Managers, All Commercial Banks, Finance Companies, Finance and Securities Companies and Credit Foncier Companies

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1 Unofficial Translation by the courtesy of The Foreign Banks' Association This translation is for the convenience of those unfamiliar with the Thai language. Please refer to the Thai text for the official version January 25, 1999 BANK OF THAILAND To: Managers, All Commercial Banks, Finance Companies, Finance and Securities Companies and Credit Foncier Companies No.ThorPorTor. Ngor.(Wor) 243/2542 Re: Clarification on Writing Off Debts from Accounts Whereas the Bank has set rules for debt classification and provision of reserves for classified debts pursuant to the Notification of the Bank of Thailand, regarding worthless or irrecoverable debts and debts that are suspected of being worthless or irrecoverable, dated June 30, Details as self-explanatory. The Bank would like to advise that financial institutions are allowed to write off debts, classified as bad or suspected of being bad and for which reserve provisions have been made at 100 percent pursuant to the regulations of the Bank of Thailand, from account without referring to tax regulations under the Ministerial Regulation No. 186 (B.E. 2534) issued by virtue of the Revenue Code regarding writing off debts from debtors accounts, subject to the following procedural regulations: 1. For a secured debt, financial institution may write off such debt from its account equal to the amount of reserve provision already made. The secured portion of such debt shall remain in the debtor s account. 2. For an unsecured debt, financial institution may write off such debt from its account for the entire outstanding amount. The writing off of debts classified as bad or suspected of being bad from accounts according to the above guidelines is in accordance with the Thai Accounting Standards No. 11, and has been confirmed by the Revenue Department that financial institutions will not incur tax disadvantages, because financial institutions may apply the portion of reserve provisions on bad debt and suspected of being bad debt increased from previous accounting period as expense in the computation of net profit for corporate income tax Page 1 of 5 [f:\data\b\bank of Thailand\BOT-243] Prepared by: CC/KS

2 payment pursuant to the Emergency Decree Amending the Revenue Code (No. 17) B.E Further, after completion of the entire process under the Ministerial Regulation No. 186 (B.E. 2534), financial institutions may apply bad debts as expenses in the computation of net profit for corporate income tax payment as normal. It is notified for your information and compliance. (M.R. Chatu Mongol Sonakul) Governor Enclosure: 1. A copy of the Letter of the Institute of Certified Accountants and Auditors of Thailand No. Sor.Nor. 027/2542 dated January 21, A copy of the Letter of the Revenue Department No. Gor.Kor. 0811/00646 dated January 25, Financial Institution Policy Department Tel: , Page 2 of 5 [f:\data\b\bank of Thailand\BOT-243] Prepared by: CC/KS

3 The Institute of Certified Accountants and Auditors of Thailand No. SorNor. 027/2542 January 21, 1999 Re: To: Ref: Response to the question regarding writing off bad debts from accounts Governor of the Bank of Thailand Letter No. ThorPorTor. Ngor. 133/2542 Re: Writing Off Bad Debts from Accounts Whereas you have requested opinion of the Institute regarding the case of financial institution with significant outstanding balance of non-performing loans in its account, especially debts with over 12 months of unpaid principal or interest, and financial institution has classified such debts as suspected of being bad debts and has made reserve provisions at 100 percent according to the regulations of the Bank of Thailand. In reality, it can be expected with great certainty that no repayment will be made for this type of suspected of being bad debts. Therefore, the question is whether debts classified as bad but cannot be written off under the revenue law, including debts classified as suspected of being bad, may be written off from accounts only on the portions for which reserve provisions have been made pursuant to item 21 of the Accounting Standards No. 11 regarding bad and suspected of being bad debts. The Institute would like to explain that the 21 st paragraph of the Accounting Standards No. 11 regarding bad and suspected of being bad debts provides that: In case no debt repayment can be expected with great certainty, and debt may not yet be written off under revenue law, the business may write off debt from account by means of reducing number of debtors and reducing the amount of reserve provision for bad debt. According to the said excerpt from the said Accounting Standards, it is the opinion of the Institute of Certified Accountants and Auditors of Thailand that the business may write off debt and reserve provisions for bad debt from account when the business is certain that the business will not receive repayment for such debt. However, if there is still a chance of the business receiving debt repayment, no debt or reserve provision may be written off from account. Debt to be written off must not exceed the amount of reserve provision for that debt that has already been recorded as expense in profit and loss statement. It is notified for your information. (Mr. Nopadol Nimsomboon) President of the Institute of Certified Accountants and Auditors of Thailand Administration Tel: Fax: Page 3 of 5 [f:\data\b\bank of Thailand\BOT-243] Prepared by: CC/KS

4 [Translation] EXTREMELY URGENT No. Gor.Dor. 0811/00646 The Revenue Department 90 Paholyothin 7, Paholyothin Sarmsen Nai, Phayathai Bangkok January 25, 1999 Re: Corporate income tax in case of writing off non-performing debts by financial institutions To: Governor of the Bank of Thailand Ref: Very Urgent Letter No. ThorPorTor. Ngor. 132/2542 dated January 18, 1999 The referenced Letter stated that the present economic condition renders financial institutions to accrue significant amount of non-performing loans in their accounts, especially debts with over 12 months of unpaid principal or interest, and financial institutions are required to classify such debts as suspected of being bad debts and make reserve provisions at 100 percent of such unpaid debts, less security according to the regulations of the Bank of Thailand, and debts classified as bad, e.g., assets that are worthless or irrecoverable. However, financial institutions cannot write off such debts from their accounts under revenue law until the completion of the process set forth in the Ministerial Regulation No. 186 (B.E. 2534) issued by virtue of the Revenue Code regarding writing off bad debts from debtors accounts dated December 27, 1991 and the Accounting Standards No. 11 allowing write off from debtor s accounts those debts that are expected with great certainty that will not be repaid, although they cannot yet be written off from accounts under revenue law. The Bank of Thailand therefore consulted that, if a financial institution wishes to write off debts classified as bad or suspected of being bad as expenses, will such financial institution expose itself to any tax disadvantages? And, if so, how? Details as self-explanatory. The Revenue Department would like to advise that: 1. In case of bad assets e.g., worthless or irrecoverable assets, for which the regulations of the Bank of Thailand allow financial institution to write off such assets (debts) from account without making reserve provision, financial institution may write off such debts from its account and apply it as bad debt expense for the accounting period in which such debt arose according to any generally recognized accounting principle. Under revenue law, however, writing off bad debt from debtor s account in such circumstances may be made only after completion all process under the rules, procedures and conditions set forth in the Ministerial Regulation No. 186 (B.E. 2534), issued by virtue of the Revenue Code regarding writing off bad debts from debtors accounts dated December 27, Page 4 of 5 [f:\data\b\bank of Thailand\BOT-243] Prepared by: CC/KS

5 As a result, if financial institution has already written off classified bad debts as expenses from its account. In filing corporate income tax return, financial institution must adjust the amount of its net profit by adding amounts of bad debts, that are not in accordance with the rules, procedures and conditions of the Ministerial Regulation, as incomes for the computation of net profit for corporate tax payment. During any accounting period in which the financial institution has fully completed the process according to the rules, procedures and conditions set forth in the said Ministerial Regulation, such bad debts shall be written off from debtors accounts and be applied as expenses for that accounting period in the computation of net profit for corporate income tax payment. 2. In case of assets suspected of being bad, for which financial institution must make reserve provisions at 100 percent of net unpaid debts, financial institution may write off such debts by applying the same as expenses in its account. Under revenue law, however, the reserve provisions for such debts may be applied by financial institution as expenses only for the portion increased from prior accounting period pursuant to Section 65 ter (1)(c) of the Revenue Code. Regarding the portion of reserve provisions not considered expenses under the revenue law, if financial institution subsequently completed the process according to the rules, procedures and conditions set forth in the Ministerial Regulation No. 186 dated December 27, 1991 during any accounting period, it may be written off as bad debts from debtors accounts, and shall be applied as expenses in the computation of net profit for corporate income tax payment for that accounting period. (Mr. Kriengsak Watanawarangkul) Deputy Director-General for Director-General of the Revenue Department Legal Department Tel: Page 5 of 5 [f:\data\b\bank of Thailand\BOT-243] Prepared by: CC/KS

BOT Notification No ( ) Page 1 of May B.E To Managers All Finance Companies and Credit Foncier Companies

BOT Notification No ( ) Page 1 of May B.E To Managers All Finance Companies and Credit Foncier Companies Unofficial Translation with the courtesy of The Foreign Banks' Association This translation is for the convenience of those unfamiliar with the Thai language. Please refer to the Thai text for the official