, directors of the subsidiary within the solo consolidated group, persons with power of management of the financial institution, persons with power of management of the subsidiary within the solo consolidated group or their related parties hold shares, in total, more than 10 percent of total paid-up shares of that company.

5.2 Supervision of governance of financial business group

5.2.1 Duties and responsibilities of the board of directors of the parent company

The board of directors of the parent company must be responsible for overseeing the governance of its financial business group, as the board must understand the business structure and possible risks of its financial business group. Moreover, the board must have explicit arrangements, and set out the governance framework in writing, where the framework must be appropriate to the business structure, profile and relevant risks of the financial business group, to ensure that the business operations of the group are more effective and transparent by taking into consideration relevant risks, business ethics and responsibility to all stakeholders, in accordance with the policy and regulations on supervision of financial business groups.

The board of directors of the parent company must control and oversee that its financial business group has the risk governance framework, the building of risk culture, as well as risk-based remuneration policy – where the remuneration structure must be set based on current and future risks. The board must also oversee that: there is the policy to address conflict of interest issues on the group basis; the group has fair market conduct arrangements according to the regulations as specified in the Bank of Thailand Notification on Market Conduct; the group has the efficient whistleblowing policy and procedure; and the group has effective control, oversight and audit mechanisms.

In addition, the board of directors of the parent company must oversee that there is an annual performance assessment for the overall board of directors and each individual director of the parent company, which is in the forms of self evaluation, and cross evaluation or third party evaluation. The board must also oversee that the minutes of the board of directors’ meeting of the parent company contain complete contents, where the comments on

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important agenda/issues of each individual director must be recorded, and oversee that there is a succession plan for persons with power of management of the parent company to ensure the ongoing oversight of the financial business group.

5.2.2 Duties and responsibilities of directors of the parent company

Directors of the parent company must perform their duties responsibly, cautiously, reasonably and honestly, while they must fully contribute their time and expertise to the assigned duties and responsibilities. Each individual director must take part in making constructive inquiries or giving comments at the meeting using his/her best efforts, and must, at least, participate in no less than 75% of the board of directors meetings of the parent company that have been arranged each year, over the period that he/she holds the position, unless with reasonable grounds or necessity. And, the directors must use the results of the annual performance assessment to develop themselves. The chairman of the board of directors of the parent company must take the role in promoting the open discussion at the meeting as well as good relationship between executive directors and non-executive directors.

5.2.3 Composition of the board of directors of the parent company

The parent company of the financial business group must have the board of directors that is appropriate and adequate for the execution of its oversight duties in terms of size, composition, knowledge and competence of the board members. The composition of the board of directors of the parent company shall comply with guidelines on the composition of the board of directors of financial institutions as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

5.2.4 The sub-committees of the financial business group

To ensure that the board of directors of the parent company can perform their duties and responsibilities in overseeing the financial business group, the board of directors of the parent company shall set up the following sub-committees:

(1) A risk oversight committee for the financial business group in order to take responsibilities for controlling, monitoring, examining and overseeing companies within its financial business group to ensure that they have complied with

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the specified risk management policy, as well as reviewing the adequacy and effectiveness of the specified policy at least once a year to ensure that it can effectively address the existing risks.

(2) An audit committee for the financial business group in order to take responsibilities for overseeing and monitoring business operations of companies within the financial business group to ensure that they have complied with the policy of the financial business group, as well as reviewing the accuracy and adequacy of financial statements of the financial business group.

In addition, the Bank of Thailand encourages the board of directors of the parent company set up the following committees:

(1) A nomination committee for the financial business group to take responsibilities for overseeing the formulation of policy, guideline and procedure for the selection of directors and persons with power of management of companies within the financial business group to ensure that those directors and persons with power of management are suitable for their posts and responsibilities.

(2) A remuneration committee for the financial business group to take responsibilities for overseeing the formulation of policy, guideline and procedure for the payment of remunerations or benefits to directors and persons with power of management of companies within the financial business group so that the payment of remunerations and benefits is transparent, appropriate to key risks facing the financial business group and suitable for responsibilities and characteristics of each position.

The parent company may set up only “one” committee to take responsibilities of both nomination committee and remuneration committee. On this, the composition of each sub-committee shall comply with regulations on the composition of the sub-committees as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions.

5.2.5 The parent company must disclose corporate governance information in its annual report or on the website of the parent company. The disclosed information must be updated at least once a year and cover, but not limited to, the following items:

(1) Organization chart of the parent company

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(2) List of top-10 major shareholders or groups of shareholders of the parent company – by specifying number of shares and shareholding ratios

(3) Number of the meetings of the board of directors of the parent company, and the sub-committees for the financial business group set up according to Clause 5.2.4, and number of times that each member of the board/committee participates in the meetings

(4) Lists of the members of the board of directors of the parent company and the sub-committees for the financial business group set up according to Clause 5.2.4 - by specifying if a particular board member is an executive director, non-executive director or independent director, as well as the scope of duties of each sub-committee

(5) Benefits and remunerations for directors of the parent companies, and those for persons with power of management or other executives who are not directors of the parent company but received from the parent company

(6) Involvement in other companies of directors, persons with power of management and advisors of the parent company, including serving as directors of companies within the financial business group

(7) Audit committee of parent company’s oversight report

(8) Policies for the selection of directors and persons with power of management of the parent company, as well as remuneration and benefits policy for directors and persons with power of management of the parent company

(9) Dividend payout policy of the parent company

(10) Data relating to supervisor-imposed fines of the financial business group, namely fines imposed by the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission – by disclosing the total amount of fines and significant fines due to the violation of particular section of laws/regulations; where certain companies within the financial business group are imposed fines due to unfair market conduct, the fines for every company within the financial business group shall be disclosed in accordance with the Bank of Thailand Notification on Market Conduct

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5.3 Supervision of overall risks of financial business group

5.3.1 Risk management

The parent company must understand and be aware of overall risks of its financial business group and risks that may arise from intra-group transactions so that it can thoroughly and effectively manage, control and monitor risks of all companies within its financial business group. At least, the parent company shall:

(1) Set out a risk management policy of its financial business group, which must be approved by the board of directors of the parent company and submitted to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand on a yearly basis and when there is any significant change to the structure and business operations of the financial business group within 30 days from the day the board of directors of the parent company gives an approval.

The risk management policy of a financial business group should cover an overall risk management policy for the financial business group and risk management policy for intra-group transactions, as follows:

(1.1) An overall risk management policy for a financial business group should, at least, cover:

A. Various types of significant risks of a financial business group and each of company within financial business group

B. Processes and methods for assessing and measuring risks of a financial business group

C. Control and management of risks of a financial business group, such as setting of a risk appetite, framework for delegation of authority

D. Business continuity management according to the Policy Statement of the Bank of Thailand Re: Business Continuity Management and Preparation of a Business Continuity Plan of Financial Institutions

(1.2) A risk management policy for intra-group transactions shall be in accordance with the regulations as specified Clause 5.4.3

(2) Set out a risk management framework for a financial business group in accordance with the Bank of Thailand Circular No. BOT-SVG.(03)Wor.227/2548

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dated 4 February 2005 (B.E.2548) Re: Best Practices for Risk Management and the amendments thereof

In addition, the parent company should require subsidiaries within its solo consolidated group that are significant to the financial business group to have their own risk management frameworks so that they can appropriately and effectively manage, control and monitor their risks. And, those companies must understand and be aware of their own risks that may affect the entire financial business group as well as risks from intra-group transactions.

5.3.2 Risk monitoring and internal control

Risks of a financial business group will be mitigated if the financial business group has in place a risk monitoring system, operates business under good governance, and is equipped with robust and effective internal control. Therefore, to ensure that a financial business group has sound risk management standards, good governance and internal control system, the Bank of Thailand requires that:

(1) The parent company must require companies in its financial business group to have sufficiently effective internal control and risk management system.

(2) A risk oversight committee of a financial business group is responsible for evaluating risk management of its financial business group and report the results directly to the board of directors of the parent company at least on a yearly basis so that the board of directors of the parent company can accurately and continuously monitor the management within its financial business group. When there is an incident that may affect the stability of a financial business group, a risk oversight committee shall immediately report it to the board of directors of the parent company.

(3) The parent company must review a risk management policy for its financial business group as deemed necessary and appropriate, at least on a yearly basis, especially when there is a significant change within the financial business group. The policy shall be approved by the board of directors of the parent company and submitted to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand within 30 days from the day the board of directors of the parent company gives an approval.

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On this, the Bank of Thailand may require a particular financial business group to hold more capital requirements if the Bank of Thailand deems that such financial business group does not have sound risk management and internal control.

5.4 Credit risk supervision

5.4.1 Management of credit risk

The parent company must be responsible for overseeing and requiring companies within its financial business group to have sound credit risk management systems that are in accordance with regulations on credit risk management as specified by the Bank of Thailand and ensure that they have complied with those regulations. Companies within a financial business group shall, at least, comply with regulations on credit risk management as follows:

(1) Subsidiaries within the solo consolidated group

Subsidiaries within the solo consolidated group shall apply regulations on supervision of credit risks for the 9 following respects according to related notifications, circulars, guidelines and policy statements of the Bank of Thailand (Examples of the regulations are as specified in the attachment of the Bank of Thailand Notification on Consolidated Supervision):

(1.1) Credit risk management for loan portfolios

(1.2) Approval of secured loans

(1.3) Loan reviews

(1.4) Asset classification and provisioning

(1.5) Appraisal of collateral and foreclosed immovable property for sale obtained from debt repayment

(1.6) Debt restructuring

(1.7) Recognition of accrued interest as income

(1.8) Holding of foreclosed immovable property for sale

On this, subsidiaries within the solo consolidated group (excluding asset management companies) must sell out foreclosed immovable

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property for sale within the time limit as specified in the Bank of Thailand Notification on Real Estate Awaiting Sale, except immovable property acquired before 4 August 2008 (B.E.2551) – which shall be considered the immovable property acquired on 4 August 2008 (B.E.2551).

If any particular subsidiary cannot sell out immovable property within the specified time limit, and as the financial institution, according to the guidelines, must set aside provisions over the relaxation period according to the aforementioned Notification, that subsidiary must also set aside provisions over the relaxation period according to those guidelines.

(1.9) Supervision of asset management company

(2) Subsidiaries outside the solo consolidated group

Subsidiaries outside the solo consolidated group shall comply with supervisory guidelines as specified by their respective regulated entities (if any.)

5.4.2 Investment of a financial institution in a particular company

In order that a financial institution focuses on its financial institution business over making investment in order to create a business network beyond the general scope of supporting business and to limit the risk from concentration of investment within its financial business group, the financial institution shall:

(1) Investment in subsidiaries within the solo consolidated group

A financial institution can hold or possess shares in subsidiaries within its solo consolidated group without limit.

On this, the financial institution must have sufficient capital for investing in those subsidiaries within solo consolidated group on the day they are incorporated into the group. That is, when deducting capital of those subsidiaries from total capital of the financial institution, the financial institution must still hold capital in accordance with the regulatory capital requirements.

(2) Investment in subsidiaries outside the solo consolidated group and companies outside the financial business group

A financial institution can hold or possess shares in subsidiaries outside its solo consolidated group, but when combining with the holding or possession of shares in all companies outside its financial business group, according to

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the Bank of Thailand Notification Re: Regulations and Methods on Investment of Financial Institutions, the total amount must not exceed 25% of total capital of the financial institution, except relaxation is granted by the Bank of Thailand on a case-by-case basis. In requesting the relaxation, the parent company shall submit a request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish the consideration of the request within 45 days from the day the request and supporting documents have been completely and correctly received.

On this, both direct and indirect investments of the financial institution shall be included.

5.4.3 Intra-group transactions

Risks of a financial business group are directly and indirectly emerged, which may be caused by the parent company directly or caused by any particular company in the financial business group or by intra-group transactions, such as lending transactions, holding of shares, purchase/sale of assets, guarantees, investment in securities issued by a particular company in the financial business group or intra-group exchange of service. As this may pose risks to a financial business group in various respects, the companies within the financial business group must, therefore, comply with regulations on intra-group transactions as follows:

(1) Characters of intra-group transactions

(1.1) Intra-group transactions refer to all types of on and off-balance sheet transactions that have been entered into between companies within a particular financial business group, which include transactions between:

(1.1.1) Companies within the solo consolidated group (transactions between the financial institution and subsidiaries within the solo consolidated group, and transactions between subsidiaries within the solo consolidated group)

(1.1.2) Companies within the solo consolidated group and companies outside the solo consolidated group

(1.1.3) Companies outside the solo consolidated group (transactions between the parent company which is not a financial institution and subsidiaries outside the solo consolidated group, and transactions between subsidiaries outside the solo consolidated group)

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On this, transactions according to (1.1.1) and (1.1.2) are under the application of both qualitative and quantitative requirements, while transactions according to (1.1.3) are under the application of qualitative requirements only.

(1.2) Examples of intra-group transactions

(1.2.1) Lending or entering into credit-like transactions, such as factoring, hire purchase agreements, lease agreements

(1.2.2) Entering into contingent liabilities, such as giving a guarantee, aval, intervening and accepting a bill of exchange, endorsing a bill of exchange on which the endorsee has recourse, giving a loan or trade guarantee, discounting or rediscounting of a bill of exchange, giving a fundraising guarantee, or giving any other guarantee for borrowing arrangements of any particular entity, firm underwriting, and entering into derivative transactions, such as foreign exchange derivatives, interest rate derivatives, derivatives linked to equity prices, and derivatives linked to commodity prices

(1.2.3) Purchasing or investing in securities issued by companies within the same financial business group

(1.2.4) Purchasing or selling assets as well as selling assets with repurchase agreement

(1.2.5) Accepting securities issued by companies within the same financial business group as collateral for loans or issuing a letter of guarantee or letter of credit for companies within the same financial business group

(1.2.6) Entering into other types of transactions, such as providing service, paying interest or dividends between companies within the same financial business group or entering into transactions with a particular entity outside the financial business group for benefits of a company within the financial business group or for the transfer of benefits to that company, such as selling assets to an external party with a condition that such external party will sell that asset back to a company within the financial business group at a price that is lower than the current market price.

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(2) Quantitative supervision for intra-group transactions

(2.1) The amount of loans, investments, contingent liabilities and credit-like transactions

(2.1.1) Companies within the solo consolidated group can lend to, invest in, or enter into contingent liabilities or credit-like transactions between each other without any limit on the total amount and on the amount for a particular company.

(2.1.2) Companies within the solo consolidated group can lend to, invest in, or enter into contingent liabilities or credit-like transactions with companies outside the solo consolidated group without the limit on the amount for a particular company but with the limit on the total amount, where, at the end of the day, the total amount of those transactions must not exceed 25% of solo consolidated capital of the financial institution or not exceed 10% of solo consolidated capital of the retail bank, as the case may be, unless relaxation is granted by the Bank of Thailand on a case-by-case basis. In requesting the relaxation, the parent company shall submit a request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish the consideration of the request within 45 days from the day the request and supporting documents have been completely and correctly received.

(2.2) Counting of loans, investments, contingent liabilities or credit-like transactions

(2.2.1) The amount of loans, investments, contingent liabilities or credit-like transactions will exclude investments in subsidiaries for portion that the financial institution has deducted from solo consolidated capital, according to capital deduction ratios as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) standard for Credit Foncier Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis). (Examples of the calculation are in the attachment).

(2.2.2) In considering if any particular item of loans, investments, contingent liabilities or credit-like transactions will be included/excluded from the calculation, the regulations as specified in the Bank of Thailand Notification Re: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied.

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(3) Qualitative supervision for intra-group transactions

(3.1) Policy on intra-group transactions

(3.1.1) The parent company must be responsible for setting out a policy on intra-group transactions and policy on management of risks from intra-group transactions. Those policies must be reviewed at least once a year to ensure that they are sufficient and appropriate to risk management and risk monitoring of the financial business group. And, those policies must, at least, cover the following details:

A. Types of intra-group transactions and associated risks

B. Regulations and limitations on intra-group transactions as well as the volume of intra-group transactions entered into with a particular company within the group and within the entire group

C. Guidelines for monitoring the compliance with the specified policies

D. Guidelines for the case where intra-group transactions are not in compliance with the specified policies

E. Guidelines for addressing conflict of interest issues that may arise from intra-group transactions and guidelines for the case where the amount of intra-group transactions exceeds the limit as specified by the Bank of Thailand in this Notification

F. Guidelines for reporting and disclosing intra-group transaction data to the board of directors of the parent company and external parties

(3.1.2) The parent company must be responsible for setting out a process for assessing, managing, monitoring, controlling, reporting and reviewing risks, at the group level, that may arise from intra-group transactions at least once a year or when there exists a significant incident. There must also be a sufficient process for disclosing intra-group transaction information.

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(3.1.3) The board of directors of the parent company must approve a policy on intra-group transactions, a policy on risk management for intra-group transactions as well as any change to those policies.

On this, the parent company must submit a letter confirming that the board of directors of the parent company has considered and approved the policies as specified above and that the board has reviewed those appropriated policies at least once a year. The confirmation letter shall be submitted to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand, on a yearly basis within 30 days from the day the board of directors of the parent company has approved the policies.

(3.2) Guidelines for entering into intra-group transactions

(3.2.1) The parent company must ensure that companies within its financial business group have complied with the policy on intra-group transactions as specified by the parent company and complied with regulations on supervision of intra-group transactions as specified in Clause 5.4.3

(3.2.2) Companies within a financial business group must comply with the policy on intra-group transactions as approved by the board of directors of the parent company and comply with the same process as applied to transactions with general customers. In entering into intra-group transactions, legally enforceable agreements must be made with the same terms and conditions as specified for transactions with general customers with the same risk profile, for example – the purchase/sale of assets within the group should be made at a market price with the same terms and conditions as specified for the purchase/sale of assets with external parties.

(3.2.3) If entering into intra-group transactions with conditions, requirements, processes, or consideration practices different from transactions with general customers with the same risk profile or are not in compliance with the specified policies, the board of directors of the company that lends to, invests in, or enters into contingent liabilities or credit-like transactions or other transactions, as the case may be, shall give approval before entering into those transactions in all cases. Documents indicating reasons and necessity of those transactions shall be prepared and submitted to the parent company, and the parent company must keep those documents for examination by the Bank of Thailand.

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On this, examples of transactions with conditions, requirements, processes, or consideration practices different from transactions with general customers with the same risk profile are granting loans or making investments without considering financial/business conditions and performance, or granting loans or making investments with favorable rates/conditions, such as collecting a lower interest rate than any other normal loans or than the funding cost or offering a favorable price that is lower than the price offered to general customers with the same risk profile.

(3.2.4) In case where the Bank of Thailand deems that any particular subsidiary operates its business as a department of the financial institution or parent company and that subsidiary is closely controlled and supervised, as the budget is allocated to that subsidiary in the same manner as a department of the financial institution or parent company, the financial institution or parent company may:

A. Apply conditions, requirements, processes or consideration practices for lending to, or entering into contingent liabilities or credit-like transactions or other transactions with companies within the solo consolidated group or companies that operate supporting business that the financial institution or parent company directly holds almost entire shares of those companies (at least 99% of total paid-up shares) different from general customers with the same risk profile.

B. For transactions to which the financial institution or parent company apply conditions, requirements, processes or consideration practices different from general customers with the same risk profile apart from those as specified in (3.2.4) A. with subsidiaries that the financial institution or parent company directly has shares of at least 75% of total paid-up shares of those subsidiaries, the financial institution or parent company may request the approval for those transactions on a case-by-case basis or may comply with the guidelines as specified in Clause (3.2.3). In requesting the approval, an approval request shall be submitted to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 45 days from the day the request and supporting documents have been correctly and completely received.

(3.2.5) In case where a company within the solo consolidated group lends to, invests in, or enters into contingent liabilities or credit-like transactions with companies outside the solo consolidated group, the board of

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directors of the company within the solo consolidated group shall ratify those transactions in the next board of directors meeting in all cases.

(3.2.6) All types of intra-group transactions, including purchase/sale of assets, accepting securities issued by companies within the same financial business group as collateral for loans and any transactions that have been entered into for the benefits of the financial business group must be under good governance practices, where the Bank of Thailand will consider the conditions of those transactions, related risk management, internal control, reporting and information disclosure according to the supervisory framework as specified in the Policy Statement of the Bank of Thailand on Engaging in Loan Transactions.

(3.2.7) In case where a financial institution or company within the solo consolidated group uses supporting service provided by other company within the solo consolidated group, the use of that service must not constitute any impact on the core business of that financial institution or company within the solo consolidated group. The financial institution or company within the solo consolidated group must prepare a contingency plan for the event where the service is not available and is responsible for customers or external parties in the same manner as it provides the service itself. On this, a company within the solo consolidated group that uses service provided by either a company within or outside the financial business group shall comply with the Bank of Thailand Notification on Outsourcing of Financial Institutions and the Bank of Thailand Notification on IT Outsourcing for Business Operations of Financial Institutions.

(3.2.8) In case of entering into certain transactions under the application of specific laws or supervision of specific regulated entities or under the specific regulations of the Bank of Thailand, a company within a financial business group that enters into those transactions shall comply with those specific regulations or guidelines as specified by the specific regulated entities or by the specific regulations of Bank of Thailand. For example, if a company within the solo consolidated group enters into a hire purchase agreement with a company outside the solo consolidated group, the regulations as specified in the Bank of Thailand Notification Re: Permission for Commercial Banks to Operate Hire Purchase and Leasing Business shall be applied.

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5.4.4 Entering into transactions with related parties of the solo consolidated group

Companies within the solo consolidated group are considered departments of the financial institution and, as they can receive loans from the financial institution without limit, therefore, the supervision of transactions with related parties is extended to cover a financial business group on a solo consolidation basis. On this, supervisory regulations on this section do not cover intra-group transactions, where the regulations as specified in Clause 5.4.3 shall be applied.

A financial institution that has companies within its solo consolidated group shall comply with regulations on entering into transactions with related parties, on both solo (financial institution) and solo consolidation basis, as follows:

(1) Types of related parties of the solo consolidated group

There are 4 types of related parties of the solo consolidated group, as follows, which do not include companies within a financial business group:

(1.1) Directors of companies within the solo consolidated group and their related parties, namely directors of the financial institution or directors of companies within the solo consolidated group or related parties of those persons

(1.2) Persons with power of management of companies within the solo consolidated group and their related parties, namely persons with power of management of the financial institution or persons with power of management of companies within the solo consolidated group and related parties of those persons

(1.3) Major shareholders of companies within the solo consolidated group and related parties of those persons

(1.4) Related businesses of the solo consolidated group

(2) Quantitative supervision for entering into transactions with related parties of the solo consolidated group

(2.1) Companies within the solo consolidated group must not enter into the following transactions, either directly or indirectly, with directors of the companies within the solo consolidated group and their related parties, or persons with power of management of the companies within the solo consolidated group and their related parties, according to Clause 5.4.4 (1.1) and 5.4.4 (1.2):

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(2.1.1) Lending to, entering into credit-like transactions with, give a loan guarantee for directors, managers, deputy managers, assistant managers or those having comparable responsibilities but with different job titles, persons with power of management of companies within the solo consolidated group or related parties of those persons, except credit card loans, loans in form of employee benefits, or loans or credit-like transactions or loan guarantees under credit lines that have formerly been approved before they take up their posts or the restructuring of existing loans of those persons. In such case, the regulations as specified in the Bank of Thailand Notification Re: Lending to, Entering into Credit-like Transactions, or Giving Loan Guarantees for Directors, Persons with power of management of Financial Institutions and Their Related Parties shall be applied.

(2.1.2) Giving guarantees or avals, or intervening and accepting bills of exchange that have been instructed, issued or endorsed by directors, managers, deputy managers, assistant managers, or those having comparable responsibilities but with different job titles, persons with power of management of companies within the solo consolidated group or their related parties

(2.1.3) Paying or giving any other assets to directors, managers, deputy managers, assistant managers, or those having comparable responsibilities but with different job titles, persons with power of management of companies within the solo consolidated group or their related parties as remunerations for or due to any undertaking or business operations of the companies within the solo consolidated group, which are not pension, salary, bonus and additional allowance that are normally paid

(2.1.4) Selling, giving or renting any assets to directors, managers, deputy managers, assistant managers, or those having comparable responsibilities but with different job titles, persons with power of management of companies within the solo consolidated group or their related parties, or purchasing or renting any assets from those persons over the limit as specified by the Bank of Thailand; the regulations as specified in the Bank of Thailand Notification on Regulation on Selling, Giving or Letting Assets to the Directors and other Persons prescribed in Sector 48 (4), or Purchasing or Leasing Assets from such Persons shall be applied, unless approval is granted by the Bank of Thailand. In requesting the approval, the parent company shall submit an approval request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 30 days from the day the request and supporting documents have been correctly and completely received.

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(2.1.5) Giving any other benefits to directors, managers, deputy managers, assistant managers, or those having comparable responsibilities but with different job titles, persons with power of management of companies within the solo consolidated group or their related parties; the guidelines as specified for financial institutions shall be applied.

(2.2) For major shareholders of companies within the solo consolidated group and their related parties, or related businesses of the solo consolidated group according to Clause 5.4.4 (1.3) and 5.4.4 (1.4), they shall comply with the following guidelines:

(2.2.1) Loans, investments, contingent liabilities or credit-like transactions

(2.2.1.1) The amount of loans, investments, contingent liabilities or credit-like transactions

A company within the solo consolidated group can lend to, invest in or enter into contingent liabilities or credit-like transactions with a particular major shareholder of the company within the solo consolidated group or related business of the solo consolidated group, in total at the end of the day, no more than 5% of solo consolidated capital or no more than 25% of total liabilities of that major shareholder including its related parties or related business of the solo consolidated group, whichever is less, unless relaxation is granted by the Bank of Thailand. In requesting the relaxation, the parent company shall submit a request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 45 days from the day the request and supporting documents have been correctly and completely received.

(2.2.1.2) Counting of loans, investments, contingent liabilities or credit-like transactions

A. The amount of contingent liabilities according to Clause 5.4.4 (2.2.1.1) shall be calculated by the methods as specified in the Bank of Thailand Notification Re: Supervisory Guidelines on Large Exposure (Single Lending Limit).

B. The amount of loans, investments, contingent liabilities or credit-like transactions granted to/entered into with related

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parties of major shareholders of a company within the solo consolidated group shall be included in that of the major shareholders.

C. The amount of investments in companies outside the financial business group for portion that those investments have been deducted from solo consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis) shall be excluded.

D. The amount of transactions under exemptions for the calculation of the ratio according to the Bank of Thailand Notification Re: Guidelines on Supervision of Transactions with Major Shareholders or Related Businesses (Related Lending) shall be excluded, such as lending to, entering into contingent liabilities or credit-like transactions with government entities or the Financial Institutions Development Fund.

E. The company within the solo consolidated group to which the relaxation according to Clause 4.4.4 (2.2.1) is granted shall apply the requirements according to the Bank of Thailand Circular No. BOT-RPD.(21)Wor.1462/2551 dated 13 August 2008 (B.E.2551) Re: Granting Temporary Relaxation of the Requirements According to the Financial Institution Business Act B.E.2551 and the Amendments Thereof and the Bank of Thailand Notification Re: Relaxation of Guidelines on Supervision of Transactions with Major Shareholders and Related Businesses (Related Lending).

(2.2.2) Selling, giving or renting any assets and purchasing or renting any assets

A company within the solo consolidated group is prohibited, either directly or indirectly, to sell, give or rent any assets to major shareholders of solo consolidated group or their related parties of those persons or purchase, rent any assets from those persons more than the limit as specified by the Bank of Thailand, where the regulations as specified in the Bank of Thailand Notification Re: Regulation on Selling, Giving or Letting Assets to the Directors and other Persons prescribed in Sector 48 (4), or Purchasing or Leasing Assets from such Persons shall be applied, unless approval is granted by the Bank of Thailand. In requesting the approval, the parent company shall submit an approval request to the

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Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 30 days from the day the request and supporting documents have been correctly and completely received.

(2.3) In case where there is a breach of the regulations as specified in Clause 5.4.4 (2.1) and Clause 5.4.4 (2.2), and where a company within the solo consolidated group can prove that it has cautiously reviewed the information of related parties, still, it cannot be informed or prevent that breach of the regulations, this shall be considered that the company within the solo consolidated group does not intend to breach the regulations. The guidelines as specified in the Bank of Thailand Circular No. BOT-RPD.(21)Wor.1413/2551 dated 3 August 2008 (B.E.2551) Re: Clarification on Examination of Related Persons According to the Financial Institution Business Act and the Amendments Thereof, and the Bank of Thailand Notification Re: Guidelines on Supervision of Large Exposures shall be applied.

(3) Qualitative supervision of transactions with related parties of the solo consolidated group

(3.1) For transactions with major shareholders of a company within the solo consolidated group or related businesses of the solo consolidated group, there must not be special conditions or requirements that are different from transactions with general customers according to the Bank of Thailand Notification Re: Guidelines on Conducting Transactions with Major Shareholders or Businesses with Beneficial Interest (Related Lending), such as granting loans by not considering business conditions or performance or feasibility study has not been conducted.

(3.2) A company within the solo consolidated group must set out a policy for transactions with its major shareholders or related businesses, where the policy must be approved by its board of directors and must cover at least the following requirements:

(3.2.1) The requirements according to the Policy Statement of the Bank of Thailand Re: Guidelines on Engaging in Loan Transactions

(3.2.2) Transactions with major shareholders or related businesses of a company within the solo consolidated group must be approved by the board of directors of that company by consensus

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Except the following cases, the board of director of a company within the solo consolidated group can delegate a loan committee or management committee to approve the loans, but this must be in compliance with guidelines on loan approval as specified by the company. Afterwards, the board of directors must ratify the credit lines approved for those major shareholders or related businesses in its next meeting and there must be a consensus.

(3.2.2.1) Lending to, investing in, entering into contingent liabilities or credit-like transactions with government entities, the Financial Institutions Development Fund or companies that the government entities or the Financial Institutions Development Fund have control over or shares of more than 10% of paid-up shares of those companies; or

(3.2.2.2) Lending to, investing in, entering into contingent liabilities or credit-like transactions with major shareholders or related businesses of the solo consolidated group where those transactions have formerly been approved by the board of directors of the company within the solo consolidated group, irrespective of whether additional or new credit lines are requested

If the board of directors of the company within the solo consolidated group does not ratify those transactions or ratify those transactions but without consensus, the company within the solo consolidated group shall immediately unwind them.

(3.2.3) Directors or persons with power of management who may have interests associated with loans, investments, contingent liabilities or credit-like transactions to be entered into must not take part in approving those loans, investments, contingent liabilities or credit-like transactions.

5.4.5 Supervision of large exposures of financial business group

Risks of a financial business group may be concentrated to a particular group or business sector, which may constitute a severe impact on the stability of the group, therefore, there must be certain restrictions on the volume of transactions that can be entered into in order to limit risks that are constituted by that particular group/sector. On this, companies within a financial business group must comply with guidelines on supervision of large exposures of a financial business group, as follows:

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(1) The amount of loans, investments, contingent liabilities or credit-like transactions

(1.1) Companies within a financial business group (excluding a financial business group of a retail bank) can lend to, invest in, enter into contingent liabilities or credit-like transactions with a particular person1, or several persons under a particular project, or for a particular purpose, at the end of the day, no more than 25% of full consolidated capital, unless relaxation is granted by the Bank of Thailand on a case-by-case basis. In requesting the relaxation, the parent company shall submit a request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 45 days from the day the request and supporting documents have been correctly and completely received.

(1.2) Companies within a financial business group of a retail bank can lend to, invest in, enter into contingent liabilities or credit-like transactions with a particular person1, or several persons under a particular project, or for a particular purpose, at the end of the day, no more than 11% of full consolidated capital, unless relaxation is granted by the Bank of Thailand on a case-by-case basis. In requesting the relaxation, the parent company shall submit a request to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 45 days from the day the request and supporting documents have been correctly and completely received.

On this, for calculation of the ratio of transactions that a retail bank can enter into with each type of counterparty, the guidelines as specified in the Bank of Thailand Notification Re: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied.

(2) Counting of loans, investments, contingent liabilities or credit-like transactions

(2.1) The amount of loans, investments, contingent liabilities or credit-like transactions shall exclude:

(2.1.1) The amount of loans, investments, contingent liabilities or credit-like transactions of subsidiaries for portion that the investments in 1 Including loans, investments, contingent liabilities and credit-like transactions granted to/entered into with that person’s related parties

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those subsidiaries have been deducted from full consolidated capital, according to capital deduction ratios as specified in the Bank of Thailand Notification Re: Regulations on Components of Capital for Locally Incorporated Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis). The ratio of capital deductions for each company will be used to calculate the deductions from loans, investments, contingent liabilities and credit-like transactions that such company have entered into with a particular person, several persons under a particular project or for a particular purpose. (Examples of the calculation are in the attachment).

(2.1.2) The amount of investments in companies outside the financial business group for portion that those investments have been deducted from full consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Regulations on Components of Capital for Locally Incorporated Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis).

(2.1.3) Contingent liabilities according to a firm underwriting agreement from the day a company within a financial business group enters into the agreement up to the closing date

(2.2) For counting of loans, investments, contingent liabilities or credit-like transactions, the requirements as specified in the Bank of Thailand Circular No. BOT-RPD.(21)Wor.1462/2551 dated 13 August 2008 (B.E.2551) Re: Granting Temporary Relaxation of the Requirements According to the Financial Institution Business Act B.E.2551 and the Amendments Thereof shall be applied.

(2.3) For inclusion of any particular item in the amount of loans, investments, contingent liabilities or credit-like transactions, exclusion of any particular item from the calculation of the ratio of loans, investments, contingent liabilities or credit-like transactions as well as the upward adjustment to that ratio for any particular item, and the calculation of the amount that a company within a financial business group lends to, invests in, enters into contingent liabilities or credit-like transactions with several persons under a particular project or for a particular purpose, the guidelines according to the Bank of Thailand Notification Re: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied.

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(3) In case where there is a breach of the regulations as specified in Clause 5.4.5 (1), and where a company within a financial business group can prove that it has cautiously reviewed the information of related persons, still, it cannot be informed or prevent that breach, this shall be considered that the company within a financial business group does not intend to breach the guidelines. The guidelines as specified in the Bank of Thailand Circular No. BOT-RPD.(21)Wor.1413/2551 dated 3 August 2008 (B.E.2551) Re: Clarification on Examination of Related Persons According to the Financial Institution Business Act and the Amendments Thereof, and the Bank of Thailand Notification Re: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied.

(4) For a company within a financial business group under supervision of specific supervisory agency, granting loans, making investments, or entering into contingent liabilities or credit-like transactions shall be in accordance with the guidelines as specified by that supervisory agency, but the total amount of those transactions for the entire financial business group must not exceed the limit as specified above.

5.5 Supervision of market risk

5.5.1 The parent company must be responsible for setting out a policy on management of market risk of its financial business group on both solo consolidation and full consolidation basis. On this, the parent company may delegate companies within its financial business group (by the boards of directors of those companies) to set out their own market risk management policies, but those policies must be approved by the board of directors of the parent company.

5.5.2 The market risk management policy must cover the 4 following components of market risk, namely (i) interest rate risk; (ii) equity price risk; (iii) exchange rate risk; and (iv) commodity price risk, and must be in accordance with the Bank of Thailand Notifications, Circulars, Best Practices and Policy Statements Re: Guidelines on Market Risk Management of Financial Institutions, where at least, the following respect must be covered:

(1) Supervision of market risk and holding of capital for market risk, such as a policy on management of exposures in the trading book, internal controls for market risk

(2) Supervision of interest rate risk in the banking book, such as roles and responsibilities of the board of directors of a financial institution and persons with

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power of management, risk management policy and appropriate operational processes, guidelines for assessing, controlling and monitoring risks, and internal controls for interest rate risk

(3) Requirements on foreign exchange positions for commercial bank, retail bank or finance company, as the case may be, such as individual currency limit, aggregate limit; where the parent company must ensure that foreign currency positions at the end of the day have been held proportionately to capital of its financial business group on both solo consolidation and full consolidation basis

5.5.3 For companies that the investments in those companies have been deducted from either solo consolidated or full consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Regulations on Components of Capital for Locally Incorporated Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company, those companies are not required to comply with guidelines on supervision of market risk (capital requirements) only for transactions calculated using the ratio of investments that have been deducted from capital.

5.6 Supervision of liquidity risk

5.6.1 The parent company must be responsible for setting out a policy, framework and processes for management of liquidity risk of its financial business group, that are commensurate with business operations and complexity of financial business group, on both solo consolidation and full consolidation basis.

5.6.2 The policy and framework on liquidity risk management must illustrate the approach of liquidity risk management of a financial business group, if the centralized approach or decentralized approach is applied, and a list of companies within the financial business group that the financial institution manages or does not manage their liquidity risk.

(1) If the centralized approach is applied, the parent company shall set out a policy and framework on liquidity risk management for the entire financial business group

(2) If the decentralized approach is applied, the parent company shall set out a policy and framework on liquidity risk management by taking into

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consideration possible obligations to give liquidity facility to companies outside its solo consolidated group

5.6.3 The policy and framework on liquidity risk management of a financial business group must be in line with the Bank of Thailand Notifications, Circulars, Guidelines and Policy Statements on Liquidity Risk Management of Financial Institutions, where, at least, the following respects must be covered:

(1) Liquidity risk management system, which can efficiently identify, assess, monitor and control liquidity risk of a financial business group

(2) Liquidity risk management and reporting, which must cover behavior modifications to assets, liabilities and contingent liabilities corresponding to the actual data, as well as there must be a scenario test and stress test at the financial business group level, as deemed appropriate, to address the financial market fluctuation issues

(3) Contingency plan, which should cover a contingency funding plan that is appropriate to business strategies and complexity of a financial business group to address the lack of cash flows issues in various circumstances, and where the plan must explicitly reflects various and different types of business within a financial business group; while a financial business group must set out a clear policy on management of cash inflows and cash outflows for intra-group transaction, and must hold sufficient liquidity and attach importance to the balance of cash inflows and cash outflows under normal circumstances and in the event of crisis.

5.7 Supervision of operational risk

5.7.1 The parent company must be responsible for setting out a policy on management of operational risk of its financial business group on both solo consolidation and full consolidation basis. The parent company may delegate companies within its financial business group (by the boards of directors of those companies) to set out their own policies, but those policies must be approved by the board of directors of the parent company.

5.7.2 The policy on operational risk management of a financial business group must be in accordance with the Bank of Thailand Notifications, Circulars, Guidelines and Policy Statements on Operational Risk Management of Financial Institutions, where, at least, the following respects must be covered:

(1) Operational risk management and loss data collection

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(2) Business continuity management (BCM) and business continuity plan (BCP)

(3) Use of third-party services (outsourcing) for business operations of financial institutions and use of third-party IT services (IT outsourcing) for business operation of financial institutions

(4) Anti-money laundering and combating the financing of terrorism (AML/CFT)

(5) Interest rates and fees

On this, if there is a specific supervisory agency that specifies certain guidelines on operational risk, the parent company must ensure that companies within its financial business group have complied with those guidelines, such as AML/CFT guidelines of the Anti-Money Laundering Office

5.7.3 In case where a company within the solo consolidated group intends to use supporting services provided by third-party service provider, which may be a company within the same group or company outside the group, it shall comply with the guidelines according to the Bank of Thailand Notification Re: Guidelines on Outsourcing of Financial Institutions and the Bank of Thailand Notification Re: Regulations on IT Outsourcing for Business Operations of Financial Institutions, unless the Bank of Thailand specifies otherwise or gives an approval on a case-by-case basis.

5.7.4 Companies within a financial business group must also comply with other important guidelines so that they will have efficient and appropriate operational risk management systems as well as have sound management and good governance, as follows:

(1) Directors, persons with power of management and advisors

(1.1) Qualifications of directors, persons with power of management and advisors; the parent company and subsidiaries that operate financial business shall apply guidelines on qualifications of directors, persons with power of management and advisors according to the Bank of Thailand Notification Re: Governance of Financial Institutions and the Bank of Thailand Notification Re: Guidelines on Approval of Directors, Managers, Persons with power of management and Advisors of Financial Institutions, unless that company is under supervision of a specific supervisory agency and that supervisory agency specifies the guidelines on this subject.

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(1.2) Approval and notification of changes of directors, persons with power of management and advisors; guidelines on approval and notification of changes of directors, persons with power of management and advisors according to the Bank of Thailand Notification Re: Guidelines on Approval of Directors, Managers, Persons with power of management and Advisors of Financial Institutions shall be applied, as follows:

(1.2.1) In case of a holding company that is the parent company – the guidelines shall be applied to “all” directors, persons with power of management and advisors

(1.2.2) In case of companies within the solo consolidated group – the guidelines shall be applied only to the person who is ultimately responsible for managerial decisions, which, normally, is the top executive of the company

In addition, the parent company shall submit an approval request for the appointment of top-ranking executive of the parent company to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand, every time there is the extension of employment term or contract or every 4 years from the date that such person is appointed, whichever comes first.

(1.3) For the involvement in other companies of directors, persons with power of management and advisors of the parent company, the guidelines as specified in the Bank of Thailand Notification Re: Regulation on Approving of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions shall be applied.

(2) External auditors

The parent company must submit an approval request and notice of its annual appointment of auditors as well as those of the financial institution and companies within the solo consolidated group to the Bank of Thailand, where the parent company, financial institution and companies within the solo consolidated group should submit the approval request or notice of annual appointment of auditors in one package (at the same time). The guidelines according to the Bank of Thailand Notification Re: Guidelines on Approval of Auditors of Financial Institutions shall be applied.

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On this, companies located in Thailand must appoint the auditors from the same auditor firm. However, if the parent company cannot manage to appoint the auditors from the same auditor firm, or under certain circumstances with reasonable grounds making the parent company fail to comply with the guidelines, the parent company shall submit a request for relaxation to the Financial Institution Business Supervision Department, Financial Institutions Policy Group, Bank of Thailand. The Bank of Thailand will finish its consideration of the request within 30 days from the day the request and supporting documents have been correctly and completely received.

(3) Presentation of sings or symbols

A company within a financial business group can present any sign or symbol that represents the financial business group, but it cannot “jointly” present a sign or symbol that represents any particular company within the business group. In presenting a symbol or sign that represents the financial business group, the parent company must ensure that companies within its financial business group have clearly identified their business type, business structure, roles and responsibilities and target customers so that external parties can clearly understand roles and responsibilities as well as business structure and operations of each company.

(4) Communication with external parties

In case where a particular company acts as an agent of other company within the same business group for providing service or offering financial products to external parties, that company (agent) must clearly identify or communicate with external parties about its company’s name, responsibilities as an agent for providing service or offering financial products so that external parties can clearly understand its responsibilities. In addition, that company (agent) must not make a decision for the owner of the service to be provided or products to be sold to a particular customer. The guidelines according to the Policy Statement of the Bank of Thailand Re: Supervision of Sale of Securities and Insurance Products through Commercial Banks shall be applied.

5.7.5 For companies within a financial business group that operate business under supervision of the Bank of Thailand, such as credit card company, personal loan company under supervision, nano-finance company under supervision, or under supervision of a specific supervisory agency, and where the Bank of Thailand or that supervisory agency has specified specific supervisory guidelines, the parent

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company must ensure that those companies have complied with those specific supervisory guidelines.

5.8 Disclosure of data within a financial business group

5.8.1 The parent company and subsidiaries within its financial business group can disclose data between each other in order to enhance risk management of the financial business group and facilitate the compliance with guidelines as specified by the Bank of Thailand within the following scope:

(1) Data that the parent company can disclose to subsidiaries within its financial institution is, namely data that subsidiaries within the financial business group need for managing and overseeing risks according to the risk management policy of the financial business group, outstanding balances of certain items as necessary for those subsidiaries for complying with quantitative supervisory guidelines as specified in this Notification

(2) Data that subsidiaries within a financial business group can disclose to its parent company is, namely, data as necessary for the parent company for management and supervision of risks of the financial business group according to the specified strategies, or quantitative supervisory guidelines as specified in this Notification, or data required for preparation of reports on supervision of financial business group to be submitted to the Bank of Thailand, such as data related to credit risk, market risk, liquidity risk and operational risk as well as outstanding balances of certain items

(3) Other data as specified by the Bank of Thailand

On this, the parent company and subsidiaries must not make any arrangements that may be considered “operating credit information business” according to the Credit Information Business Act.

5.8.2 The parent company must be responsible for announcing its policy on disclosure of data within the financial business group and policy on risk management for intra-group transactions in an annual report.

6. Transitory Provisions

6.1 In the following cases, if a particular company within a financial business group has been granted relaxation from the Bank of Thailand before the effective date

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of this Notification, they shall comply with relaxation conditions as specified by the Bank of Thailand:

(1) In case where a particular company within the solo consolidated group lends to, invests in, or enters into contingent liabilities or credit-like transactions with a company outside the solo consolidated group over the limit as specified by the Bank of Thailand

(2) In case where a particular company within the solo consolidated group lends to, invests in, or enters into contingent liabilities or credit-like transactions with major shareholders of the company within the solo consolidated group and their related parties, or related businesses of the solo consolidated group over the limit as specified by the Bank of Thailand

(3) In case where a particular company within the solo consolidated group lends to, invests in, or enters into contingent liabilities or credit-like transactions with a particular person and his/her related parties, or several persons under a particular project, or for a particular purpose over the limit as specified by the Bank of Thailand

6.2 Guidelines on supervision of corporate governance of financial business groups relating to the following matters shall come into effect as from the date as specified below:

(1) For independent directors of the parent company who have been appointed before the effective date of this Notification, if they do not have qualifications as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions, they can, still, hold the positions but no later than 1 May 2022 (B.E.2565).

(2) For a person who has been approved to hold the position of top-ranking executive of the parent company before the effective date of this Notification without the specified employment term or with less than 4 years of employment term on the effective date of this Notification, the parent company shall request the approval for the appointment of that person from the Bank of Thailand according to Clause 5.7.4 of this Notification within 1 May 2022 (B.E.2565).

(3) The requirement that at least one member of the board of directors of the parent company must have knowledge or experiences in information technology shall come into effect as from 1 April 2020 (B.E.2563). If

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the parent company cannot comply with this requirement, it may consult the Bank of Thailand on a case-by-case basis.

(4) The requirement, according to Clause 5.2.5, that there must be the disclosure of corporate governance information to the public – the first disclosure must be for the data of the 2019 (B.E.2562) reporting period, and this first disclosure must be made within 30 April 2020 (B.E.2563).

7. Effective Date

This Notification shall come into effect after 360 days as from the following date of its publication in the Government Gazette.

Announced on 22 May 2018 (B.E.2561)

(Mr. Veerathai Santiprabhob) Governor

Bank of Thailand

Regulatory Policy Department Tel. 0 2283 6938

Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved.

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Attachment

Examples of the calculation of the ratio of loans, investments, contingent liabilities and credit-like transactions

1. In case where the parent company is a commercial bank

1.1 Calculation of the ratio of loans, investments, contingent liabilities and credit-like transactions entered into with companies within the financial business group

A commercial bank and subsidiaries within the solo consolidated group can lend to, invest in, or enter into contingent liabilities or credit-like transactions with companies outside the solo consolidated group, in total, no more than 25% of solo consolidated capital. This will exclude investments in subsidiaries for portion that the commercial bank has deducted from solo consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis).

(Unit: Million Baht)

Investments in financial and supporting business that are not included in consolidated financial statements, namely investments in non-life insurance company, factoring company and life-insurance company, shall be compared with 10% of net common equity tier 1 of the solo consolidated group. A portion that exceeds 10% of

2

net CET1 of the solo consolidated group, of 502 million Baht1, which has already been deducted from solo consolidated capital, will be deducted from capital of each company in proportion to the ratio of investment as follows:

Company that the investment is

compared with 10% of net CET1

Investment that will be deducted from capital (Million Baht)

Portion of investment that will be used to calculate

intra-group transactions

(Million Baht) Non-life insurance

1,040 – 348.05 = 691.95

Factoring

160 – 53.55 = 106.45

Life insurance

300 – 100.40 = 199.60

In this example, the commercial bank and leasing company, which are companies within the solo consolidated group lend to, invest in, or enter into contingent liabilities with companies outside the solo consolidated group, as follows2:

(Unit: Million Baht) Company within

the solo consolidated group

Company outside the

solo consolidated

group

Investments Loans Contingent liabilities

Total

Commercial bank Leasing company

180 500 (CCF=1) 20 700

Commercial Bank Tech firm 110 110 Leasing company Credit card

company 140 50 190

Commercial bank Non-life insurance company

691.95 691.95

Commercial bank Factoring company

106.45 106.45

1 The methods for calculation of solo consolidated capital are as specified in Attachment 1.1 of the Bank of Thailand Notification Re: Guidelines on Capital Requirements for Financial Business Groups 2 Intra-group transactions are not included in the calculation.

3

Total loans, investments, and contingent liabilities entered into with companies outside the solo consolidated group

1,798.40

Solo consolidated capital1 = 9,546.47 million Baht

The ratio of loans, investments, contingent liabilities and credit-like transactions entered into with companies outside the solo consolidated group =

1.2 Calculation of the ratio of loans, investments, contingent liabilities and credit-like transactions entered into with large exposures

Companies within a particular financial business group can lend to, invest in, or enter into contingent liabilities or credit-like transactions with a particular person, or several persons under a particular project, or for a particular purpose, at the end of the day, in total, no more than 25% of full consolidated capital. This will exclude the amounts of loans, investments, contingent liabilities or credit-like transactions of subsidiaries for portion that the investments in those companies have been deducted from full consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis). The ratio of capital deductions for each company will be used to calculate the deductions from loans, investments, contingent liabilities and credit-like transactions that such company have entered into with a particular person, several persons under a particular project or for a particular purpose.

Providing that

- Debtor Group A consists of Company a. as the parent company, and Company b., Company c., Company d. and Company e. as subsidiaries

- Debtor Group B consists of Company y. as the parent company, and Company z. as a subsidiary

(Unit: Million Baht)

4

Investments in financial business and supporting business that are not included in consolidated financial statements, namely investments in non-life insurance company, factoring company and life-insurance company shall be compared with 10% of net common equity tier 1 of the full consolidated group. A portion that exceeds 10% of net CET1 of the full consolidated group, of 509 million Baht3, which has already been deducted from full consolidated capital, will be deducted from capital of each company in proportion to the ratio of investment as follows:

Company that the investment is compared with 10% of net CET1

Portion of investment that has been deducted from capital (Million Baht)

Non-life insurance

Factoring

Life insurance

In this example, the factoring company, which is a company within the full consolidated group, lends to, invests in, or enters into contingent liabilities with Company d. (a company within a group of Debtor A) and Company z. (a company within a group of Debtor B) for 20 million Baht and 200 million Baht, respectively. And, as the investment in the factoring company has been deducted from capital of 54.29 million Baht, therefore, a ratio of the investment in the factoring company that has been deducted from capital to the investment of the commercial bank in that factoring company is equal to . This ratio will be used to calculate the amount of loans, investments or contingent liabilities that will be

3 The methods for calculation of full consolidated capital are as specified in Attachment 1.1 of the Bank of Thailand Notification Re: Guidelines on Capital Requirements for Financial Business Groups

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deducted from the total amount of loans, investments and contingent liabilities entered into by the factoring company with a particular debtor group, as follows:

Debtor The amount of transactions that will not

be included the calculation of SLL

(Million Baht)

The amount of transactions that will be

included in the calculation of SLL

(Million Baht) Company d. (Debtor Group A)

20 – 6.79 = 13.21

Company z. (Debtor Group B)

200 – 67.86 = 132.14

In this example, the commercial bank, asset management company and factoring company, which are companies within the financial business group, lend to, invest in and enter into contingent liabilities with Debtor Group A as follows:

(Unit: Million Baht) Company within the solo consolidated

group

Company within a group of Debtor A

Loans Contingent liabilities

Total

Commercial bank Company a. 500 (CCF=1) 20 520 Asset management company

Company e. 700 700

Factoring company Company d. 13.21 13.21 Total amount of loans, investments and contingent liabilities 1,233.21

In this example, the commercial bank, hire purchase company and factoring company, which are companies within the financial business group, lend to, invest in and enter into contingent liabilities with Debtor Group B as follows:

(Unit: Million Baht) Company within the solo consolidated

group

Company within a group of Debtor B

Loans Investments Total

Commercial bank Company y. 1,000 1,000 Company z. 300 300

Hire purchase company Company y. 500 500 Factoring company Company z. 132.14 132.14

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Total amount of loans, investments and contingent liabilities 1,932.14

Full consolidated capital3 = 9,600.86 million Baht

The ratio of loans, investments, contingent liabilities and credit-like transactions entered into with each debtor group (large exposure) is as follows:

Group of debtor SLL ratio Debtor Group A

Debtor Group B

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2. In case where the parent company is not a commercial bank

2.1 Calculation of the ratio of loans, investments, contingent liabilities and credit-like transactions entered into with companies within the financial business group

A commercial bank and subsidiaries within the solo consolidated group can lend to, invest in, or enter into contingent liabilities or credit-like transactions with companies outside the solo consolidated group, in total, no more than 25% of solo consolidated capital. This will exclude investments in subsidiaries for portion that the commercial bank has deducted from solo consolidated capital, according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis).

(Unit: Million Baht)

In this example, the commercial bank and leasing company, which are companies within the solo consolidated group lend to, invest in, or enter into contingent liabilities with companies outside the solo consolidated group, as follows2:

(Unit: Million Baht) Company within Company Investments Loans Contingent Total

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the solo consolidated group

outside the solo

consolidated group

liabilities

Commercial bank Hire Purchase company

500 (CCF=1) 20 520

Leasing company Credit card company

140 50 190

Total loans, investments, and contingent liabilities entered into with companies outside the solo consolidated group

710

Solo consolidated capital1 = 10,048.47 million Baht

The ratio of loans, investments, contingent liabilities and credit-like transactions entered into with companies outside the solo consolidated group =

9

2.2 Calculation of the ratio of loans, investments, contingent liabilities and credit-like transactions entered into with large exposures

Companies within a particular financial business group can lend to, invest in, or enter into contingent liabilities or credit-like transactions with a particular person, or several persons under a particular project, or for a particular purpose, at the end of the day, in total, no more than 25% of full consolidated capital. This will exclude the amounts of loans, investments, contingent liabilities or credit-like transactions of subsidiaries for portion that the investments in those companies have been deducted from full consolidated capital according to capital deduction ratios, as specified in the Bank of Thailand Notification Re: Capital Components of Locally Registered Commercial Banks or the Bank of Thailand Notification Re: Regulations on Supervision of Capital and Liquidity Coverage Ratio (LCR) Standard for Finance Companies, as the case may be, in proportion to the ratio of investment in each company (pro-rata basis). The ratio of capital deductions for each company will be used to calculate the deductions from loans, investments, contingent liabilities and credit-like transactions that such company have entered into with a particular person, several persons under a particular project or for a particular purpose.

Providing that

- Debtor Group A consists of Company a. as the parent company, and Company b., Company c., Company d. and Company e. as subsidiaries

- Debtor Group B consists of Company y. as the parent company, and Company z. as a subsidiary

(Unit: Million Baht)

10

Investments in financial business and supporting business that are not included in consolidated financial statements, namely investments in non-life insurance company, factoring company and life-insurance company shall be compared with 10% of net common equity tier 1 of the full consolidated group. A portion that exceeds 10% of net CET1 of the full consolidated group, of 639 million Baht3, which has already been deducted from full consolidated capital, will be deducted from capital of each company in proportion to the ratio of investment as follows:

Company that the investment is compared with 10% of net CET1

Portion of investment that has been deducted from capital (Million Baht)

Non-life insurance Factoring Life insurance

In this example, the factoring company, which is a company within the full consolidated group, lends to, invests in, or enters into contingent liabilities with Company d. (a company within a group of Debtor A) and Company z. (a company within a group of Debtor B) for 20 million Baht and 200 million Baht, respectively. And, as the investment in the factoring company has been deducted from capital of 68.16 million Baht, therefore, a ratio of the investment in the factoring company that has been deducted from capital to the investment of the commercial bank in that factoring company is equal to . This ratio will be used to calculate the amount of loans, investments or contingent liabilities that will be deducted from the total amount of loans, investments and contingent liabilities entered into by the factoring company with a particular debtor group, as follows:

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Debtor The amount of transactions that will not

be included in the calculation of SLL

(Million Baht)

The amount of transactions that will be

included in the calculation of SLL

(Million Baht) Company d. (Debtor Group A)

20 – 8.52 = 11.48

Company z. (Debtor Group B)

200 – 85.20 = 114.80

In this example, the commercial bank, asset management company and factoring company, which are companies within the financial business group, lend to, invest in and enter into contingent liabilities with Debtor Group A as follows:

(Unit: Million Baht) Company within the solo consolidated

group

Company within a group of Debtor A

Loans Contingent liabilities

Total

Commercial bank Company a. 500 (CCF=1) 20 520 Asset management company

Company e. 700 700

Factoring company Company d. 11.48 11.48 Total amount of loans, investments and contingent liabilities 1,233.21

In this example, the commercial bank, hire purchase company and factoring company, which are companies within the financial business group, lend to, invest in and enter into contingent liabilities with Debtor Group B as follows:

(Unit: Million Baht) Company within the solo consolidated

group

Company within a group of Debtor B

Loans Investments Total

Commercial bank Company y. 1,000 1,000 Company z. 300 300

Hire purchase company Company y. 500 500 Factoring company Company z. 114.80 114.80 Total amount of loans, investments and contingent liabilities 1,914.80

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Full consolidated capital3 = 8,570.86 million Baht

The ratio of loans, investments, contingent liabilities and credit-like transactions entered into with each debtor group (large exposure) is as follows:

Group of debtor SLL ratio Debtor Group A

Debtor Group B