MANAGEMENT REPORT. Financial Performance. Competitive Position and Business Operations

Transcription

1 of Corporate Governance Community Service Management Report Contents MANAGEMENT REPORT ç Looking beyond Thailand, our regional network is helping customers to take advantage of opportunities in the rapidly expanding and increasingly éintegrated economies of Asia. Financial Performance Bangkok Bank reported a net profit of Baht 19.1 billion in 2007, an increase of Baht 2.2 billion or 13.3 percent from The Bank's performance reflected healthy growth in loans and deposits as well as improving quality of assets. Revenues in 2007 increased while non-interest expenses declined from the previous year. Loans increased by 8 percent from 2006 and exceeded the one trillion Baht mark at year-end. Asset quality improved with non-performing loans at the end of 2007 declining by Baht 7.4 billion to Baht 81.7 billion, or 7.9 percent of total loans, compared to 9.2 percent of loans at the end of Shareholders' equity at the end of 2007 totaled Baht billion and earnings per share rose from Baht 8.83 per share in 2006 to Baht Competitive Position and Business Operations Competition continued to intensify in 2007 as banks sought growth in a slowing domestic economy. Demand for loans was augmented by higher earnings from other divisions of the Bank including activity in investment banking, strong growth in assets at international branches and increased earnings from fees on investment products such as mutual funds, bancassurance and savings bonds. Bangkok Bank Public Company Limited Creating Opportunities in 2007 Bangkok Bank achieved sound growth in 2007, focusing on creating opportunities for our customers in Thailand and around the region, helping them to build wealth, achieve their lifestyle goals and to grow their businesses.

2 Despite the subdued nature of the domestic Thai economy, there were pockets of strong growth, such as in the industrial heartland on the Eastern seaboard and popular tourist destinations such as Phuket. Bangkok Bank was able to build on these opportunities and we successfully grew our market share in key customer segments. Responding to customer demand, the Bank also launched new products and services such as advanced, web-based services for business customers and Thailandûs first contact-less debit card targeted at urban commuters. These provide new opportunities for growth, while improving convenience for our business and personal customers. Corporate and Investment Banking The weak domestic economy and the uncertain political and policy environment led to subdued corporate activity in 2007 as investment decisions were put on hold. Despite this, Bangkok Bankûs corporate lending grew at 5.0 percent, well above the previous year, as we identified opportunities in large-scale manufacturing, export industries and trade finance. While corporate lending has been and continues to be one of our key competitive strengths, we nevertheless see potential for further growth by integrating our capabilities to provide a complete suite of financial services tailored to our corporate customers. An example of this integrated approach is our initiative to arrange supply chain financing deals to support the suppliers of these companies. Under the scheme, Bangkok Bank would provide financing and services to companies along the entire supply chain. This will help to facilitate payments, reduce documentation and is intended to enhance the business potential for all participants in the chain. Given our large customer base, branch network and expertise in tailoring bond structures, Bangkok Bank enjoyed considerable success in placing bond issues with retail investors. In 2007, we were mandated to underwrite the issuance of various corporate debentures amounting to Baht billion. These were all successfully placed. Bangkok Bank played the main role as joint financial adviser and joint lead arranger for the innovative Baht 24 billion securitization program to raise funds for Dhanarak Asset Development Co., Ltd., a subsidiary of the Ministry of Finance, to finance the building of the Government Center (Chaengwattana) Project. Seven types of bonds were issued during the three-year program ( ) with tenors ranging from seven to twenty years. This deal was the longest term and most sophisticated securitization bond ever offered in Thailand and is expected to serve as the prototype for fund raising for government mega-projects in the future. All issues were well received and oversubscribed by both institutional and retail investors. In addition to their AAA rating, the bonds earned recognition from the domestic and international capital market communities, including the award for Thailand Capital Markets Deal of the Year 2007 from IFR Asia in Hong Kong. Annual Report 2007 of Corporate Governance Community Service Management Report Financial Performance Indicators

3 of Corporate Governance Community Service Management Report Contents Bangkok Bank Public Company Limited Bangkok Bank was also one of the joint lead underwriters in the Baht 12.5 billion offering by PTT Exploration and Production. This was the largest deal in the Thai Baht bond market last year and was chosen as the Best Thailand Deal 2007 by Finance Asia in Hong Kong and as the Best Local Currency Bond Deal in South East Asia 2007 by Alpha South East Asia magazine. Bangkok Bank also won the Deal of the Year award from the Thai Bond Market Association for the fourth year in a row, from (the only bank so far with such an impressive record). Looking beyond Thailand, our regional network is helping customers to take advantage of opportunities in the rapidly expanding and increasingly integrated economies of Asia. The strength of our overseas network and Bangkok Bankûs considerable experience in international banking were key factors in the Bankûs proud appointment as consultant for the Board of Investment (BOI). In 2007, we facilitated BOI seminars in Singapore, Indonesia, Malaysia, Taiwan, Laos, Vietnam and the Philippines, introducing international investors to Thailand and supporting Thai companies to invest in neighboring countries in the region, a strategy that the BOI believes will create opportunities for growth in the Thai manufacturing sector. Bolstered by strong regional economic activities, our international branch network, ranging from China and Japan in north Asia, to the Philippines and Indonesia in the south, showed significant growth. In 2007, we relocated our Shantou branch to the fast-growing city of Shenzhen to support the Bankûs customers based in the Pearl River Delta, the worldûs largest industrial zone. Bangkok Bank is also applying to become a locally incorporated bank in China which will enable the Bank to accelerate the pace of business growth. Commercial and Business Banking Competition intensified in SME banking in 2007, as banks sought the higher yields available in this sector. Bangkok Bankûs Commercial banking unit achieved strong growth of 17 percent. However, the small business sector was impacted by the weak economic environment.

4 We see strong potential to further expand our loan book and customer base for commercial and business customers and have introduced a number of initiatives to improve our service, speed up the application process and provide a more efficient and convenient experience. We simplified access to credit for SMEs, launched a range of innovative internet-based services to support their business growth, and provided seminars to improve the competitiveness of key industries. Innovative web-based services that were introduced in the year in review included BIZ ibanking and itrade. BIZ ibanking has a comprehensive range of online financial services including payroll and funds transfers while itrade provides an immediate, highly reliable and secure channel to issue and amend Letters of Credit online. These services improve productivity by allowing SMEs to spend less time on their banking and more time growing their businesses. ç In addition to providing innovative services, Bangkok Bank launched the World Class Thailand series of industry seminars that focus on areas of competitive advantage for Thailand such as the hotel, automotive, food and textile industries. The seminars bring people together at all levels of industry, including business associations, government representatives, suppliers and competitors, to share knowledge about international best practice. SMEs are a major driver of economic growth in Thailand and we believe that by helping them to enhance their competitiveness they will be able to grow faster in both the domestic and export markets. Consumer Banking Despite falling household spending, Bangkok Bankûs Consumer Banking division continued to achieve significant growth with a focus on new products that provided opportunities for customers to build their wealth, secure their futures and achieve their lifestyle ambitions. At the same time we continued to improve the convenience and reach of our banking services by investing in our internet and self-service banking channels, and expanding our nationwide branch network. Bangkok Bankûs Consumer Banking division continued to achieve significant growth with a focus on new products that provided opportunities for customers to build their wealth, secure their futures and é achieve their lifestyle ambitions. Annual Report 2007 of Corporate Governance Community Service Management Report Financial Performance Indicators

5 of Corporate Governance Community Service Management Report Contents Many services are creating attractive investment and protection opportunities for our consumer çbanking é customers. Bangkok Bank Public Company Limited The Bank had a strong focus on personal investment services with the distribution of a variety of products, including fixed-income mutual funds, foreign investment mutual funds, retirement funds, long-term equity funds, property funds, and Bangkok Bank bills of exchange. Bangkok Bank also played a key role in distributing various government and quasi-government issues, such as savings bonds, BOT bonds and FIDF bonds. All of these investment opportunities were keenly awaited by customers and were successfully placed. The mutual funds offered by the Bank are managed by the Bankûs subsidiary, BBL Asset Management (BBLAM). BBLAM has consistently been among the top-performing fund managers in Thailand, recently capturing three awards at the Post-Lipper Thailand Fund Awards 2008 for the Best Performing Equity Thailand Fund - three years, the Best Performing Equity Thailand Fund - five years and the Best Performing Mixed Asset Thai Baht Flexible Thai Fund - three years. Bangkok Bankûs impressive distribution capability and large customer base, with around 16 million retail accounts, was a key factor in the Bank being appointed by the Finance Ministry as the exclusive distributor of three-year government savings bonds, further broadening the investment opportunities to the Bankûs customers. The Bank also launched a service allowing customers to open a securities trading account at Bangkok Bank and to participate in the equity market via our capital market subsidiary, Bualuang Securities. Special investment services are also offered to our Bualuang Exclusive members as part of our preferred banking program. The sale of bancassurance policies almost doubled with enhanced marketing and sales efforts. The product which received particular interest was the Gain 1 st series which integrates a life insurance policy with an attractive savings plan providing annual cash payments and a lump sum at the end of the term, as well as tax deductions on premiums paid. These services are creating attractive investment and protection opportunities for our consumer banking customers. Their success demonstrates the Bankûs ability to integrate product development, marketing and sales between our subsidiaries, partners and business units. This is helping to increase fee income and we see further opportunities for growth by cross selling to our retail customer base - the largest in Thailand.

6 In May 2007, Bangkok Bank launched the Be1 st BTS card, Thailandûs first debit card with a mass transit payment function, targeted at young working professionals traveling on Bangkokûs BTS Skytrain. This was followed by the launch in February, 2008, of the Visa Blue Wave credit card - the first contact-less credit card to be launched in Thailand. Both of these cards reinforce Bangkok Bankûs reputation as the leader in credit card innovation in Thailand. We also strengthened our leadership in internet banking by enhancing our Bualuang ibanking service for personal banking and improving security for online shopping. New Bualuang ibanking features include the ability to redeem reward points online, transfer funds to account holders at other banks, and register new accounts with a One Time Password sent via SMS. Bualuang ibanking customers can also now invest, redeem and switch units between certain mutual funds online. Another new service, ipay, provides an additional level of security for Bangkok Bank credit card and Be1 st card holders who use their card to shop online. Bangkok Bankûs website was updated to improve navigation, provide a more modern look and introduce new services such as registering for home loans online. Support Operations In the current environment of intense competition and rapid change in the banking sector, recruiting, training and retaining talented people is a top priority for Bangkok Bank. We enhanced our recruitment capabilities by introducing a new online application process. This, together with ongoing recruitment campaigns, successfully attracted a high caliber of new graduates as well as experienced staff at different stages of their careers. We also further enhanced our career development and leadership training capabilities, with more than 1000 staff members completing the Bankûs high potential program for young executives. As part of an ongoing program to improve our IT services, over the past three years we have developed a complete suite of web-based online banking systems for all groups of customers including corporate, business and personal banking customers. Annual Report 2007 of Corporate Governance Community Service Management Report Financial Performance Indicators

7 of Corporate Governance Community Service Management Report Contents Bangkok Bank Public Company Limited The Bank has also installed and implemented a new core banking system including a platform for customer information systems. New risk-based systems were put in place in preparation for Basel II and ongoing improvements were made to the Bankûs domestic and international branch information network systems. Risk Management The Bank of Thailand has mandated new standards for non-performing loan provisioning which adopt certain principles of IAS 39. These new provisioning standards were to be gradually implemented from December 2006 until December Bangkok Bank has complied with these provisioning standards on an accelerated schedule since December In line with international best practice, the Bank of Thailand has also announced the adoption of a new supervisory guideline on capital adequacy in accordance with the Basel II framework by December The new guideline will seek to ensure that the supervision of capital adequacy is more risk-sensitive and consistent with the more complex financial market. It is also expected to promote stronger risk management practices in the banking industry. Bangkok Bank has embarked on a comprehensive program to put in place the policies, procedures and practices to enhance the risk measurement and risk management capabilities of the Bank. Implementation progress has been on track to meet the required timeframe. The existing capital base is expected to be more than sufficient to meet the increased minimum capital requirements, as required by these standards. Under the auspices of Basel II, Bangkok Bank is taking a systematic and principles-based approach to risk and capital management. This approach will assist us to improve overall operations across a broad range of areas, including customer information systems. We have also broadened our risk rating techniques, expanded the measurement of risk across all markets and included operational risks, introduced risk modeling, and raised the efficiency of our capital allocation. With the global financial system becoming increasingly complex and inter-dependent, the adoption of stronger risk management practices along the framework defined by Basel II will help the Bank to manage and control the exposure to unbalanced risks in the future. The Bank also expects to gain flow-on benefits such as advanced customer information systems, more sophisticated internal rating systems and more effective cooperation between the risk management and finance functions.

8 Looking Forward Bangkok Bankûs priorities in 2008 will include a focus on domestic growth opportunities in corporate, SME and consumer banking, as well as in regional markets, particularly in China. The global economic outlook and its possible impact on the Thai economy remains uncertain. Bangkok Bank is nonetheless expecting moderate growth in 2008, which will be underpinned by our strong commitment to credit risk management. We believe that the Bank is well-placed to gain from the increasing shift of trade and economic power towards East Asia, and we will work with customers to take advantage of growth opportunities in Thailand and the region. Meanwhile as public and private sector investment increases, this is expected to have a flow-on effect for our corporate banking business. The Bank will continue to drive growth in fee income through innovative products that meet the investment and lifestyle needs of our customers and provide a greater range of value-added services for corporate customers. As our customers continue to expand in Thailand and around the region, Bangkok Bank will be at their doorstep, ready to provide them with innovative products and trusted services to help them take advantage of these opportunities and prosper. Awards Bangkok Bank received a number of prestigious awards in the year in review. These include : ë Best Trade Finance Bank - Global Investors ë Best Bank in Thailand - The Banker magazine ë Bank of the Year - Money and Banking magazine ë Best Foreign Exchange Bank - Global Finance ë Board of the Year for Exemplary Practices -Thai Institute of Directors ë Best Thailand Deal Finance Asia ë Outstanding International Funds Transfer Services - Deutsche Bank and JP Morgan Chase ë Most Trusted Brand 2007 in Thailand - Readersû Digestûs annual survey çbangkok Bank will be at our customersû doorstep, ready to provide them with innovative products and trusted services to help them take advantage of éthese opportunities and prosper. Annual Report 2007 of Corporate Governance Community Service Management Report Financial Performance Indicators