BOT Notification No (29 August 2018)-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 Bank of Thailand Notification No. FPG. 8/2560 Re: Regulations on Risk Supervision of Financial Business Groups 1. Rationale The Bank of Thailand is aware of the operations of financial institutions in form of financial business groups, but if this practice is not properly supervised, it may lead to the increased risk exposures and the stability issues of the financial institutions. Therefore, in 2006, the Bank of Thailand issued the policy for consolidated supervision, which is not legally enforceable, for preliminary implementation. Later, when there is the amendment to the Financial Institution Business Act B.E (2008) by incorporating provisions on consolidated supervision, the Bank of Thailand thereby issued the Bank of Thailand Notification No. FPG. 66/2551 Re: Regulations on Consolidated Supervision dated 3 August 2008 in order to legally enforce the regulations, but in the early stage, only qualitative requirements have been applied. Then, the Bank of Thailand issued the Bank of Thailand Notification No. FPG. 6/2553 Re: Regulations on Consolidated Supervision dated 18 June 2010 in order to fully implement the regulations starting from 30 June 2010, and, afterwards, the regulations have gradually been amended, namely financial business groups are required to hold capital under Basel III since 2012 and the extension of the scope of business for subsidiaries within financial business groups that operate training center service, which was supporting business in In implementing consolidated supervision, 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 and resiliency 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 within financial business group 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

2 2 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 financial business 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, where, at the early stage of the implementation in 2008, the Bank of Thailand required financial business groups to comply only 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, the Bank of Thailand required financial business groups to further comply with quantitative requirements, such as capital funds maintenance, the limit on the amount of granting of credit, invests, incur contingent liabilities with companies within or outside their financial business groups. In this Notification, the Bank of Thailand amends regulations on granting of credit, enter into transactions similar to credits granting, or guarantee to its directors, persons with power of management or to a related persons of companies within the solo consolidation to be in line with Section 48 (1) of the Financial Institution Business Act B.E (2008) amended by the Financial Institution Business Act (No.2) B.E (2015), as well as regulations as specified for financial institutions (on a solo basis) regarding granting of credit, enter into transactions similar to credits granting, or guarantee to its directors, persons with power of management of financial institution or a related persons of such persons. The Bank of Thailand also emphasizes on the importance of liquidity risk management of financial business group in accordance with international standards, as financial business groups should maintain sufficient liquidity, and also the importance of the cash inflows and cash outflows adequacy under normal circumstances and in the event of crisis. In addition, regulations on approval of external auditors are also amended to be in line with the regulations as specified for financial institutions (on a solo basis), certain provisions are amended to be in line with regulations on capital requirements under Basel III, and examples of the calculation of the ratio of granting of credits, invest, incur contingent liabilities and enter into transactions similar to credits granting are given for clarity of implementation.

3 3 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 (2008), 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 to comply with. 3. Scope of Application This Notification shall apply to all financial institutions, parent companies, subsidiaries, and affiliated companies of financial institutions within financial business groups according to the law on financial institution business, except foreign bank branches. 4. Contents 4.1 Definitions Consolidated supervision means 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 institutions 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 means: A. A locally registered commercial bank, which may also be a retail bank and foreign commercial bank s subsidiary, excluding foreign commercial bank s 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.

4 4 Subsidiaries within the solo consolidation 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 outside the solo consolidation 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: Regulations on Components of Capital for Locally Incorporated 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. Executive director shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions. Advisor shall refer to that as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions. Major shareholder of a company within the solo consolidation means a person holding or possessing shares of a financial institution or subsidiaries within the solo consolidation, as the case may be, in an amount exceeding 5 percent of the total number of shares sold of that financial institution or subsidiary, including shares held by its related persons. If this particular person is 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 consolidation. Related business of the solo consolidation means a company outside a financial business group, that a financial institution, subsidiary within the solo consolidation, directors of the financial institution, directors of the subsidiary within the solo consolidation, persons with power of management of the financial institution, persons with power of management of the subsidiary within the solo consolidation or their related persons hold shares, in total, more than 10 percent of the total number of shares sold of that company. 4.2 Supervision of corporate governance of financial business group The board of directors of the parent company has the overall responsibility for overseeing the corporate governance of its financial business group, which is indicated by explicit operations, and must also set out a corporate governance

5 5 framework appropriate to the structure, business operation and risks of its financial business group. The board of directors of the parent company should understand the business structure and possible risks of its financial business group The parent company must set up a risk management committee for its 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 the risk management policy set out by the parent company. have in place: In addition, the Bank of Thailand also encourages the parent company to (1) An audit committee of financial business group so that the parent company can oversee and monitor business operations of companies within its financial business group in order to ensure that they have complied with the policy of the financial business group and that the parent company can sufficiently and correctly review financial statements of its financial business group. (2) A nomination committee of financial business group to take responsibilities for overseeing the recruitment of directors and persons with power of management of companies within financial business group so that those directors and persons with power of management are suitable for their posts and responsibilities. (3) A remuneration committee of financial business group to take responsibilities for overseeing the payment of remunerations and benefits to directors and persons with power of management of companies within financial business group so that the payment of remunerations and benefits are clear, transparent, appropriate to and suitable for responsibilities and characteristics of each position. On this, the chairman of nomination committee and chairman of remuneration committee should be an independent director to ensure that any arrangements of the nomination committee and remuneration committee are independently carried out. On this, the parent company may set up only one committee to take responsibilities of both nomination committee and remuneration committee. 4.3 Supervision of overall risks of financial business group Risk management The parent company must understand and be aware of overall risks of 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 financial business group. At least, the parent company shall:

6 6 (1) Set out a risk management policy of 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 or business operations of financial business group within 30 days from the day the board of directors of the parent company gives 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 risks of a financial business group B. Processes and methods for assessing and measuring C. Control and management of risks of a financial business group, such as setting of a risk appetite, setting of framework for delegation of authority D. Business continuity management according to the policy statement of the Bank of Thailand Re: Business Continuity Management (BCM) and Business Continuity Plan (BCP) of Financial Institutions (1.2) A risk management policy for intra-group transactions shall be in accordance with the regulations as specified Clause (2) Set out a risk management guideline for a financial business group in accordance with the Bank of Thailand Circular No. BOT. SVG. (03) C. 227/2548 dated 4 February 2005 Re: Guidelines for Risk Management Practices and the amendments thereof. In addition, the parent company should require subsidiaries within solo consolidation that are significant to the financial business group to have their own risk management systems 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 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,

7 7 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 within financial business group to have sufficiently effective internal control and risk management system. (2) A risk management committee of a financial business group is responsible for evaluating risk management of 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 of financial business group. When there is an incident that may affect the stability of financial business group, a risk management committee shall immediately report it to the board of directors of the parent company. (3) The parent company must review a risk management policy of 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 approval. On this, the Bank of Thailand may require a particular financial business group to maintain more capital requirements if the Bank of Thailand considers that such financial business group does not have sound risk management and internal control system. 4.4 Credit risk supervision Credit risk management The parent company must be responsible for overseeing and controlling companies within 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 supervision as follows: (1) Subsidiaries within the solo consolidation Subsidiaries within the solo consolidation shall apply regulations on supervision of credit risks for the 9 following respects according to related notification, circulars, and guidelines of the Bank of Thailand (Examples of the regulations are as specified in

8 8 the attachment of the Bank of Thailand Notification Re: Regulations on Consolidated Supervision): (1.1) Credit risk management for loan portfolios (1.2) Loan providing 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 consolidation (excluding asset management companies) must sell out foreclosed immovable property for sale within the time limit as specified in the Bank of Thailand Notification Re: Real Estate Awaiting Sale, except immovable property acquired before 4 August 2008, which shall be considered the immovable property acquired on 4 August If any particular subsidiary cannot sell out immovable property within the specified time limit, and as the financial institution, according to the notification, 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 notifications. (1.9) Supervision of asset management company (2) Subsidiaries outside the solo consolidation Subsidiaries outside the solo consolidation shall comply with supervisory regulations as specified by their respective regulated entities (if any) 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 supporting normal business and to limit the risk from concentration of investment within financial business group, the financial institution must comply as follow: (1) Investment in subsidiaries within the solo consolidation

9 9 A financial institution can hold or possess shares in subsidiaries within its solo consolidation without limit. On this, the financial institution must have sufficient capital for investing in those subsidiaries within solo consolidation on the day they are incorporated into the group. That is, when deducting investment in those subsidiaries from total capital of the financial institution, the financial institution must still maintain capital in accordance with the regulatory capital requirements. (2) Investment in subsidiaries outside the solo consolidation and companies outside the financial business group A financial institution can hold or possess shares in subsidiaries outside its solo consolidation, but when combining with the holding or possession of shares in all companies outside its financial business group, according to 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 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 within 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, and 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 means 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:

10 10 (1.1.1) Companies within the solo consolidation (transactions between the financial institution and subsidiaries within the solo consolidation, and transactions between subsidiaries within the solo consolidation) (1.1.2) Companies within the solo consolidation and companies outside the solo consolidation (1.1.3) Companies outside the solo consolidation (transactions between the parent company which is not a financial institution and subsidiaries outside the solo consolidation, and transactions between subsidiaries outside the solo consolidation) 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) Granting credits or entering into transactions similar to credits granting, such as factoring transaction, hire purchase transaction, leasing transaction (1.2.2) Entering into incur 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 financial business group assets with repurchase agreement (1.2.4) Purchasing or selling assets as well as selling (1.2.5) Accepting securities issued by companies within the financial business group as collateral for granting credits or issuing a letter of guarantee or letter of credit for companies within the financial business group (1.2.6) Entering into other types of transactions, such as providing intra-service, paying interest and dividends as well as 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

11 11 back to a company within the financial business group at a price that is lower than the current market price. (2) Quantitative supervision for intra-group transactions (2.1) The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting (2.1.1) Companies within the solo consolidation can grant credits, invest, incur contingent liabilities or enter into transactions similar to credits granting between each other without any limit on the total amount for a particular company and on the total amount. (2.1.2) Companies within the solo consolidation can grant credits, invest, incur contingent liabilities or enter into transactions similar to credits granting to companies outside the solo consolidation 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 consolidation s capital of the financial institution or not exceed 10% of solo consolidation s 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 granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting (2.2.1) Counting of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting will exclude investments in subsidiaries for portion that the financial institution has deducted from solo consolidation s 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). (Examples of the calculation are in the attachment). (2.2.2) In considering if any particular item of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting will be included or excluded from the calculation, the regulations as specified in

12 12 the Bank of Thailand Notification Re: Corporate Governance of Financial InstitutionsRe: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied. (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: risks A. Types of intra-group transactions and related 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 financial business group and within the entire group with the specified policies C. Guidelines for monitoring the compliance D. Guidelines for the case where intra-group transactions are not in compliance with the specified policies E. Guidelines for resolving conflict of interest issues that may arise from intra-group transactions and guidelines for resolving in case of 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 intragroup transaction information 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 financial business 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. (3.1.3) The board of directors of the parent company must approve a policy on intra-group transactions and a policy on risk management for intra-group transactions as well as any change to those policies.

13 13 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 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, at least once a year, 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 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 intragroup transactions as specified in Clause (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 or 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 or 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 granting of credits, invest, incur contingent liabilities, enter into transactions similar to credits granting 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. Examples of transactions with conditions, requirements, processes, or consideration practices different from transactions with general customers with the same risk profile are granting credits or invests without considering financial and business performance, or granting credits or invests with favorable 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.

14 14 (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 granting of credits, incur contingent liabilities or enter into transactions similar to credits granting or other transactions with companies within the solo consolidation or subsidiaries which operate supporting business that the financial institution or parent company directly holds almost entire shares of those companies (at least 99% of total number of shares sold of that company) 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 for granting of credits, incur contingent liabilities or enter into transactions similar to credits granting or other transactions 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 number of shares sold 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 regulations 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 consolidation grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with companies outside the solo consolidation, the board of directors of the company within the solo consolidation that grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting 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 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,

15 15 internal control, reporting and information disclosure according to the supervisory framework as specified in the Policy Statement of the Bank of Thailand on Credit Transactions. (3.2.7) In case where a financial institution or company within the solo consolidation uses supporting service provided by other company within the financial business group, the use of that service must not constitute any impact on the core business of that financial institution or company within the solo consolidation. The financial institution or company within the solo consolidation must prepare a contingency plan for the event where the service provider 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 consolidation that uses service provided by other company both within and outside the financial business group shall comply with the Bank of Thailand Notification Re: Guidelines on Outsourcing of Financial Institutionsand the Bank of Thailand Notification Re: Regulations 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 supervisory agency or under the specific supervisory regulations of the Bank of Thailand, a company within a financial business group that enters into those transactions shall comply with those specific laws or regulations as specified by the specific regulated entities or specific supervisory regulations of the Bank of Thailand. For example, if a company within the solo consolidation enters into a hire purchase agreement with a company outside the solo consolidation, the regulations as specified in the Bank of Thailand Notification Re: Permission for Commercial Banks to Conduct Hire Purchase and Leasing Businesses shall be applied. consolidation Entering into transactions with related parties of the solo Companies within the solo consolidation 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 shall be applied. A financial institution that has companies within its solo consolidation must 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 consolidation There are 4 types of related parties of the solo consolidation, as follows, which do not include companies within a financial business group:

16 16 (1.1) Directors of companies within the solo consolidation and their related parties, mean directors of the financial institution or directors of companies within the solo consolidation or related parties of those persons (1.2) Persons with power of management of companies within the solo consolidation and their related parties, mean person with power of management of the financial institution or persons with power of management of companies within the solo consolidation or related parties of those persons (1.3) Major shareholders of companies within the solo consolidation and related parties of those persons (1.4) Related businesses of the solo consolidation (2) Quantitative supervision for entering into transactions with related parties of the solo consolidation (2.1) Companies within the solo consolidation must not enter into the following transactions, either directly or indirectly, with directors of the companies within the solo consolidation and their related parties, or persons with power of management of the companies within the solo consolidation and their related parties, according to Clause (1.1) and (1.2): (2.1.1) grant credits, enter into transactions similar to credits granting or guarantee to its director, manager, deputy manager, assistant manager or person holding an equivalent position which is called otherwise, person with power of management of companies within the solo consolidation or a related person of such persons, except granting of credits by means of credit card, granting of credits in form of employee benefits, or grant credits, enter into transactions similar to credits granting or guarantee 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: Granting of Credits or Conducting transactions similar to granting of credits or Providing guarantee for any of directors, Person with power of management or Any related person of those persons shall be applied. (2.1.2) accept, give aval or intervene for honor of bills which its director, manager, deputy manager, assistant manager or person holding an equivalent position which is called otherwise, person with power of management of companies within the solo consolidation, or a related person of such persons is a drawer, an issuer or an indorser

17 17 (2.1.3) pay money or give other properties to its director, manager, deputy manager, assistant manager or person holding an equivalent position which is called otherwise, person with power of management of companies within the solo consolidation, or a related person of such persons as remuneration for or by reason of any transaction or business of companies within the solo consolidation other than gratuities, salaries, bonuses and other allowances which may normally be paid to them (2.1.4) sell, give or rent any properties to its director, manager, deputy manager, assistant manager, person holding an equivalent position which is called otherwise, person with power of management of companies within the solo consolidation, or a related person of such persons, or purchase or rent any property from such person with aggregate value exceeding that prescribed by the Bank of Thailand; 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 permitted 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. (2.1.5) grant any other benefit to its director, manager, deputy manager, assistant manager or person holding an equivalent position which is called otherwise, person with power of management of companies within the solo consolidation, or a related person of such persons; the regulations as specified for financial institutions shall be applied. (2.2) For major shareholders of companies within the solo consolidation and their related parties, or related businesses of the solo consolidation according to Clause (1.3) and (1.4), they shall comply with the following regulations: (2.2.1) granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting ( ) The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting A company within the solo consolidation can grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with a particular major shareholder of the company within the solo consolidation or related business of the solo consolidation, in total at the end of the day, each of them, no more than 5% of solo consolidation s capital or no more than 25% of

18 18 total liabilities of that major shareholder of the company within the solo consolidation, including its related parties or related business of the solo consolidation, 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. ( ) Counting of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting A. The amount of incur contingent liabilities according to Clause ( ) shall be calculated by the methods as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial InstitutionsRe: Supervisory Guidelines on Large Exposure (Single Lending Limit). B. The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with related parties of major shareholders of a company within the solo consolidation 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 consolidation s 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) 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 Conducting Transactions with Major Shareholders or Businesses with Beneficial Interest (Related Lending) shall be excluded, such as granting of credits, incur contingent liabilities or enter into transactions similar to credits granting with government entities or the Financial Institutions Development Fund. E. The company within the solo consolidation to which the relaxation according to Clause (2.2.1) is granted shall apply the requirements according to the Bank of Thailand Circular No. BOT.RPD.(21) C. 1462/2551 dated 13 August 2008 Re: Temporary Relaxation related to Implementation under the Financial Institution Business Act B.E (2008) and the Amendments Thereof and the Bank of Thailand

19 19 Notification Re: Easing of Regulations on Transactions with Major Shareholders or Related Lending Enterprises (Related Lending). purchasing or renting any properties (2.2.2) Selling, giving or renting any properties and A company within the solo consolidation is prohibited, either directly or indirectly, to sell, give or rent any properties to major shareholders of companies within the solo consolidation or their related parties or purchase, rent any properties 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: Regulations on Selling, Giving or Renting any Asset to the Directors and other Parties, prescribed in Section 48(4), or Purchasing or Renting Assets from such Parties 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. (2.3) In case where there is a breach of the regulations as specified in Clause (2.1) and Clause (2.2), and where a company within the solo consolidation can prove that it has cautiously examined 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 consolidation does not intend to breach the regulations. The requirements as specified in the Bank of Thailand Circular No. BOT.RPD. (21) C. 1413/2551 dated 3 August 2008 Re: Clarification regarding the Verification of Nominees under the Law Governing Financial Institutions Businesses and the Amendments Thereof, and the Bank of Thailand Notification Re: Regulations on Large Exposures shall be applied. (3) Qualitative supervision of transactions with related parties of the solo consolidation (3.1) For transactions with major shareholders of a company within the solo consolidation or related businesses of the solo consolidation, there must not be special conditions or requirements that are different from normal transactions 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 of credits by not considering business conditions or performance or feasibility study has not been conducted.

20 20 (3.2) A company within the solo consolidation 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 the following requirements: (3.2.1) The requirements according to the Policy Statement of the Bank of Thailand on Credit Transactions (3.2.2) Transactions with major shareholders or related businesses of a company within the solo consolidation must be approved by the board of directors of that company by consensus Except the following cases, the board of director of a company within the solo consolidation can delegate a loan committee or management committee to approve the loans, but this must be in compliance with regulations on loan approval as specified by that 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. ( ) Granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with government entities, the Financial Institutions Development Fund or companies that the government entities or the Financial Institutions Development Fund have control over or hold shares more than 10% of the total shares sold of such company; or ( ) Granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with major shareholders or related businesses of the solo consolidation where those transactions have formerly been approved by the board of directors of the company within the solo consolidation, irrespective of whether additional or new credit lines are requested If the board of directors of the company within the solo consolidation does not ratify those transactions or ratify those transactions but without consensus, the company within the solo consolidation shall immediately unwind them. (3.2.3) Directors or persons with power of management who may have interests associated with granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting must not enter into consideration in approving those grant credits, invest, incur contingent liabilities or enter into transactions similar to credits granting 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

21 21 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 regulations on supervision of large exposures of a financial business group, as follows: (1) The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting (1.1) Companies within a financial business group (excluding a financial business group of a retail bank) can grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with a particular person 1, or several persons under a particular project, or for a particular purpose, at the end of the day, no more than 25% of full consolidation s 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 grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with a particular person 1, or several persons under a particular project, or for a particular purpose, at the end of the day, no more than 11% of full consolidation s capital, 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. On this, for calculation of the ratio of transactions that a retail bank can enter into with each type of counterparty, the regulations as specified in the Bank of Thailand Notification Re: Corporate Governance of Financial InstitutionsRe: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied. (2) Counting of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting (2.1) The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting shall exclude: 1 Including granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting granted to/entered into with that person s related parties

22 22 (2.1.1) The amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting of subsidiaries for portion that the investments in those subsidiaries have been deducted from full consolidation s 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 proportion of capital deductions for each company will be used to calculate the deductions from the amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting 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 consolidation s 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 proportion of investment in each company (prorata 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) Counting of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting, the requirements as specified in the Bank of Thailand Circular No. BOT.RPD. (21) C. 1462/2551 dated 13 August 2008 Re: Temporary Relaxation related to Implementation under the Financial Institution Business Act B.E (2008) and the Amendments Thereof shall be applied. (2.3) For inclusion of any particular item in the amount of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting, exclusion of any particular item from the calculation of the ratio of granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting 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 grant of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with several persons under a particular project or for a particular purpose, the regulations according to the Bank

23 23 of Thailand Notification Re: Corporate Governance of Financial InstitutionsRe: Supervisory Guidelines on Large Exposure (Single Lending Limit) shall be applied. (3) In case where there is a breach of the regulations as specified in Clause (1), and where a company within a financial business group can prove that it has cautiously examined 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 regulations. The requirements as specified in the Bank of Thailand Circular No. BOT.RPD.(21) C. 1413/2551 dated 3 August 2008 Re: Clarification regarding the Verification of Nominees under the Law Governing Financial Institutions Businesses and the Amendments Thereof, and the Bank of Thailand Notification Re: Corporate Governance of Financial InstitutionsRe: 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 of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting shall be in accordance with the regulations 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. 4.5 Market risk supervision The parent company must be responsible for setting out a policy on market risk management 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 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, Guidelines and Policy Statements Re: Regulations on Market Risk Management of Financial Institutions, where, at least, the following respects must be covered: (1) Market risk supervision and holding of capital for market risk, such as a policy on management of exposures in the trading book, internal controls for market risk management (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 power of management, risk management policy and appropriate operational processes,

24 24 guidelines for assessing, controlling and monitoring risks, and internal controls for interest rate risk management (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 For companies that the investments in those companies have been deducted from solo consolidation or full consolidation capital according to capital deduction proportions, 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), those companies are not required to comply with regulations on market risk supervision only for regulations related to capital requirements calculation. On this, only for transactions calculated using the ratio of investments that have been deducted from capital. 4.6 Liquidity risk supervision The parent company must be responsible for setting out a policy, framework and processes for liquidity risk management 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 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 consideration possible obligations to give liquidity facility to companies outside its solo consolidation The policy and framework on liquidity risk management of a financial business group must be in line with the Bank of Thailand Notifications,

25 25 Circulars, Guidelines, and Policy Statements Re: Regulations on Liquidity Risk Supervision 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 liquidity 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 adequacy of cash inflows and cash outflows under normal circumstances and in the event of crisis. 4.7 Operational risk supervision 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 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 Re: Regulations on Operational Risk Management of Financial Institutions, where, at least, the following respects must be covered: plan (BCP) (1) Operational risk management and loss data collection (2) Business continuity management (BCM) and business continuity (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 terrorism (AML/CFT) (4) Anti-money laundering and combating the financing of

26 26 (5) Interest rates and fees On this, if there is a specific supervisory agency that specifies certain regulations on operational risk, the parent company must ensure that companies within its financial business group have complied with those regulations, such as AML/CFT regulations of the Anti-Money Laundering Office In case where a company within the solo consolidation intends to use supporting services provided by third-party service provider, which may be a company within the financial business group or company outside the financial business group, it shall comply with the regulations according to the Bank of Thailand Notification Re: Guidelines on Outsourcing of Financial Institutionsand 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 approval on a case-by-case basis Companies within a financial business group must also comply with other important regulations 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 regulations on qualifications of directors, persons with power of management and advisors according to the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions and the Bank of Thailand Notification Re: Regulation on Approving the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions, unless that company is under supervision of a specific supervisory agency and that supervisory agency specifies the regulations on this subject. (1.2) Approval and notification of changes of directors, persons with power of management and advisors; regulations on approval and notification of changes of directors, persons with power of management and advisors according to the Bank of Thailand Notification Re: Regulation on Approving the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions shall be applied, as follows: (1.2.1) In case of a holding company that is the parent company - the regulations shall be applied to all directors, persons with power of management and advisors

27 27 (1.2.2) In case of companies within the solo consolidation the regulations shall be applied only to the person with power of management who is ultimately responsible for managerial decisions, which, normally, is the top executive of the company (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 consolidation to the Bank of Thailand, where the parent company, financial institution and companies within the solo consolidation should submit the approval request or notice of annual appointment of auditors in one package (at the same time). The regulations according to the Bank of Thailand Notification Re: Regulations on the Approval of an Auditor of a Financial Institution shall be applied. 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 regulations, 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 signs and 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 operations of each company. group (4) Communication with parties outside the financial business In case where a particular company within financial business group 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

28 28 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 requirements 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 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 regulations, the parent company must ensure that those companies have complied with those specific supervisory regulations. 4.8 Disclosure of data within a financial business group 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 regulations as specified by the Bank of Thailand within the following scope: (1) Data that the parent company can disclose to subsidiaries within its financial business group is, namely outstanding balances of certain items as necessary for those subsidiaries for complying with quantitative supervisory regulations 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 financial business group s strategies, or quantitative supervisory regulations 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 within financial business group must not make any arrangements that may be considered operating credit information business according to the Credit Information Business Act The parent company must be responsible for disclosing its intra-group transactions policy and policy on risk management arise from intra-group transactions in an annual report.

29 29 5. Transitional provision In the following cases, if companies within a financial business group have been granted relaxation from the Bank of Thailand before the effective date 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 consolidation granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with a company outside the solo consolidation over the limit as specified by the Bank of Thailand (2) In case where a particular company within the solo consolidation granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with major shareholders of the company within the solo consolidation and their related parties, or related businesses of the solo consolidation over the limit as specified by the Bank of Thailand (3) In case where a particular company within financial business group granting of credits, invest, incur contingent liabilities or enter into transactions similar to credits granting with a particular person and related parties of such person, or several persons under a particular project, or for a particular purpose over the limit as specified by the Bank of Thailand 6. Effective Date This Notification shall come into force as from the day following the dates of its publication in the Government Gazette. Announced on 27 th April 2017 Regulatory Policy Department Tel (Mr. Veerathai Santiprabhob) Governor Bank of Thailand 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

30 30 translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved.

31 1 Attachment Examples of the calculation of the ratio of granting of credit, invest, incur contingent liabilities and enter into transactions similar to credits granting 1. In case where the parent company is a commercial bank 1.1 Calculation of the ratio of granting of credit, invest, incur contingent liabilities and enter into transactions similar to credits granting with companies within the financial business group A commercial bank and subsidiaries within the solo consolidation can granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting with companies outside the solo consolidation, in total, no more than 25% of solo consolidation s capital. This will exclude investments in subsidiaries for portion that the commercial bank has deducted from solo consolidation s 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). (Unit: Million Baht) Non-life insurance 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 solo consolidation. A portion that exceeds 10% of net common

32 2 equity tier 1 of the solo consolidation, of 502 million Baht 1, which has already been deducted from solo consolidation s capital, will be deducted from capital of each company in proportion to the ratio of investment (pro-rata basis) as follows: Company that the investment is compared with 10% of net CET1 Non-life insurance 502 Investment that will be deducted Portion of investment that from capital will be used to calculate (Million Baht) intra-group transactions (Million Baht) 1,040 (1, ) = , = Factoring (1, ) = = Life insurance (1, ) = = In this example, the commercial bank and leasing company, which are companies within the solo consolidation grant credit, invest or incur contingent liabilities with subsidiaries outside the solo consolidation, as follows 2 : Company within the solo consolidation Subsidiaries outside the solo consolidation (Unit: Million Baht) Investments Loans Contingent Total liabilities Commercial bank Hire purchase (CCF=1) Commercial bank Technology Leasing Credit card Commercial bank Non-life insurance Commercial bank Factoring Total amount of loans, investments, and contingent liabilities entered into with subsidiaries outside the solo consolidation 1, Solo consolidation s capital = 9, million Baht The ratio of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting with all subsidiaries outside the solo consolidation = 1, , = 18.84% 1 The methods for calculation of solo consolidation s capital are as specified in Attachment 1.1 of the Bank of Thailand Notification Re: Regulations on Capital Requirements for Financial Business Groups 2 Intra-group transactions are not included in the calculation

33 1.2 Calculation of the ratio of granting of credit, invest, incur contingent liabilities and enter into transactions similar to credits granting with large exposures 3 Companies within financial business group can granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting 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 consolidation s capital. This will exclude the amounts of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting of subsidiaries for portion that the investments in those companies have been deducted from full consolidation s 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 the amounts of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting 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)

34 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 consolidation. A portion that exceeds 10% of net common equity tier 1 of the full consolidation, of 509 million Baht 3, which has already been deducted from full consolidation s capital, will be deducted from capital of each company in proportion to the ratio of investment (pro-rata basis) 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 509 1,040 Factoring 509 Life insurance 509 (1, ) = (1, ) = (1, ) = In this example, the factoring company, which is a company within the full consolidation, granting of credit, invest or incur 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 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 = 33.93%. This ratio will be used to calculate the amount of granting 160 of credit, invest or incur contingent liabilities that will be deducted from the total amount of granting of credit, invest and incur 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) % = = Company z. (Debtor Group B) % = = In this example, the commercial bank, asset management company and factoring company, which are companies within the financial business group, granting of credit, invest or incur contingent liabilities with Debtor Group A as follows: 3 The methods for calculation of full consolidated capital are as specified in Attachment 1.1 of the Bank of Thailand Notification Re: Regulations on Capital Requirements for Financial Business Groups

35 5 (Unit: Million Baht) Company within the Company within a Loans Contingent Total financial business group group of Debtor A liabilities Commercial bank Company a. 500 (CCF=1) Asset management Company e company Factoring Company d Total amount of loans, investments and contingent liabilities 1, In this example, the commercial bank, hire purchase company and factoring company, which are companies within the financial business group, granting of credit, invest or incur contingent liabilities with Debtor Group B as follows: (Unit: Million Baht) Company within the Company within a Loans Investments Total financial business group group of Debtor B Commercial bank Company y. 1,000 1,000 Company z Hire purchase Company y Factoring Company z Total amount of loans, investments and contingent liabilities 1, Full consolidation s capital 3 = 9, million Baht The ratio of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting with each debtor group (large exposure) is as follows: Group of debtor SLL ratio 1, Debtor Group A 100 = 12.84% 9, , Debtor Group B 100 = 20.12% 9,600.86

36 2. In case where the parent company is not a commercial bank 2.1 Calculation of the ratio of granting of credit, invest, incur contingent liabilities and enter into transactions similar to credits granting with companies within the financial business group 6 A commercial bank and subsidiaries within the solo consolidation can grant of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting with companies outside the solo consolidation, in total, no more than 25% of solo consolidation s capital. This will exclude investments in subsidiaries for portion that the commercial bank has deducted from solo consolidation s 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). (Unit: Million Baht) In this example, the commercial bank and leasing company, which are companies within the solo consolidation grant of credit, invest, and incur contingent liabilities with subsidiaries outside the solo consolidation, as follows 2 :

37 7 (Unit: Million Baht) Company within the Subsidiaries outside Investments Loans Contingent Total solo consolidation the solo consolidation liabilities Commercial bank Hire Purchase 500 (CCF=1) Leasing Credit card Total amount of loans, investments, and contingent liabilities entered into with 710 subsidiaries outside the solo consolidated Solo consolidation s capital 1 = 10, million Baht The ratio of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting with all subsidiaries outside the solo consolidation = 7.07% , =

38 2.2 Calculation of the ratio of granting of credit, invest, incur contingent liabilities and enter into transactions similar to credits granting with large exposures 8 Companies within financial business group can grant of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting 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 consolidation s capital. This will exclude the amounts of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting of subsidiaries for portion that the investments in those companies have been deducted from full consolidation s 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 the amounts of granting of credit, invest, incur contingent liabilities or enter into transactions similar to credits granting 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)