BOT Notification No (27 September 2017)-check

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1 Unofficial Translation This translation is for the convenience of those unfamiliar with the Thai language Please refer to Thai text for the official version Notification of the Bank of Thailand No. FPG. 74/2551 Re: Regulations on Foreign Exchange Positions for Commercial Banks excluding Retail Banks 1. Rationale Foreign exchange positions of commercial banks resulting from taking deposits or lending in foreign currencies, investing in foreign securities, trading of foreign currencies, or engaging in foreign exchange derivative transactions both in trading book or banking book may cause an exchange rate risk to commercial banks. Having high foreign exchange positions causes commercial banks a high exchange rate risk and may lead to damage which affects commercial banks revenue and capital adequacy. Therefore, commercial banks which involve in foreign exchange transactions shall consider managing the exchange rate risk as follows; (1) obtaining an internal control system which can identify, measure, monitor and control the exchange rate risk, (2) setting an appropriate exposure limit for transactions or foreign exchange positions and (3) maintaining adequate capital for the exchange rate risk under the market risk capital frameworks. In addition, commercial banks shall take into account other risks related to the exchange rate risk, for instance, interest rate risk and liquidity risk. In order to supervise commercial banks foreign exchange positions to be in line with the international standards and to effectively and accurately reflect the exchange rate risk, as well as allow commercial banks to have an appropriate exchange rate risk management, the Bank of Thailand has prescribed the regulations on foreign exchange positions both for individual currency positions and aggregate position. In addition, commercial banks are required to maintain capital for market risks that are related to exchange rate. Details of market risks capital requirements are prescribed on the Notification of the Bank of Thailand on Supervision of Market Risk and Capital Requirements for Market Risk of Financial Institutions. This Notification is issued to be in accordance with the Financial Institution Business Act B.E (2008) while the essence of the regulations has not been changed from the previous one. The commercial banks which are permitted by the

2 2 Bank of Thailand to report foreign exchange positions by present value method or granted a relaxation from the Bank of Thailand with regard to reporting foreign exchange positions before the effective date of this notification may proceed without having to submit for another approval. 2. Statutory Power By virtue of Sections 41 and 71 of the Financial Institution Business Act B.E (2008), the Bank of Thailand hereby prescribes the regulations on foreign exchange positions for locally-incorporated banks and foreign bank branches to comply with as specified in this notification. 3. Scope of Application This Notification shall apply to all commercial banks according to the law on financial institution business except retail banks. 4. Repealed/Amended Notification and Circular The Circular No. BOT.FPG.(21) C. 167/2546 on Submission of Policy Guidelines on Foreign Exchange Positions and Relevant Report Forms dated 21 January Content 5.1 In this Notification Commercial bank means the commercial banks under Section 4 of the Financial Institution Business Act B.E (2008) except retail banks. Capital of locally-incorporated bank means total capital of locallyincorporated banks as prescribed in the Notification of the Bank of Thailand on Components of Capital for Locally-incorporated Bank. Capital of foreign bank branches means capital as prescribed in the Notification of the Bank of Thailand on Components of Capital for Foreign Bank Branches. In this regard, the capital of commercial banks shall be converted to US dollars (USD).

3 5.2 Regulations on foreign exchange positions 3 Commercial banks shall maintain their foreign exchange positions according to the regulations as follows; Individual Currency Limit Commercial banks shall maintain the net open position in each currency at the end of each day equivalent to USD in a proportion to its capital not exceeding 15 percent or USD 5 million, whichever is the greater Aggregate Limit Commercial banks shall maintain the aggregate position at the end of each day equivalent to USD in a proportion to its capital not exceeding 20 percent or USD 10 million, whichever is the greater. 5.3 Regulations on calculating foreign exchange positions Commercial banks shall include all foreign exchange positions both in trading book and banking book when calculating the foreign exchange positions for individual currency positions and aggregate position as prescribed in the following rules and guidelines. The details of components and calculation methods are prescribed in attachment 1: Aggregate position report Net open position in each currency Commercial banks shall calculate the net open positions in each currency from the sum of net open positions in each currency of their banking business (11) 1, their overseas branches and other companies which act as overseas branches (13) 1. The net open positions in each currency will be reported by currency under item 14 1, Individual currency position, for instance, USD, JPY, EUR, etc. Details are as follows; 1) The net open position in each currency of a banking business is a sum of a net current position which is a net position according to commercial banks statement of financial position and a net forward position which is a position resulting from foreign exchange forward contract, option, swap, etc. 1 No. 11, 13 and 14 mean items 11, 13 and14 of the Report on Consolidated Positions

4 4 2) The net open positions in each currency of overseas branches and companies which act as an overseas branches Aggregate Position Commercial banks shall calculate the aggregate position from the greater amount between 1) Sum of all net foreign exchange overbought positions of every currency converted into USD; and 2) Sum of all net foreign exchange oversold positions of every currency converted into USD. 5.4 Reporting foreign exchange positions with present value Normally, commercial banks will report foreign exchange positions in notional amount. However, if any commercial bank has capability and capacity that is in accordance with the criteria for approving commercial banks to apply present value method, details in attachment 2, and the commercial bank has informed the Financial Institution Applications Department, Supervision Group at least 15 days in advance from the first day of the reporting period which the commercial bank started to apply such method, the commercial bank may report foreign exchange forward positions by present value method. In calculating the present value, commercial banks shall use an interest rate of that particular currency as a discount rate. In addition, if commercial banks choose to use the present value method, they shall always use such method for reporting foreign exchange positions. 5.5 Transactions to be included in foreign exchange positions Commercial banks shall or shall not include following transactions in calculating foreign exchange positions Foreign currency loans classified as doubtful of loss (1) In case where commercial banks are located in Thailand: commercial banks shall not include the entire amount of foreign currency loan accounts classified as doubtful of loss in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions, in the calculation of foreign currency assets regardless of any collateral. The exception is given when the collaterals are in the same currency as the loans. In that case, commercial banks shall

5 5 include the loans in the foreign exchange positions at the amount equal to the present value of the collaterals in such currency in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions. (2) In case of overseas branches: locally-incorporated banks shall include foreign currency loan accounts classified as doubtful of loss in calculating foreign exchange positions only at the amount of principal and accrued interest deducted by the provisions of such loans in accordance with the accounting and provision guidelines of the countries in which the branches are located. Nonetheless, for the foreign currency loan accounts classified as doubtful of loss and are under negotiation for debt restructuring in the future, commercial banks are allowed to include such accounts in the calculation of foreign exchange positions for another year starting from the date of negotiation. Supporting documents which indicate the commencement of debt restructuring process of such debtors are required Hedging transactions of foreign currency loan accounts classified as doubtful of loss In case where debtors have entered into hedging transactions for the foreign currency loan accounts classified as doubtful of loss and such loans shall not be included in calculation of foreign exchange position as stated in 5.5.1, commercial banks shall also deduct the outstanding amount of the hedging transactions from the amount used to calculating foreign exchange positions Hedging transactions other than those specified in In case where a debtor obtains a doubtful of loss and loss account in any currency, commercial banks shall not include the outstanding balance of all hedging transactions of such debtor in calculating foreign exchange positions Irrevocable guarantees of debtors classified as doubtful, doubtful of loss and loss Commercial banks shall include irrevocable guarantees that are in foreign currency of debtor who obtains an account, in any currency, which is classified as doubtful, doubtful of loss and loss, in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions, in calculating foreign exchange positions.

6 6 In this regard, irrevocable guarantees that are in foreign currency are bill acceptances, avals, and guarantees for loan that the payment schedule is due not exceeding 3 months from the reporting date Other waived items The following foreign currency assets are waived from the calculation of the foreign exchange positions: (1) Investment in overseas branches classified in each currency. (2) Investment in the form of international cooperation with no repayment schedule classified in each currency, for instance, investment in Asian Finance Corporation. (3) Other assets approved by the Bank of Thailand on a case by case basis. 5.6 Foreign exchange positions of overseas branches and companies which act as overseas branches Locally-incorporated banks shall include foreign exchange positions of overseas branches and companies which act as overseas branches in calculating its foreign exchange position. All currencies other than Thai Baht shall be considered as foreign currency and shall be included in the calculation of foreign exchange positions regardless of whether such currencies are local currencies of the countries that the overseas branches operate. 5.7 Preparation and submission of reports For calculating foreign exchange positions, commercial banks shall comply with the calculation method according to report forms and the instructions for report preparation as follows; Aggregate position report: commercial banks shall prepare the aggregate position report at the end of each day and submit all reports of the previous week (commencing from Friday as the first day and Thursday as the last day of the week) to Data Management Department of the Bank of Thailand within 10 business days. Details and instructions for report preparation are appeared in attachment Branch positions report: locally-incorporated banks which have overseas branches shall establish a system to support the preparation of foreign

7 7 exchange positions report of each branch and of all branches at the end of each day. Such information will be incorporated in the aggregate position report in Commercial banks shall submit the foreign exchange reports of each branch and of all branches by using the data as at Thursday of the last week of every month to Data Management Department of the Bank of Thailand within 10 business days. In the case where the Thursday of the last week of such month is not a business day, commercial banks shall report by using the data as at the previous business day. Details and instructions for report preparation are appeared in attachment Effective Date This Notification shall come into force as from the day following the dates of its publication in the Government Gazette. Announced on 3 rd August 2008 (Mrs. Tarisa Watanagase) Governor Bank of Thailand

8 1/1 Commercial bank s name Aggregate position report Daily report on the summary of foreign exchange positions As at. Foreign exchange positions Foreign currency (Unit: 000 USD) Sum of all currencies Banking business 1. Net current position 2. Foreign currency loans classified as doubtful of loss 3. Waived Items 4. Reserved for classified assets in foreign currency 5. Net foreign exchange current position ( ) 6. Net forward position Adjusted by 7. (plus/less) Net notional amount of currency options shown in item (plus/less) an equivalent value to cash position of the net notional amount of currency options 9. Irrevocable guarantee (shall be shown as Short Position (-)) 10. Net foreign exchange forward position ( ) 10.1 Present Value (PV) of net foreign exchange forward positions shown in item 10. (only for banks that obtained permission) 11. Net open position in each currency (5+10 or ) International Banking Facilities (IBF) (only for locally-incorporated banks) 12. Net open position in each currency of International Banking Facilities (IBF) (only for locally-incorporated banks) Overseas branches (only for locally-incorporated banks) 13. Net open position in each currency of overseas branches (only for locally-incorporated Attachment 1 banks) 14. Sum of net open position in each currency ( ) (Individual currency positions) percent of total capital (Individual Currency Limit) 16. Sum of all net foreign exchange overbought position (item 14 which has (+) sign) 17. Sum of all net foreign exchange oversold position (item 14 which has (-) sign) 18. Aggregate position (i.e. the higher amount between the sum of all currencies in item 16. and 17.) percent of total capital (Aggregate Limit) 20. Total Capital

9 1/2 Explanation on the preparation of the aggregate position report A. The aggregate position report is a summary report on foreign exchange positions of commercial banks. B. Preparation and submission of the report Commercial banks shall prepare the summary report on their foreign exchange positions at the end of each day, and submit all the summary report on the foreign exchange positions of each day from the previous week (commencing from Friday as the first day and Thursday as the last day of the week) to Data Management Department of the Bank of Thailand within 10 business days as follows; Name of commercial bank: enter the name of the bank registered in Thailand, branch of foreign bank or authorised agent. Foreign Currency: specify in the abbreviation used by SWIFT CODE, for instance, US dollar shall be USD. As at. : specify the date, month, and year when the transaction occurred. C. The preparation of the report The transaction shall be recorded accurately in each particular cell as follows; 1. Net current position Net current position of each currency shall be the net current position as specified in the Dataset of Foreign Currency Position (FCP) and Foreign Currency Transaction Summary (FTS) which used to be reported in the Report Form Thor.Tor.30. All currencies shall be converted into USD and recorded by indicating a + or - sign in front of the amount as follows; + in case that it is an overbought position - in case that it is an oversold position Furthermore, the exchange rate used in the conversion of other currencies into USD, both for current position and forward position, shall be either the exchange rate

10 1/3 from generally-used data sources, for instance, Reuters, Bloomberg, Telerate or the exchange rate as provided by the Bank of Thailand via in the morning of the same business day. The exchange rate from the same data source shall be used consistently. However, commercial banks shall notify the Bank of Thailand in advance which data source of exchange rate they will use to convert each foreign exchange position. Consent from the Bank of Thailand is required prior to the change of the data source and supportive reasons shall also be provided. 2. Foreign currency loans classified as doubtful of loss (1) In case where commercial banks are located in Thailand Outstanding principal plus accrued interest of foreign currency loan accounts classified as doubtful of loss in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions in each currency shall be entirely deducted from the net current positions (item 1. in the Aggregate position report) regardless of any collateral. The exception is given in the case where the collaterals are in the same currency as the loans so provisions of such loans shall be deducted from the net current positions. In this regard, the provisions shall be calculated in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions. (2) In case of overseas branches Provisions of the foreign currency loan accounts classified as doubtful of loss in accordance with the accounting and provision guidelines of the countries in which the branches are located shall be deducted from the net current positions (item 1.). Nonetheless, for the foreign currency loan accounts classified as doubtful of loss and are under negotiation for debt restructuring in the future, commercial banks are allowed to include such accounts in the calculation of foreign exchange positions for another year starting from the date of negotiation. Supporting documents which indicate the commencement of debt restructuring process of such debtors are required.

11 1/4 3. Waived item The following foreign currency assets are waived from the calculation of the foreign exchange positions: 3.1 Investment in overseas branches classified in each currency. 3.2 Investment in the form of international cooperation with no repayment schedule classified in each currency, for instance, investment in Asian Finance Corporation. 3.3 Other assets approved by the Bank of Thailand on a case by case basis. 4. Foreign currency provisions of classified assets Foreign currency provisions of classified assets means provisions which were recorded in individual foreign currency. However, such provisions shall exclude the provisions of foreign currency loans classified as doubtful of loss which have been entirely deducted under item Net foreign exchange current position is the amount in item 1 deducted by the amount in items 2 to Net forward position: net forward position of each currency shall be the net forward position as specified in the Dataset of Foreign Currency Position (FCP) and Foreign Currency Transaction Summary (FTS) which used to be reported in the Report Form Thor.Tor.30. All currencies shall be converted into USD by the same conversion method used for the net current position specified in item 1. The net forward position shall be adjusted by the following item: 6.1 Hedging contracts which commercial banks have undertaken to hedge foreign currency loans classified as doubtful of loss that are not allowed to be included in the calculation of the foreign exchange positions on item 2. of the aggregated position report, (for instance, a commercial bank has entered into a forward contract to sell foreign currency to its debtor to hedge a foreign currency loan which has been classified as doubtful of loss and is not allowed to be included in the calculation of the foreign exchange positions) the commercial bank shall add the notional amount of such forward contract back to the outstanding amount of the net forward position. Nevertheless, the following documents shall be provided;

12 1/5 (a) Photocopy of the loan agreement; (b) Photocopy of the sell forward contract and the foreign currency loan account which has been classified as doubtful of loss 6.2 For other foreign exchange hedging contracts which are not used to hedge foreign currency loans classified as doubtful of loss that are not allowed to be included to the calculation of the foreign exchange positions, if a debtor has any loan account classified as doubtful of loss and loss in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions, commercial banks shall not include the outstanding amount of all hedging contracts of such debtors in the calculation of the foreign exchange positions. 6.3 Other transactions which are permitted by the Bank of Thailand to be included or not to be included in calculation of the net foreign exchange forward position. 7. An adjustment (+/-) to a net notional amount of currency options: if the net notional amount of currency options has been recorded in the net forward position as net overbought positions (+), such amount shall be recorded by using the (-) sign. If the net notional amount of currency options has been recorded as net oversold position (-), such amount shall be recorded by using the (+) sign. 8. An equivalent value to cash position of the net notional amount of currency options: commercial banks shall record the net amount derived from multiplying the notional amount of each currency option by its delta. If the net amount is positive, such amount shall be recorded by using the (+) sign. If the net amount is negative, such amount shall be recorded by using the (-) sign. Commercial banks are required to attach documents presenting details of each transaction. The delta amount of each option is the ratio of the total change in value of the currency option to the change in foreign exchange rate that such currency option references. (the (+) or (-) sign shall be indicated in front of the delta amount). 9. Irrevocable guarantee of debtors classified as doubtful, doubtful of loss, and loss: commercial banks shall include the foreign currency irrevocable guarantees which are bill acceptances, avals, and guarantees for loans that the payment schedule is due not exceeding 3 months from the reporting date of the debtors who obtain any loan account

13 classified as doubtful, doubtful of loss and loss in accordance with the Notification of the Bank of Thailand on Loan Classification and Provisioning for Financial Institutions 1/6 10. Net foreign currency forward position is the sum of amount in item 6 plus the amount in items 7 to Present Value of net foreign currency forward position in item 10., commercial bank shall record the net foreign currency forward position by using a present value method. The reference interest rate used as a discount rate shall be provided by a staff that is independent from a front office, and the interest rate from the same data source shall be used consistently. 11. Net open position in each currency is the sum of net foreign exchange current position in item 5. and the net foreign exchange forward position in item 10.; or the sum of the net foreign exchange current position in item 5 and the net foreign exchange forward position in item 10.1 for commercial banks which are allowed to use the present value method. 12. Net open position in each currency of IBF (only for a commercial banks registered in Thailand) shall be calculated by using the same method as the net open position of banking business (items or item 10.1 of the report). Currently, commercial banks registered in Thailand do not have any open position from the IBF, therefore commercial banks registered in Thailand shall present this item as Net open position in each currency of overseas branches and companies which act as overseas branches (only for commercial banks registered in Thailand) shall be calculated by using the same method as the net open position of banking business (item or item 10.1 of the report). Net current position in each currency (item 1.) shall be the net current position in item 1.3 of the branch positions report and net forward position in each currency (item 6.) shall be the net forward position in item 2.3 of the branch positions report. However, it shall be deemed that the outstanding amount of all currencies other than Thai Baht shall be the outstanding amount of foreign currency that shall be reported regardless of whether such currencies are local currencies of the countries that the overseas branches operate. Nonetheless, for overseas branches which working hours end later than the working hours in Thailand, for instance, branches in the United States or the United kingdom,

14 1/7 the net open position in each currency of such branches at the end of a business day shall be included in the net open position in each currency of the head office and all Thai branches on the same business day. An exception is given for days which are holidays of such overseas branches, thus, the data on the net open position of such branches of a previous business day shall be included in the net open position of all other branches which still operate. 14. Individual currency position is the sum of the net open position of individual currency of commercial banks and their overseas branches (only for commercial banks registered in Thailand) percent of total capital (Individual Currency Limit) is the total capital amount in item 20. multiplied by 15 percent. 16. Net overbought position in each currency: commercial banks shall record net overbought positions in each currency from item 14 and shall present the sum of the net overbought positions in the column sum of all currencies. 17. Net oversold position in each currency: commercial banks shall record net oversold positions in each currency from item 14 and shall present the sum of the net oversold positions in the column sum of all currencies. 18. Aggregate position means the higher amount between the sum of the net overbought positions (item 16) and the sum of the net oversold positions (item 17) percent of total capital (aggregate limit) is the total capital amount in item 20. multiplied by 20 percent. 20. Total Capital means total capital of commercial banks registered in Thailand as prescribed in the Notification of the Bank of Thailand on Components of Capital for Locally-incorporated Bank or capital of foreign bank branches as prescribed in the Notification of the Bank of Thailand on Components of Capital for Foreign Bank Branches. The total capital shall be presented in thousand USD.

15 1/8 Attachment 1.1 Daily report on foreign exchange positions of Branch positions report oversea branches As at.. Item Foreign currency (Unit: 000 USD) 1. Current positions 1.1 Assets Cash on hand Interbank and money market transaction Loan Foreign investment Others Total assets ( ) 1.2 Liabilities Deposit Interbank and money market transaction Borrowing Others Total Liabilities ( ) 1.3 Net current position ( ) 2. Forward positions 2.1 Outstanding amount of long derivative transactions 2.2 Outstanding amount of short derivative transactions 2.3 Net forward position ( ) 3. Net open position in each currency ( ) 4. Details of the foreign exchange positions in item and Outstanding amount of inter-branch accounts 4.1 Debtors - Head office - International Banking Facilities (IBF) - Other overseas branches 4.2 Creditors - Head office - International Banking Facilities (IBF) - Other overseas branches

16 1/9 Explanation on the preparation of the branch positions reports A. Branch positions reports are summary reports of foreign exchange positions of overseas branches which consist of two sets of report as follows: 1. A summary report of the foreign exchange positions of all overseas branches of a commercial bank registered in Thailand. 2. Reports on the foreign exchange positions of each overseas branch of a commercial bank registered in Thailand. B. Preparation and submission of the reports Commercial banks registered in Thailand which have overseas branches shall establish a system for preparation of branch positions reports, both each overseas branch positions report and a summary report of all overseas branches positions at the end of each day. Such data will be further used in the daily preparation of the aggregate position report. In addition, commercial banks shall submit each overseas branch positions report and the summary report by using data on the last Thursday of every month to the Data Management Department of the Bank of Thailand within 10 business days. An exception is given when the last Thursday of the month is a holiday. Commercial banks shall prepare the reports by using data of the previous business day. C. Preparation of the report 1. Outstanding amount of each item shall be categorised by currency and reported in USD equivalent. The exchange rate used in the conversion of other currencies into USD, both for current position and forward position, shall be either the exchange rate from generally-used data sources, for instance, Reuters, Bloomberg, Telerate or the exchange rate as provided by the Bank of Thailand via in the morning of the same business day. The exchange rate from the same data source shall be used consistently. However, commercial banks shall notify the Bank of Thailand in advance which data source of exchange rate they will use to convert each foreign exchange position into USD. Consent from the Bank of Thailand is required prior to the change of the data source and supportive reasons shall also be provided.

17 1/10 2. It must be deemed that the outstanding amount of all currencies other than Thai Baht shall be the outstanding amount of foreign currency that shall be reported in these branch positions reports regardless of whether such currencies are local currencies of the countries that the overseas branches operate. 3. Foreign currencies shall be specified in the abbreviation used by SWIFT CODE, for instance, US dollar shall be USD. D. Definition of items 1. Current positions are the outstanding amounts of assets and liabilities of an overseas branch as at the reporting date which shall be presented by currency. 1.1 Assets mean the outstanding amount of foreign currency assets as at the reporting date, as follows; Cash on hand is the total amount of foreign currency bank notes and coins of an overseas branch as at the reporting date Interbank and money market transaction is the total amount of foreign currency deposits and certificates of deposits of an overseas branch in other commercial banks as well as loans given to other commercial banks by an oversea branch (which is not deducted by provisions of classified assets that are in foreign currency). This item include the aforementioned transactions that overseas branches have with head office or other branches that are treated as the same juristic person Loan is the total amount of foreign currency loans granted by an overseas branch to a person or a juristic person other than which specified in (which is not deducted by provisions of classified assets that are in foreign currency). Furthermore, loans include credit facilities in the form of an overdraft account, purchasing/discounting or rediscounting bill of exchange, and payment on overdue bill of exchange which an overseas branch has an obligation to pay on sight or on maturity under a letter of credit issued by that branch Foreign Investment is the total amount of foreign currency investments of an overseas branch.

18 1/ Others mean accrued interests, prepaid expenses, accrued expenses, accrued revenue and total amount of assets other than the assets specified in item However, fixed assets, for instance, lands, buildings and leasehold contracts of lands and buildings, and equipment shall be excluded from this item Total assets is the sum of foreign currency assets mentioned in 1.2 Liabilities are outstanding amounts of all foreign currency liabilities as at the reporting date, as follows; juristic persons Deposit is total foreign currency deposits owned by persons and Interbank and money market transaction is the total amount of foreign currency deposits, certificates of deposits, and borrowings from other commercial banks. This item include the aforementioned transactions that overseas branches have with head office or other branches that are treated as the same juristic person Borrowing means total foreign currency borrowings in various forms, including the issuance of debt instruments by a person or a juristic person, apart from the borrowings from other commercial banks and money market mentioned in Others are accrued expenses and money deposit, including money which a commercial bank registered in Thailand transferred to its overseas branch which is part of the same juristic person as fund allocated. Such fund allocated shall be deducted by the value of the fixed assets after depreciation, e.g. land, building, leasehold of lands and buildings, and equipment as presented in the branch s financial statement. Furthermore, commercial banks shall include accumulated profit/loss of an overseas branch and other liabilities apart from those mentioned in item in item Total liabilities are the sum of foreign currency liabilities mentioned 1.3 Net current position is the total foreign currency assets (mentioned in 1.1.6) deducted by the total foreign currency liabilities (mentioned in 1.2.5). If the amount of the total assets is more than the amount of total liabilities, the net current position shall be

19 1/12 reported by using the (+) sign. If the amount of the total assets is less than the amount of the total liabilities, the net current position shall be reported by using the (-) sign. 2. Forward positions mean the outstanding obligation arising from engaging in foreign exchange derivative transactions, for instance, outright forward, swap, options, futures and others. The forward positions shall be reported as follows; 2.1 Outstanding amount of long derivative transactions is the total amount of outstanding obligation arising from engaging in foreign exchange derivative transactions mentioned in item 2 which are long positions. 2.2 Outstanding amount of short derivative transactions is the total amount of outstanding obligation arising from engaging in foreign exchange derivative transactions mentioned in item 2 which are short positions. 2.3 Net forward position is the outstanding amount of long derivative transactions (mentioned in item 2.1) deducted by the outstanding amount of short derivative transactions (mentioned in item 2.2). If the outstanding amount long derivative transactions is more than the outstanding amount of short derivative transactions, the net forward position shall be reported by using the (+) sign. If the outstanding amount long derivative transactions is less than the outstanding amount short derivative transactions, the net forward position shall be reported by using the (-) sign. 3. Net open position in each currency is the sum of the net current position (mentioned in item 1.3) and the net forward position (mentioned in item 2.3). 4. Details of the foreign exchange positions in item and Outstanding amount of inter branch accounts (debtors) means the outstanding amounts of the inter-branch accounts between an overseas branch and its head office, International Banking Facilities (IBF), and other overseas branches that are treated as the same juristic person where the head office, International Banking Facilities (IBF), and other overseas branches are debtors and such outstanding amounts have already been reported in item Outstanding amount of inter-branch account (creditors) means the outstanding amounts of the inter-branch accounts between an overseas branch and its head office, International Banking Facilities (IBF), and other overseas branches that are treated as

20 1/13 the same juristic person where the head office, International Banking Facilities (IBF), and other overseas branches are creditors and such outstanding amounts have already been reported in item

21 2/1 Attachment 2 Criteria for approving commercial banks to apply the present value method 1. Supervision by the board of directors or senior management 1.1 The board of directors of commercial banks registered in Thailand, or assigned sub-committees or senior management in case of foreign bank branches shall set out written policy and guidelines on risk management and internal control, as well as be responsible for close supervision on transactions engaged and relevant risks. 1.2 The board of directors of commercial bank registered in Thailand, or assigned sub-committees or senior management in case of foreign bank branches, and senior executives shall have knowledge and understanding of features and relevant risks relating to foreign exchange transactions. 2. Overall risk management and internal control system of commercial banks 2.1 Commercial banks shall establish a risk management system that allow them to completely and accurately evaluate, monitor and control each type of risks in accordance with the size, scope, nature of operation and complexity of transactions engaged. The emphasis shall be put on the foreign exchange risk management system. 2.2 Commercial banks shall establish an internal control system for engaging in foreign exchange transactions to ensure that they comply with their internal policies, relevant rules and regulations, and have a data recording system that immediately record transactions as soon as they occur. Commercial banks shall also have appropriate procedures for keeping important documents, as well as a system that can prevent or identify frauds and errors. Furthermore, commercial banks shall establish an internal audit unit which is independent and equip with experienced and proficient staff. Such internal audit unit shall have a clear, concise and appropriate segregation of duty to allow crossed check. 2.3 Commercial banks shall apply the present value method to all types of transactions that may affect the foreign exchange forward positions.

22 2/2 3. Systems approval Commercial bank shall have approval procedures for approving all systems related to the calculation of foreign exchange forward positions by the present value method. Such systems shall be approved by senior management. 4. Methods and systems 4.1 The interest rate that commercial banks apply for calculating (discount) the present value of foreign currency forward position shall be obtained from a reliable and appropriate source. Moreover, the interest rate from the same data source shall be used consistently. 4.2 The interest rate that commercial banks apply for calculating (discount) the present value shall be the interest rate of that particular currency which has the same or similar maturity as the maturity of the foreign exchange forward position. In addition, commercial banks shall establish a system to support an interpolation of an appropriate interest rate in case where the maturity of the foreign exchange forward position is different from the maturity of the interest rate normally quoted. 4.3 The interest rate that commercial banks apply for calculating (discount) the present value shall be suitable for each type of transactions. For example, transactions with less than 1 year remaining maturity may be discounted by the money market interest rates, for instance, Interbank Deposit Rate (DEPO), but transactions with more than 1 year remaining maturity may be discounted by the zero coupon rate. In addition, commercial banks shall establish a system to support a bootstrapping in calculating zero coupon rates for various maturities. 4.4 Responsible staff for all procedures and processes of calculating the present values shall have knowledge, understanding, and experience and shall be independent from the front office. For example, the person in charge of keying-in the interest rate applied for calculating (discount) the present value shall not be the person whose jobs relate to the front office works. In the case where commercial banks use a system to retrieve an interest rate of each currency for calculating (discount) the present value, commercial bank shall assign responsible staff to review the accuracy of such interest rate.

23 2/3 5. Systems audit program 5.1 Commercial banks shall officially assign responsible staffs to review the accuracy of procedures and processes used in the present value calculation. Such staffs shall have knowledge, experience and shall be independent from front office, for instance, internal auditors or middle office. 5.2 Commercial banks shall review the accuracy of procedures and processes of all systems use in the present value calculation, including systems used in bootstrapping and interpolating interest rate or yield at least once a year.