Summary of Analyst Meeting Q&A as of Quarter 1/2015

What is the Bank’s plan on loan growth in this year?

The Bank is determined in maintaining its leadership position in hire purchase loans. Meanwhile, the Bank aims to generate growth in other loans such as corporate and SME loans, specifically focusing on the selected industries and locations that have competitive advantages and business centers in order to facilitate flawless customer service.

What is the Bank’s plan on the development of Digital Banking?

A great emphasis has been placed on the development of Digital Banking, with a specific focus on the internationally-accepted safety and security standard adopted from Scotiabank. The Bank’s relevant staff members also attended a training session to groom expertise and potential. The Digital Banking will generate more CASA and fee income to the Bank in the future. The Bank expects that Mobile Banking system will go live and be ready for service at the end of third quarter in this year. Besides, the Bank’s affiliated companies have also developed a broad range of technical tools in order to enhance the quality of customer service in general.

What is the Bank’s plan on capital fund in this year?

The Bank is planning on redeeming perpetual subordinated hybrid bonds (Hybrid Tier 1) due to a phase out of old style Hybrid Tier 1 in accordance with Basel III regulation, and in replacement of those, issuing shares (Common Equity Tier 1), totaling approximately 5,000 million baht in the fourth quarter in this year. For Tier 2 capital, the Bank has issued Tier 2 capital subordinated instrument (Tier 2 – Write down), amounting 7,000 million baht in May 2015 in order to replace the two batches of Tier 2 capital subordinated debentures that cannot be counted as Tier 2 capital in accordance with Basel III regulation, altogether totaling 11,000 million baht. This, in turn, will potentially sustain the strength of the Bank’s funds.

Summary of Analyst Meeting Q&A as of Quarter 4/2014

What is the Bank’s expected Coverage Ratio in 2015?

The Bank is resolute to manage non-performing loans (NPLs) continuously from 2014, applying the measures to closely monitor its loans according to the risk of each customer, to restructure some of loans whose customers are affected by the economic slowdown, and to sell off some loans. Through these measures, the Bank expects that its NPL ratio will decline, resulting in higher coverage ratio of the Bank (under separate financial statements), which is set to be 100 percent and lower credit cost as a result of high quality asset management.

How does the Bank view its loan growth?

The Bank expects loan growth of 2-4 percent compare to the previous year. Hire purchase loans are expected to face negative growth, as monthly repayment may be still high and greater than new hire purchase lending, which is affected by the fierce competition and promotions from automobile manufacturers providing hire purchase business. Corporate and SME loans are expected to grow by 8-10 percent. Corporate loan growth is generated from a strong base, while SME loans growth (medium and large sized) is seen in some locations and some industries. Also, the Bank is intently and continuously supporting SME loans (small sized) through its extensive branch network.

What is the trend of the interest spread?

The Bank’s interest spread is expected to show a positive trend resulting from an appropriate cost of fund management. The Bank has adjusted its strategy by persuading customers to open and utilize more current and saving accounts. At the same time, the Bank expects that the Bank of Thailand will maintain the policy interest rate to further facilitate gradually recovering economy of Thailand. This benefits the funding cost of the Bank as well.

How does the Bank plan to grow fee income?

The Bank still put more focus on the growth of fee income, such as fees from ATM cards, corporate clients and financial advisory, and investment banking services.

How does the Bank manage its operating expenses?

The Bank is still determined to constantly reduce operating expenses as seen from an attempt to utilize technology systems in its work process to increase efficiency, and make the process more updated, reduce the complication of the procedures, and increase the speed of the services given to the customers.

How does Thanachart Group plan for the treasury stock project?

Thanachart Group has a strategy to efficiently manage liquidity and create appropriate rate of return for shareholders. Currently, the Company has generated some excess liquidity. In addition, the Company and Thanachart Bank also have adequate capital to support their business growth. Therefore, Thanachart Group agreed to repurchase the shares for liquidity management, leading to a better earnings per share and a higher shareholders’ benefits.

Summary of Analyst Meeting Q&A as of Quarter 3/2014

What is the trend of NPLs?

NPLs is in its downward trend as the Bank still focuses on effective NPL management amidst the gradually recovering economic condition. The Bank has an NPL management plan to clearly segregate each borrowers group, closely monitor the borrowers, and restructure the debts of some borrowers with problematic financial status as consequence of the recent economic slowdown, especially retail loans which were hit from shrinkage in private consumption and a surge in household debts in the past period. Nevertheless, the Bank expects that, if the economy shows a clear sign of recovery, and an execution of the Bank’s strategic plan, NPLs will reduce, resulting in a decrease NPL ratio consistent with the target.

What is the trend of the Bank’s loan loss provision in the future?

Loan loss provision is expected to decrease as a result of the tighten credit policy consistent with the economic condition and, so, minimize the chance of downward credit migration. Moreover, the Bank has been closely monitoring its loans through both debt collection and debt restructuring, resulting in the downward trend of the Bank’s loan loss provision.

How is the loan growth?

Loans are expected to be no growth in this year. The main reason is the still-negative growth in hire purchase loans because 1) the repayment of the existing hire purchase portfolio is quite big compared to the newly hire purchase loans, which has been dragged down by decelerated growth in automobile industry and the overall economy, 2) new competition is coming from automobile manufacturers who fiercely penetrate the market with continual promotions, and 3) the Bank’s credit policy has become stricter to match the current economic situation. However, the Bank expects that it will be able to partly compensate the overall loans growth with the growth in corporate loans and SME-S (small SME loans).

How is the plan to adjust deposit structure?

The trend of competition for deposit is quite moderate, which is consistent with the slowdown in loans. The market outlook also expects that the policy interest rate will remain at the same level for some time to continually support economic recovery. The Bank, therefore, focuses on presenting deposit products that correspond to the market demand and expanding CASA to support the customer’s transactions.

Summary of Analyst Meeting Q&A as of Quarter 2/2014

What is the condition of the Bank's Non Performing Loans?

An increasing in non-performing loans (NPLs) in the past period came mainly from used cars in hire purchase loans, as the price of used cars went down due to the effect of the First-Car Campaign. On the other hand, NPLs in corporates, small and medium sized enterprises (SMEs), and housing loans under the Bank(s credit policy were minimal. Nevertheless, under the tightened credit policy for hire purchase loans of Thanachart Group since the second half of the previous year, the Bank expects to have less growth in NPLs in the second half of this year. In addition, the Bank still maintains the target to continually reduce its non performing loans.

How is the Bank's loan loss provision in the second half of the year?

The loan loss provision in the second half of this year is expected to improve as the loss of selling repossessed vehicles showed positive sign. In the past period, the Bank seized more cars and speeded up the auction process. Furthermore, the Bank(s more rigorous credit policy, together with recovering economic condition, will lessen the possibility of downward credit migration. Consequently, NPLs will be reduced.

What is the loan growth outlook in the second half of the year?

Hire purchase loans is expected to contract consistent with the decelerated automotive sales. Loan growth will mainly be driven by corporates and SME loans. The demand for new credit approval and drawdown from corporate loans still remain. For SME loans, the Bank will focus on existing customers, most of which are in food and service businesses with the need for working capital or business expansion. Housing loans is expected to continually grow with the number of unit transfer in new real estate projects.

What is the situation of Bank deposits in the second half of the year?

The competition for deposit in the second half of this year will not be so intense, because the Bank of Thailand is expected to execute its policy to maintain a high level of liquidity in the market. In addition, government banks do not have the need for sizable funds. Nevertheless, the Bank still has a higher cost of deposits, compared to big commercial banks, whose CASA account for 50-60% of total deposits. Therefore, the Bank plans to decrease its cost of deposit by constantly increasing its CASA through the opening of new saving accounts.

How does the Bank plan to boost its fee income?

The Bank(s fee income is expected to continually improve, although fee income slightly dropped in the previous quarter following the decreasing number of tourists caused by Thailand(s political situation. The Bank aims to boost its fee incomes from card products, including ATM and credit card, and other fee-based products, including Letter of Credit (L/C), Trust Receipt (T/R) and Foreign Exchange (FX) transactions.

How does the Bank plan to reduce its operating expenses?

The Bank can effectively control its operating costs by utilizing technologies to reduce the complexity of its process and systemize its existing procedures in order to enhance the Bank(s operational efficiency and offer steady cost saving.

Summary of Analyst Meeting Q&A as of 2013

Would it be possible to achieve loan growth target of 6-7% in 2014 due to the possibility that the repayment of hire-purchase loans would be higher than the new hire-purchase loans?

In 2014, the Bank will focus on extending new credit to mid-sized corporates and small and medium sized enterprises in which the Bank already have potential target customers. Moreover, the Bank will expand customer base by focusing on business sectors with high growth potential as well as current customers with proven track records. For hire-purchase loans, the repayment is getting higher, therefore the growth rate may not be as high as previous years. In addition, the Bank expects higher growth rate on retail loans other than the hire-purchase . The Bank had implemented credit scoring system in order to expedite loan approval process for retail and small sized SME (SME S) while maintaining appropriate level of risk so as to achieve a target loan growth of 6-7 percent.

What is the Bank’s policy on Internet Banking, Cash Manage and One Account See Through?

Scotiabank had introduced Internet Banking by installing a new system to replace the older version. Scotiabank’s Internet Banking system offers higher security protection up to international standard so that our customers can transact online with greather confidence. The Bank is in the process of installing software which will enable online transaction for both retail bank customers and cash management for wholesale bank customers.

Regarding One Account See Through, the Bank provides CEM (Customer Experience Management) system which will assist our staff team to offer their service to customers more efficiently by gathering information on individual’s financial services so that the Bank can offer appropriate financial products and services in order to create greater customer’s satisfaction.

What was the major cause of credit cost of 0.73 percent in 2013 and what is the target of the Bank’s credit cost in 2014?

The credit cost of 0.73 percent of total credit in 2013 was mainly due to hire-purchase business. By having greater rigorous loan approval policy, the Bank expects credit cost to reduce to 0.60 percent in 2014 (including loss from selling repossessed vehicles) due to lower loan loss provision as a result of:

  1. In 2012, the Bank loans increased significantly led by hire-purchase loans which soared approximately 38.57 percent, resulting in higher non-performing loans and subsequently higher loan loss provision. However, hire purchase credit declined significantly in 2013, therefore the Bank expects NPLs will decline in 2014 and loan loss provision will also be reduced.
  2. In 2013, the Bank had put in place more rigorous loan approval policy while hire purchase loans declined in 2013 due to changing market environment. Therefore, it is expected that new NPLs formation in 2014 will decline in 2014, resulting in a lower loan loss provision.

In the overall used car market, what was the average amount of loss from selling repossessed vehicles in 2013 compared to 2012?

In 2013, the loss of selling repossessed vehicles increased from 2012 due to disequilibrium of demand and supply of used cars, which led to a lower selling price in 2013.

Does the Coverage Ratio set by Thanachart Group is at an adequate level?

Thanachart Group’s coverage ratio was 82.61 percent as of 31 December 2013, which was lower than the average level of the industry. Nevertheless, by considering the ratio of allowance for doubtful accounts to total loans as shown in consolidated financial statement, the ratio was at 3.81 percent, of which 2.22 percent was allowance for doubtful accounts of hire purchase and 5.77 percent was allowance for doubtful accounts of other loans. However, hire purchase loans accounted for 55.28 percent of total loan portfolio brought down the ratio of allowance for doubtful accounts to total loans to 3.81 percent, which was comparable to the industry average. Therefore, the Bank had set aside adequate loan loss provisions.