PILLAR III DISCLOSURE December 2015€¦ · Pillar III Disclosure 2015 | 2 Index of Tables Page Table 1 Comprehensive Regulatory Capital and Capital Adequacy 6 Table 2 Capital Requirements

PILLAR III DISCLOSURE

December 2015

Pillar III Disclosure 2015 | 1

Contents

1. Introduction ............................................................................................................................. 1

2. Scope of Application ................................................................................................................. 2

3. Regulatory Capital .................................................................................................................... 3

3.1 Capital Management .................................................................................................................... 3

3.2 Capital Structure and Adequacy ................................................................................................... 3

4. Risk Management ................................................................................................................... 13

4.1 Risk Management Structure ....................................................................................................... 13

4.2 Risk Management Policy ............................................................................................................. 14

4.3 Risk Management System ........................................................................................................... 14

5. Credit Risk Management......................................................................................................... 17

5.1 Credit Risk Management Structure ............................................................................................ 17

5.2 Credit Risk Management Policy and Guidelines ......................................................................... 17

5.3 Credit Approval Process .............................................................................................................. 20

5.4 Credit Risk Measurement ........................................................................................................... 20

5.5 Credit Risk Monitoring and Control ............................................................................................ 21

5.6 Credit Risk Report ....................................................................................................................... 23

6. Market Risk Management ....................................................................................................... 36

6.1 Market Risk Management .......................................................................................................... 36

6.2 Market Risk Management Policy ................................................................................................ 36

6.3 Market Risk Assessment ............................................................................................................. 36

6.4 Market Risk Limits ....................................................................................................................... 36

6.5 Market Risk Monitoring and Reporting ...................................................................................... 37

6.6 Capital Adequacy ........................................................................................................................ 37

7. Operational Risk Management................................................................................................ 38

8. Interest Rate Risk in the Banking Book .................................................................................... 40

9. Equity Investment in the Banking Book ................................................................................... 42

10. Strategic Risk ........................................................................................................................ 44

11. Reputation risk ..................................................................................................................... 45

Appendix ................................................................................................................................... 46


Index of Tables

Page

Table 1 Comprehensive Regulatory Capital and Capital Adequacy 6

Table 2 Capital Requirements by Risk Type 7

Table 3 Main Features of Regulatory Capital Instruments 8

Table 4 Reconciliation of Capital from Consolidated Supervision Financial Statement 9-11

Table 5 Capital Position During Transitional Period 12

Table 6 Significant On- and Off-Balance-Sheet Exposure Items 24

Table 7 Exposures Classified by Geographical Area 25

Table 8 Exposures Classified by Residual Maturity 26

Table 9 Loans & Investment in Debt Securities Classified by Geographical Area 27 and Asset Classification

Table 10 Provisions and Bad Debt Written-Off on Loans and 28 Investment in Debt Securities, Classified by Geographical Area

Table 11 Loans Classified by Type of Business and Asset Classification 29

Table 12 Provisions and Bad Debts Written-Off for Loans Classified by Type of Business 30

Table 13 Reconciliation of Change in Provisions for Loans 31

Table 14 Exposures Classified by Asset Type under the Standardized Approach (SA) 32

Table 15 Exposures After Adjusting for Credit Risk Mitigation Classified by Asset Type 33-34 and Risk Weights under the Standardized Approach (SA)

Table 16 Exposures Covered by Risk Mitigation Classified by Asset Type and 35 Type of Collateral Under the Standardized Approach (SA)

Table 17 Minimum Capital Requirements of Market Risk 37 Under the Standardized Approach (SA)

Table 18 Minimum Capital Requirements of Operational Risk 39 Under the Standardized Approach (SA)

Table 19 Impact on Net Interest Income (Earnings Perspective) 41

Table 20 Impact on Economic Value of Equity (Economic Value Perspective) 41

Table 21 Minimum Capital Requirements of Equity Exposures in the Banking Book 43

Index of Figures

Page

Figure 1 List of Companies and Business Types within the SCB Financial Group 2

Figure 2 Basel III Capital Structure as at 31 December 2015 4

Figure 3 Capital Adequacy Ratios under Standardized Approach (SA) of SCB and Its Financial Group 5

Figure 4 Basel III Minimum Capital Requirements for Credit Risk, Market Risk and Operational Risk 7


Highlights of SCB and Its Financial Group's Capital Adequacy Ratios (%) under Basel III

(Unit : Percentage)

31 Dec 15 30 Jun 15 Change 31 Dec 15 30 Jun 15 Change

Common Equity Tier 1 capital (Minimum requirement of 4.5%) 13.97 13.51 +0.45 14.12 13.79 +0.33

Tier 1 capital (Minimum requirement of 6%) 13.97 13.51 +0.45 14.12 13.79 +0.33

Tier 2 capital 3.21 3.21 0.00 3.14 3.16 -0.01

Total regulatory capital (Minimum requirement of 8.5%) 17.18 16.73 +0.45 17.26 16.95 +0.31

ConsolidatedBank-only

1. Introduction

The current Basel Capital Accord comprises

three pillars, each of which is a critical element

in strengthening the stability of financial

institutions:

• Pillar I provides guidelines for measuring

minimum capital requirements for

credit risk, market risk and

operational risk.

• Pillar II addresses the key principles for the

supervisory review processes and

relevant internal risk assessment

beyond Pillar I, with emphasis on the

bank's internal capital adequacy

assessment process (ICAAP).

• Pillar III aims to strengthen market discipline

through guidelines for public

disclosure of key information on

capital adequacy and risk exposure as

well as risk assessment and

management.

This document presents information on SCB

(referred to as ‘Bank-only’) and its Financial

Group (referred to as ‘Consolidated’) in terms

of capital adequacy and risk-weighted asset

calculations for credit risk, market risk in the

trading book, and operational risk according to

the guidelines of the Bank of Thailand (BOT).

Information such as SCB and its Financial

Group’s risk management guidelines and

framework, risk components, and applicable

measurement methods adopted for monitoring

and reporting under each risk management

framework, including the measurement for

capital adequacy requirements, are disclosed

from both a quantitative and qualitative

aspect. All of them are in line with the Basel III

framework. The qualitative information is

updated annually, or when there are any

material changes to the underlying policy and

disclosure of such changes is deemed

necessary.

The BOT requires Pillar III disclosure to be

reported as at 30 June and 31 December and

made available to market participants within

four months of this date. The Bank releases

the report under the Investor Relations section

of the Bank’s website at

http://www.scb.co.th/en/about-scb/investor-

relations/financial-information/pillar.

This disclosure is not required to be audited by

external auditors. It was, however, verified and

approved internally in accordance with the

Bank’s Pillar III disclosure policy. Further, it is

consistent with information used internally by

management and with the reports provided to

the BOT.

The quantitative disclosure in this report is in

line with the Pillar III principles under the Basel

III framework adopted by the BOT, rather than

Thai Accounting Standards. Accordingly, Pillar

III disclosure cannot be directly compared with

SCB’s 2015 Financial Statements. For example,

capital computation in this disclosure deems

undrawn portions of committed line as credit

risk assets while Thai Accounting Standards do

not require such consideration.

With effect from 1 January 2013, Siam Commercial Bank PLC (SCB) and its Financial Group adopted Basel

III - the latest global regulatory framework for assessing bank capital adequacy and liquidity to further

strengthen its measurement of, and practices for capital and liquidity management. The scope of the

Bank’s implementation of Basel III is in accordance with the guidelines propagated by the Basel Committee

on Banking Supervision (BCBS) and as adopted by the Bank of Thailand (BOT). Starting from 2016, the

regulators require a conservation buffer to be added to Core Equity Tier 1(CET1) capital. This will commence

at 0.625% p.a. in 2016 and reach 2.5% p.a. of total risk weighted assets by the start of 2019.

http://www.scb.co.th/en/about-scb/investor-relations/financial-information/pillar

http://www.scb.co.th/en/about-scb/investor-relations/financial-information/pillar


1/ The structure of the Consolidated Supervision Group can be divided into two levels: 1) Full consolidation (hereafter referred to as “Consolidated” basis) which includes parent company and subsidiaries categorized under solo and

non-solo consolidated subsidiaries; and 2) Solo consolidation which includes the bank and its subsidiaries categorized under the solo consolidation group - Solo consolidated subsidiaries mean any of the bank’s subsidiaries whose business operation involves loans or loan-related transactions and

whose shares are directly held by the bank in a ratio of not less than 75% of issued and paid-up shares. - Non-solo consolidated subsidiaries mean any of the bank’s subsidiaries whose business operation involves finance or supporting business and

whose shares are held by the bank in a ratio of not less than 50% of issued and paid-up shares with bank management control over the subsidiary’s business. It shall be assumed that the bank has management control over a subsidiary’s business if its shares are held by the bank in a ratio of not less than 20% of the issued and paid-up shares unless proven otherwise.

2/ Investment outside scope of consolidation, i.e. insurance companies, is considered based on a significant level (10%) of investment as a percentage of

its issued common share capital where:

- The bank’s investment does not exceed 10%. In the event that the aggregate holding exceeds 10% of the bank’s net common equity capital, then the amount above 10% is required to be deducted from the corresponding tier of capital. The portion under 10% is assigned a risk-weight as per BOT guidelines.

- The bank owns significant investments (more than 10% of the issued common share capital of the entity or a threshold approach). If all aggregate holding exceed 10% of the bank’s net common equity, then the amount above 10% is required to be deducted from the corresponding tier of capital. If there is shortfall, it will be deducted from the next higher tier of capital, whereas the amount under the 10% of net CET1 will be assigned a risk-weight of 250%.

Figure 1: List of Companies and Business Types within the SCB Financial Group

Remarks: SCB DV: The BOT is in consideration process to approve the establishment of the company and SCB's investment in the company.

SCB Financial Group

MAHISORN

RUTCHAYOTHIN ASSETS

MANAGEMENT

SCB PLUS

SCB ASSET MANAGEMENT

Solo Consolidation Group

Siam Commercial Bank PCL

100%

99.39% 100%

100% 9 .1 %

CAMBODIAN COMMERCIAL BANK

SIAM COMMERCIAL LEASING PCL.

100%

100% SCB TRAINING CENTRE 100%

100%

SCB LIFE ASSURANCE PCL.

SCB SECURITIES

VINA SIAM BANK

100%

Credit institutions (>=75%)

Finance and Support (>50%) Life insurance (>20%)

100%SCB DV

100%SIAM PHITIWAT

2. Scope of Application

Standardized approach

SCB and its Financial Group have adopted the

Standardized Approach, which is in line with

the BOT guidelines for measuring credit risk,

market risk, and operational risk, in order to

compute regulatory capital requirements.

Accounting consolidation

The basis of consolidation for accounting

purposes prepared according to the Thai

Accounting Standards is described within SCB’s

Annual Report for 2015. The consolidated

financial statements incorporate the assets and

liabilities of all subsidiaries controlled by SCB.

Regulatory consolidation

Regulatory consolidation1/ consists of solo

consolidation, which includes all financial

entities in which SCB has a shareholding of

more than 75%, and full consolidation (referred

to as ‘Consolidated’), which incorporates all

entities under the Financial Group. In this

context, entities involved in the insurance

business or other financial operations are

excluded from the regulatory consolidation

provided, in the latter case, where SCB has a

shareholding of more than 10% but less than

50%. Under Basel III, investment in these two

types of entities is called ‘investment outside

the scope of consolidation’2/ and is calculated in

accordance with BOT guidelines.

Details of the entities included in Bank-only and

Consolidated regulatory capital are explained in

Figure 1. Based on current regulatory

requirements, SCB and all subsidiaries of the

Financial Group are well capitalized.

The quantitative figures in this document are

also disclosed on both a Bank-only basis and

Consolidated basis.


3. Regulatory Capital

3.1 Capital Management

Capital is the most critical resource in the

banking business. Accordingly, SCB and its

Financial Group have adopted the Internal

Capital Adequacy Assessment Process (ICAAP)

to assess significant risks and capital adequacy

so as to support their businesses under both

normal and stress conditions. In order to

assess the overall capital adequacy of SCB and

its Financial Group, policies and procedures are

developed to ensure that their capital:

• Provides a cushion for unexpected losses

arising from the risks they underwrite and

engenders market confidence in the

robustness of the Bank’s capital base; this

cushion will stand in excess of the

minimum regulatory requirements at all

times.

• Is sufficient to support the risk profile of

SCB and its Financial Group and on-going

growth based on their business strategies,

as well as to withstand possible risks

arising from an economic recession or

other adverse scenario.

Reflects a balance between higher returns

to shareholders and the security afforded

to all other stakeholders by a sound

capital position.

Senior management reviews capital adequacy

periodically, taking into account the needs of

their underlying businesses and any imminent

regulatory changes.

3.2 Capital Structure and Adequacy

3.2.1 Capital Structure

After the financial crisis in 2008, the Basel

Committee on Banking Supervision (BCBS)

proposed implementing micro- and macro-

prudential measures through a new regulatory

framework known as ‘Basel III.’ The objective is

to strengthen the quantity and quality of

regulatory capital in order to absorb losses as

well as to set global liquidity standards. The

implementation of this new framework

commenced from January 2013, coupled with

transitional arrangements, and will be fully

effective in January 2019.

Regulatory capital under Basel III is based on a

more stringent definition of capital and also a

higher requirement for minimum capital ratios.

The components of Basel III regulatory capital

are as follows:

(i) Common Equity Tier 1 (CET1)

(ii) Additional Tier 1

(iii) Tier 2 Capital

As shown in Figure 2, as at 31 December 2015,

the Bank’s regulatory capital was Baht 324,631

million on a Consolidated basis and Baht

316,344 million on a Bank-only basis. Details of

CET1 capital, Tier 1 capital, and Tier 2 capital

are as explained below.

• Common Equity Tier 1 Capital (CET1)

represents the highest quality component

of capital which must be adequate to

permanently support financial

commitments and any adverse impact

without any restriction, including:

Fully paid-up common shares

Premium on common shares

Appropriated retained earnings

Legal reserves

Other comprehensive income, i.e.,

revaluation surplus on premises and

revaluation surplus on AFS investment

Other regulatory adjustment items, i.e.,

goodwill and intangibles (software

licenses)

Note: Minimum regulatory requirement is 4.5% of

total risk-weighted assets.


Additional Tier 1 Capital consists of high-

quality capital, including:

Fully paid-up non-cumulative preferred

shares

Premium on the abovementioned

preferred shares

Perpetual subordinated debt

Note: Minimum regulatory requirement is 6% of

total risk-weighted assets.

• Tier 2 Capital consists of less-permanent

capital, including:

Long-term subordinated liabilities (less

20% amortization in each of the last five

years prior to maturity)

General provisions (eligibility limited to

1.25% of credit risk-weighted assets)

Note: Minimum regulatory requirement of total risk-

weighted capital ratio is 8.5%.


Summary of SCB and Its Financial Group's Capital Adequacy and RWA (Unit : THB million)

Capital Adequacy and RWA 31 Dec 15 30 Jun 15 31 Dec 15 30 Jun 15

Total Risk-Weighted Assets 1,841,506 1,805,264 1,880,484 1,834,805

Tier 1 capital (Net) 257,204 243,977 265,491 253,052

Total regulatory capital (Net) 316,344 301,946 324,631 311,022

CET1 / Tier 1 capital ratio (%) 13.97% 13.51% 14.12% 13.79%

Total Capital Adequacy Ratio (CAR) (%) 17.18% 16.73% 17.26% 16.95%

Bank-only Consolidated

3.2.2 Capital Adequacy

Maintaining an adequate capital level is of

importance as capital provides a cushion

against the risks SCB and its Financial Group

underwrite. SCB and its Financial Group

identify and manage the risks they face

through defined internal control procedures

and stress tests. They assess and manage the

monetary impact of these risks through a

capital planning process. Scenario analysis and

stress tests are important mechanisms in

understanding the sensitivities of regulatory

capital to business plans, including adverse

impacts arising from extreme yet plausible

events. SCB and its Financial Group consider

these analyses and tests as tools to anticipate

the potential financial impact on their business

plans and capital needs. SCB and its Financial

Group will consider and establish management

action plans for mitigating any impact should

such adverse events, or similar circumstances,

occur.

The regulatory guidelines stipulate that the

minimum level of capital requirements for SCB

and its Financial Group must be maintained at

8.5% of total risk-weighted assets to cover

credit risk, market risk, and operational risk, of

which at least 4.5% must consist of CET1

capital and 6% must consist of Tier 1 capital.

These ratios would be augmented by a phased-

in conservation buffer at 0.625% p.a. up to

2.5% of CET1, starting from 1 January 2016

through 1 January 2019. Banks that cannot

meet this minimum requirement may be

constrained by earning distribution restrictions,

i.e., on dividend payouts, discretionary bonus

payments, share buybacks, etc.

As shown in Figure 3, as at 31 December 2015,

the Bank’s total CAR stood at 17.26% on a

Consolidated basis and 17.18% on a Bank-only

basis. CET1 capital stood at 14.12% on a


basis. Tier 2 capital stood at 3.14% on a


basis.

Thus, the Bank is already compliant with these

additional capital requirements.


Table 1: Comprehensive Regulatory Capital and Capital Adequacy

(Unit : THB million)

Capital Adequacy and RWA 31 Dec 15 30 Jun 15 31 Dec 15 30 Jun 15

Tier 1 capital 257,204 243,977 265,491 253,052

Common Equity Tier 1 257,204 243,977 265,491 253,052

Paid-up capital - Common shares 33,992 33,992 33,992 33,992

Surplus (deficit) net worth 11,124 11,124 11,124 11,124

Legal reserve 7,000 7,000 7,000 7,000

Net profit after appropriation 198,492 179,409 210,378 191,294

Other comprehensive income 12,250 18,537 9,727 16,972

Deductions from CET1 on owner's equity (5,654) (6,085) (6,730) (7,331)

Additional Tier 1 - - - -

Total Tier 1 capital 257,204 243,977 265,491 253,052

Tier 2 capital 59,140 57,970 59,140 57,970

General provision 19,140 17,970 19,140 17,970

Proceeds from issuing subordinated debt securities 40,000 40,000 40,000 40,000

Total regulatory capital 316,344 301,946 324,631 311,022

Risk-weighted assets

Credit risk 1,602,792 1,560,709 1,632,864 1,582,977

Market risk 44,299 54,019 46,682 55,039

Operational risk 194,415 190,537 200,939 196,789

Total risk-weighted assets 1,841,506 1,805,264 1,880,484 1,834,805

Total risk-weighted capital ratio (%) 17.18% 16.73% 17.26% 16.95%

CET1 / Tier 1 risk-weighted capital ratio (%) 13.97% 13.51% 14.12% 13.79%

Minimum regulatory capital adequacy ratio (%) 8.50% 8.50% 8.50% 8.50%

Minimum Tier 1 risk-weighted capital ratio (%) 6.00% 6.00% 6.00% 6.00%

Minimum CET1 risk-weighted capital ratio (%) 4.50% 4.50% 4.50% 4.50%

Note:


In accordance with the BOT guidelines, the ratios at December 31,2015 do not include net profit for 2H2015. If included, the capital would be 14.9%,

3.2%, 18.1% for CET1/Tier 1, Tier 2 and CAR respectively on a Bank-only basis and 15.0%, 3.1%, 18.2% on a Consolidated basis.


Table 2: Capital Requirements by Risk Type

(Unit : THB mi l l ion)

31 Dec 15 30 Jun 15 31 Dec 15 30 Jun 15

Risk Type

Credit risk – Standardized Approach

Performing

Governments, Central Banks, MDBs1/ and PSEs2/ treated as Sovereign 48 27 351 341

Banks and PSEs2/ treated as bank 4,096 2,768 4,255 2,839

Corporates3/ and PSEs2/ treated as corporates 75,931 75,039 76,289 75,205

Retail 30,128 29,654 30,179 29,696

Retail mortgage loans 15,019 14,512 15,019 14,512

Other assets 4/ 9,004 8,940 10,634 10,203

Non-performing 2,011 1,720 2,066 1,756

First-to-default credit derivatives and securitisation - - - -

Total minimum capital requirements for credit risk 136,237 132,660 138,793 134,553

Market risk – Standardized Approach

Interest rate risk 2,887 3,601 2,887 3,603

Equity position risk - 65 128 138

Foreign exchange risk 879 925 953 938

Commodity risk - - - -

Total minimum capital requirements for market risk 3,765 4,592 3,968 4,678

Operational risk – Standardized Approach

Total minimum capital requirements for operational risk 16,525 16,196 17,080 16,727

Total minimum capital requirements 156,528 153,447 159,841 155,958

Note:

1/ Multilateral development banks2/ Public sector entities3/ Including claims on individuals and their related parties that aggregate limits exceed conditions of claims on retail4/ Other assets under Basel III include investment outside scope of consolidation which carries a 250% risk-weight



Table 3: Main Features of Regulatory Capital Instruments

Ordinary share Subordinated debt 1/2012 Subordinated debt 2/2012

Is suer The Siam Commercia l Bank

Publ ic Company Limited

The Siam Commercia l Bank


The Siam Commercia l Bank


Unique identi fier SCB

ISIN: TH0015010000

SCB222A SCB249A

Regulatory treatment

Instrument type Common Equity Tier 1 Tier 2 capita l Tier 2 capita l

Qual i fied or non-qual i fied

Basel I I I

Qual i fied Non-qual i fied Non-qual i fied

Non-qual i fied Basel I I I features - No Basel I I I loss absorption No Basel I I I loss absorption

Phased-out or ful l -amount - Phased-out (at 10% p.a .) Phased-out (at 10% p.a .)

El igible at

solo/group/group&solo

Group & solo Group & solo Group & solo

Amount recognized in regulatory

capita l

(Unit: THB Mi l l ion)

33,992 1/

as at 31 December 2015

20,000 20,000

Par va lue of instrument

(Unit: Baht)

10 1,000 1,000

Accounting class i fication Shareholder's equity Amortization debt Amortization debt

Origina l date of i s suance Multiple 24 February 2012 17 September 2012

Perpetual or dated Perpetual Dated Dated

Origina l maturi ty date No maturi ty 24 February 2022 17 September 2024

Issuer's authori ty to ca l l subject

to prior supervisory approval

No No No

Optional ca l l date, contingent

ca l l date and redemption

amount

N/A 24 February 2017 / Tax

reasons / Redemption at

par / Ful l redemption

amount

17 September 2019 / Tax

reasons / Redemption at

par / Ful l redemption

amount

Subsequent ca l l dates ,

i f appl icable

N/A At any coupon payment

dates after 5 years after

origina l i s sue date

At any coupon payment

dates after 7 years after

origina l i s sue date

Coupons / dividends

Fixed or floating

dividend/coupon

Discretionary dividend

amount

Fixed rate Fixed rate

Coupon rate and any related

index

The ordinary shares

receive dis tributable profi t

that has been declared as

dividend.

4.5% p.a . 4.65% p.a .

Exis tence of a dividend s topper No No No

Ful ly discretionary, partia l ly

discretionary or mandatory

Ful ly discretionary Mandatory Mandatory

Exis tence of s tep up or other

incentive to redeem

No No No

Noncumulative or cumulative Noncumulative Noncumulative Noncumulative

Convertible or non-convertible Non-convertible Non-convertible Non-convertible

Write-down feature No No No

Pos i tion in subordination

hierarchy in l iquidation (speci fy

instrument type immediately

senior to instrument)

After the return of capita l

in a winding-up, ordinary

shares shal l a l low the

holders ' rights of

participation in any

surplus profi t or assets of

the company after a l l

senior obl igations have

been satis fied.

The subordinated notes

rank pas i passu with a l l

subordinated debt i ssued

by the i ssuer

The subordinated notes

rank pas i passu with a l l

subordinated debt i ssued

by the i ssuer

1/ The preferential rights of the Bank’s preferred shares (Baht 47 million) have already expired on 10 May 2009. The preferential rights of such

preferred shares will automatically be ended where all rights under such shares will be the same as those of ordinary shares .


Table 4: Reconciliation of Capital from Consolidated Supervision Financial StatementUnit: THB million

Balance sheet as in

published financial

statements 1/

Balance sheet as under

regulatory scope of

consolidation 2/

References

Cash 38,979 38,942 -

Interbank and money market items, net 260,943 252,357 -

Claim on securities 4,545 4,545 -

Derivative assets 57,397 57,427 -

Investments, net 536,655 343,516 -

Investments - 338,668 -

Investment in common shares and warrants of finance

companies and credit fonciers- 1,043 M

Embedded goodwill - 3,805 K

Investments in subsidiaries and associates, net 344 28,097 -

Loans to customers 1,856,005 1,850,518 -

Accrued interest receivables 4,545 4,144 -

Total Loans to customers and accrued interest receivables 1,860,549 1,854,662 -

Less Deferred revenue (22,598) (22,598) -

Less Allowance for doubtful accounts (64,777) (64,777) -

General provision (19,140) (19,140) O

Specific provision (45,637) (45,637) -

Less revaluation allowance for debt restructuring - - -

1,773,174 1,767,287 -

Customers' liabilities under acceptances 58 58 -

Properties for sale, net 10,558 10,558 -

Premises and equipment, net 39,988 39,865 -

Goodwill and other intangible assets, net 12,031 2,800 -

Goodwill 5,075 1,270 J

Goodwill from existing shares revaluation 5,060 - -

Intangible assets 1,896 1,530 -

phase-in at 20% p.a. during a transitional period of 2014 – 2018 612 L

remaining portion 918

Deferred tax assets 66 66 -

Other assets, net 39,570 37,845 -

Total assets 2,774,309 2,583,362

Deposits 1,890,729 1,890,762 -

Interbank and money market items 142,937 144,115 -

Liabilities payable on demand 8,484 8,484 -

Liabilities to deliver securities 4,563 4,563 -

Financial liabilities designated at fair value - - -

Derivative liabilities 59,588 59,515 -

Debt issued and borrowings 121,164 121,894 -

Debt instruments that are qualified as capital 40,000 40,000 N

Debt instruments that are non-qualified as capital 81,164 81,894 -

Bank's liabilities under acceptances 58 58 -

Provisions 7,228 7,122 -

Deferred tax liabilities 3,141 2,915 -

Other liabilities 228,723 40,736 -

Total liabilities 2,466,616 2,280,164 1/ Balance sheet as in published financial statements means financial statement for consolidated basis reported to SET

Capital related items as of December 2015

Assets

Loans to customers and accrued interest receivables, net

2/ Balance sheet as under regulatory scope of consolidation means financial statement for consolidated basis under BOT’s regulation which does not

include subsidiaries operating in insurance business or other financial operations whose shares are held by the Bank in a ratio of between 10% - 50% of

issued and paid-up shares.

Liabilities

Total Loans to customers and accrued interest receivables, net


Table 4 (continued)

Unit: THB million

Balance sheet as in

published financial

statements 1/

Balance sheet as under

regulatory scope of

consolidation 2/

References

Share capital

Issued and paid-up share capital

Common shares 33,945 33,945 A

Preferred shares 47 47 B

Stock warrant - -

Premium on share capital

Premium on common shares 11,106 11,106 C

Premium on preferred shares 18 18 D

Disclosed reserves -

Surplus on revaluation 21,174 21,174 -

Qualified as capital 9,961 9,961 G3/

Non-qualified as capital 11,213 11,213 -

Surplus (deficit) on remeasuring available-for-sale 4,346 4,346 -

Qualified as capital 2,149 2,149 H3/

Non-qualified as capital 2,197 2,197 -

Foreign currency translation differences (103) (103) -

Share of other comprehensive income of associates (2,341) (2,341) I

Income tax on other comprehensive income (5,150) (5,150) -

Retained earning

Appropriated retained earning

Legal reserve 7,000 7,000 E

Others 210,378 210,378 F4/

Unappropriated retained earning

Unappropriated ratained earning 27,043 22,725 -

Actuarial gain (loss) on defined benefit plans - -

Total shareholders' equity 307,463 303,145 -

Non-controlling interest 230 52 -

Total owner's equity 307,693 303,197

Total liabilities and owner's equity 2,774,309 2,583,362 3/ Surplus on assets revaluation can be counted as capital subject to prior BOT approval .

Owner's Equity

Capital related items as of December 2015

4/ Net profit after appropriation from resolution of shareholder’s meeting


Table 4 (continued)

Unit: THB million

Component of regulatory

capital reported by

financial group

References based on

balance sheet under the

consolidated supervision

Tier 1 capital

CET1 capital

Paid-up common shares after deducting treasury shares 33,992 A + B

Stock warrant - -

Surplus (deficit) net worth 11,124 C + D

Legal reserve 7,000 E

Reserves from retained earnings - -

Net profit after appropriation 210,378 F4/

Disclosed reserves 9,727 -

9,961 G3/

2,149 H3/

Other owner changes items (2,341) I

- -

272,221 -

Regulatory adjustments on CET1

Regulatory deduction on CET1

1,043 M

Goodwill 5,075 J + K

Intangible assets 612 L

Deferred tax assets -

Total regulatory deduction to CET1 6,730 -

Total CET1 265,491 -

Additional Tier 1 capital

Total Additional Tier 1 - -

Total Tier 1 capital 265,491

Tier 2 capital

Proceeds from issuing subordinated debt securiities 40,000 N

Surplus (deficit) of issued shares and warrants - -

General provision 19,140 O

59,140 -

Regulatory deduction on Tier 2 capital - -

Total Tier 2 capital 59,140

Total regulatory capital 324,631

Total Tier 2 capital before regulatory adjustments and deduction

Items

Revaluation surplus on land and building appraisal

Revaluation surplus (deficit) of equity and debt securities for

sales

Non-controlling interest of consolidated subsidiaries that are

recognised as CET1 of financial group

Total CET1 capital before regulatory adjustments and deduction

Investment in common shares and warrants of finance

companies and credit fonciers


Table 5: Capital Position During Transitional PeriodUnit: THB million

Net value of

items with

transitional

phase subject

to Basel III

Tier 1 capital Bank-only Consolidated

CET1 capital

Total CET1 capital before regulatory adjustments and deduction 262,858 272,221 1,219 1/

Total regulatory adjustments to CET1 - -

Total regulatory deduction to CET1 (5,654) (6,730) (918) 2/

Total CET1 257,204 265,491

Additional Tier 1 capital

Total Additional Tier 1 capital before regulatory adjustments and

deduction- -

Total regulatory deduction to Additional Tier 1 - -

Total Additional Tier 1 - -

Total Tier 1 capital 257,204 265,491

Tier 2 capital

Total Tier 2 capital before regulatory adjustments and deduction 59,140 59,140 (40,000) 3/

Total regulatory deduction to Tier 2 - -

Total Tier 2 capital 59,140 59,140

Total regulatory capital 316,344 324,631

Capital amount as for December 2015

1/ Revaluation surplus of debt securities for sales and foreign currency translation differences , phase-in at 20% p.a. during a transitional period of 2014 - 20182/ Intangible assets e.g. software licenses, phase-out at 20% p.a. during a transitional period of 2014 – 20183/ Non-Basel III compliant capital instruments will be phased out at 10% p.a. starting from 1 January 2013.


4. Risk Management

4.1 Risk Management Structure

The supervision of the SCB Financial Group’s

risk management falls under the responsibility

of several SCB organizational units and

companies in the SCB Financial Group,

including senior management and committees.

The Board of Directors of the Bank has the

responsibility for determining strategies and

approving the SCB Financial Group's risk

management policy, which is reviewed and

agreed on before such approval by those who

are more directly responsible in the

supervision of overall risks, namely the Group

Risk Management Committee, Audit

Committee, and Executive Committee of the

Bank.

For specific risk management, such as lending,

investment, liquidity, and interest rate

management, the Board of Directors assigns

responsibilities to various committees with

specific expertise, namely the Credit

Committee, the Equity Investment

Management Committee, Special Asset

Committee, the Asset & Liability Management

Committee, and others to act on its behalf on

specific risk management matters.

The Risk Management Policy of the SCB

Financial Group requires that all significant

companies within the Financial Group,

especially entities engaged in a financial

business, must have an organizational

structure to ensure that a responsible unit has

been assigned for risk management and ensure

that a risk management system is implemented

in accordance with the risk appetite of such

companies and takes into consideration its size

and complexity.

The Risk Management Function of SCB is

responsible for determining the framework for

risk management for credit risk, market risk,

and operational risk; recommending risk

management policies; and monitoring and

reporting each major type of risk. The Risk

Management Function also has the

responsibility to develop risk management

policies and promote best-practice risk

management standards throughout SCB and its

Financial Group. In particular, the Risk

Management Function submits regular risk

reports, assessments, and recommendations

for improvement to the Group Risk

Management Committee, Audit Committee,

Executive Committee, and the Board of

Directors, typically on a monthly basis.

The Group Treasury has the primary

responsibility for managing liquidity risk and

interest-rate risk in the banking book. Within

the Finance Function, equity investment risk is

managed by the Equity Investment

Management Division, while the Capital

Management Division is mainly responsible for

monitoring and reporting on the capital

adequacy of SCB and its Financial Group.

Specifically, the Capital Management Division

has the responsibility to monitor capital levels,

and to ensure that these levels remain in

excess of minimum regulatory requirements at


all times. It also assesses whether SCB and its

Financial Group’s capital position remains

strong in the context of the prevalent

economic and competitive environment.

The Risk Management Function and the

Finance Function are independent of the

revenue generating functions, and this

supports the strong risk management culture

maintained throughout the Financial Group.

In order to enhance the effectiveness and

efficiency of SCB and its Financial Group

operations through a sound internal control

environment as well as effective risk

management and compliance, the Audit and

Compliance Function has the mandate to

assess internal controls as well as the adequacy

of risk management policies and procedures of

SCB and its Financial Group. The Audit and

Compliance Function reports important audit

findings and related recommendations for

improvement to senior management of the

Bank and its Audit Committee.

4.2 Risk Management Policy

SCB and its Financial Group have established

and applied the Risk Management Policy

Framework at the following two levels:

• SCB, as the parent company, is responsible

for developing the Group Risk Management

Policy to be adopted as the overall Risk

Management Policy Framework. The policy

framework covers seven major risks,

namely credit risk, market risk, operational

risk, liquidity risk, interest rate risk in the

banking book, strategic risk, and

reputational risk, within the Bank and each

company within the SCB Financial Group.

The policy also establishes guidelines for

managing and controlling risks for each

business, and provides formats for reports

that are required to control and monitor

risks of the entire SCB Financial Group,

applying the same standard to each

business.

• Companies in the SCB Financial Group with

significant operations are responsible for

establishing a risk management policy

covering the risks that have been identified

as significant risk in the Group Risk

Management Policy. Risk management

policies of the SCB Financial Group

companies must be proposed to the Group

Risk Management Committee and the

Executive Committee of the Bank for review

prior to seeking approval from the Board of

Directors of the respective companies.

4.3 Risk Management System

SCB and its Financial Group aim to develop an

organization-wide risk management system

within both SCB and its Financial Group. As the

focal point for risk management within its

Financial Group, SCB has the responsibility to

establish the risk management framework

together with guidelines and to control risk

management of all group companies in a

manner that will support sustainable business

growth and strengthen competitive

capabilities, in both the short and long term,

incorporating good governance concepts.

The risk management system comprises four

important processes: identification,

measurement, monitoring and control, and

reporting. Each of these is explained below.

4.3.1 Risk Identification

Business operations of SCB and its Financial

Group comprise transactions and activities

with customers, counterparties, group

companies, and units within the organization.

Risks that arise may be classified into seven

categories:

• Credit risk refers to risk arising from the

failure either of debtors to repay principal

and interest as agreed, or of counterparties

to comply with conditions or contracts,

which might result in damage to the

revenue and capital of SCB and its Financial

Group. The failure might be either from


necessity or intention of the debtors or

counterparties. Credit risk covers both on-

and off-balance-sheet items, including

loans, investments, commitments,

obligations, and similar transactions.

• Market risk refers to risks whereby SCB and

its Financial Group might incur a loss from

changes in the value of on- or off-balance-

sheet positions due to the movement of

market risk factors such as exchange rates,

interest rates, stock prices, credit spreads,

and commodity prices, which might affect

the revenue and capital of SCB and its

Financial Group.

• Operational risk refers to risk of loss arising

due to an inadequacy or failure of internal

processes, personnel, systems, or external

events. This definition also includes legal

risk and impacts to reputation due to

operational risk, but does not include

strategic risk. Operational risk can occur

from both internal and external factors,

such as changes in personnel, organizational

structure, procedures, systems, products,

customers, business landscape or

operational standards, and activities

organized by business units.

• Liquidity risk refers to risk arising from a

failure to repay debts and obligations upon

maturity due to the inability to convert

assets to cash or to acquire sufficient

capital, or of capital being acquired at

unacceptably high prices. It also includes

the risks arising from the inability to unwind

or offset risk assets, causing the forced sale

of such assets at prices lower than cost due

to low liquidity of such assets or lack of

liquidity in the market, which might affect

both present and future revenue.

Interest rate risk in the banking book

(IRRBB) refers to the risks leading to a loss

in net interest income and/or economic

value in the on- and off-balance-sheet

positions in the banking book as a result of

interest rate movements.

• Strategic risk refers to the risks of a current

and/or prospective impact on the Bank and

its Financial Group’s earnings, capital, and

survival arising from factors such as changes

in the environment the Bank operates in,

inappropriate strategic decisions,

ineffective implementation of significant

projects, or lack of responsiveness to

industry, economic, and technological

changes.

• Risk to reputation refers to the risks arising

when external parties, such as customers,

counterparties, investors, or regulators lose

confidence in, or have a negative image of,

SCB and its Financial Group, which might

impact revenue and/or capital of the Group

either immediately or in the future.

4.3.2 Risk Measurement

SCB and its Financial Group adopt the same

method for measuring a particular type of risk

using both qualitative and quantitative

approaches or methods based on a

standardized or internal rating-based approach

or an internal model in order to assess actual

risks.

• Credit risk: SCB measures the quantum of

expected loss (EL) derived from historical

data. This is based on the probability of

default (PD), loss given default (LGD), and

estimates for exposure at default (EAD). All

these estimates are derived using

quantitative models based on historical

performance, including the discount to be

applied to recovery from collateral. In

addition, the Group also applies other key

indicators for credit risk measurement such

as the percentage of occurrence of non-

performing loans or the percentage of a

write–off. (Details are described in the

credit risk section.)

• Market risk: SCB employs statistical and

non-statistical tools for assessing market

risk, namely management stress trigger,

value at risk (VaR), position size, sensitivity


analysis, management action trigger, and

others.

• Operational risk: SCB measures operational

risk using risk management tools, such as

risk and control self-assessment (RCSA), key

risk indicators (KRI), and incident and loss

management reports and databases.

• Liquidity risk: SCB and its Financial Group

measure liquidity risk by using cash flow

reports or liquidity gap reports, including

behavioral cash flow reports and liquidity

ratio analysis.


(IRRBB): SCB measures the risk posed by

interest rate fluctuations through

measuring the impact on net interest

income and economic value of equity (EVE)

under assumptions of interest rate

fluctuation in normal and stress situations

and reports on them in incremental 1%

interest rate fluctuations as per Bank of

Thailand regulations.

• Strategic risk: SCB develops an assessment

using primarily qualitative risk factors and

quantitative economic indicators.

• Reputation risk: Business and support units

establish factors and indicators of the risk to

reputation both from external and internal

sources. Risk levels are defined at one of

five levels (level 1 is the lowest risk and

level 5 is the highest risk level).

4.3.3 Risk Monitoring and Control

Risks within SCB and its Financial Group are

monitored and controlled through the Group

Risk Management Committee, which is

responsible for renewing and recommending

new or revised policies and practices, setting

risk limits for transactions with credit and

market risk, and adopting risk indicators to

monitor significant operational risk. In

addition, the Group Risk Management

Committee presents, through the chief risk

officer, the key risk issues, including new

policies or practices for approval to the

Executive Committee and/or the Board of

Directors of the Bank on a regular basis.

The Bank’s Board of Directors and top

executives establish the Bank’s acceptable risk

level or risk appetite statement (RAS) in order

to meet SCB’s long-term financial targets as

well as monitor and manage its risks, including

review of regulatory capital adequacy.

4.3.4 Risk Reporting


schedules and formats for risk reporting, which

must be submitted by relevant units to senior

executives on a comprehensive and timely

basis in order to effectively control and

manage risk. Reports are aggregated to

highlight risk levels and changes thereto by the

Risk Management Function for reporting to the

Group Risk Management Committee, Audit

Committee, Executive Committee, and the

Board of Directors.


5. Credit Risk Management

5.1 Credit Risk Management Structure

In order to manage the credit risk of SCB and

its Financial Group effectively and efficiently,

organizational units with clearly defined roles

and responsibilities have been established for

managing credit risk. These units are separate

from business origination units. Specifically,

the Bank has established the following credit

risk-related management units under the Risk

Management Function:

• The Credit Risk Management Division has a

major role in approving loans that fall

within its designated authority and to

independently provide comments and

recommendations to higher levels of

approval authority for considering and

approving loans as provided under the

credit policy guide and the related

underwriting standards.

• The Credit Policies and Procedures Unit has

the responsibility to formulate and revise

the credit risk management policy of the

SCB Financial Group; the credit policy

guides of SCB and its Financial Group; and

the related credit risk management policy

and procedures, including the credit manual

and credit approval authorities.

• The Retail Credit Risk Management

Division has the responsibility to control

and oversee retail lending policy both

through the Credit Policy Guide and by

setting the approval authority for retail

lending as well as for product programs and

risk programs for all retail lending products.

It determines the policy and direction for:

tapping target customer segments; pricing

based on risk level; increasing/reducing

credit lines; and measuring risks of each

product and each customer segment. In

addition, the Retail Credit Portfolio

Management Unit within this Division

jointly determines the collection strategy

with the Retail Collection Units of SCB.

• The Credit Risk Analytic Division has the

responsibility to analyze credit portfolios of

SCB and its Financial Group and to develop,

validate, and adopt models for analyzing

credit risk, together with credit scoring for

retail lending.

5.2 Credit Risk Management Policy and

Guidelines

The Group Risk Management Policy applies to

SCB and all companies in its Financial Group

engaged in banking, finance, leasing, securities,

asset management, fund management, and life

insurance that are exposed to material levels of

credit risk. SCB and these group companies

must implement credit risk management

policies as follows:

• Formulate a credit risk management policy

• Determine and document risk-based limits

and approval authorities

• Implement credit approval processes with

checks and balances to ensure both

transparency and validation under the 'four-

eyes' principle

• Establish a concentration limit for SCB

where the limit is established according to

debtor and to industry.


5.2.1 Collateral and Credit Risk Mitigation Policy

Credit risk mitigation reduces losses arising

from default on repayment obligations through

disposing of collateral and/or claiming

payment from guarantors.

SCB and its Financial Group have opted for the

Standardized Approach in the calculation of

credit risk. Accordingly, collateral that can be

applied for credit risk mitigation falls within

one of two categories:

1. Financial collateral comprises items that can

be liquidated for cash with relative ease by

reference to mark-to-market values, such as

cash, deposits, bonds, securities, and unit

trusts.

2. Guarantees and credit derivatives

SCB and its Financial Group entities that accept

collateral have policies and guidelines for

appraising the value of such collateral and any

property obtained following repayment or

purchase from public auctions of this collateral.

Chief among these policies and guidelines is

the Collateral and Non-Performing Asset

Appraisal Policy. This policy is adopted as a

guideline for collateral management in order to

reflect fair market value, both before and after

acceptance of the collateral.


the following broad principles to optimize the

value of near-cash collateral:

• Minimize concentration of any type of

collateral or issuer

• Avoid, as far as possible, any positive

correlation between collateral value and

default risk of debtors

• Avoid, as far as possible, any currency

mismatch between an obligation and

collateral. To the extent that such

mismatch exists, the value of collateral

should be discounted to compensate for the

underlying currency risk

• Avoid, as far as possible, any maturity

mismatch between the maturity of an

obligation and contracts. If such mismatch

does exist, renewal must be monitored and

arrangements made before the maturity

date to ensure that the collateral remains

valid throughout the tenor of the loan

• Ensure that contracts are standard, as far as

possible, and are reviewed by legal units of

SCB or its Group companies for

enforceability and validity.

Appraisal of financial collateral is, typically,

reviewed at least once a month using the latest

bid price as the appraised value. Guarantees

can be used to mitigate credit risk in order to

assign a lower risk weight, compared with that

assigned to the debtor. Specifically, a private

entity acting as a guarantor must have a better

rating than the debtor according to ratings

from external credit assessment institutions.

For other types of collateral, the Bank has

developed a Collateral and Non-Performing

Asset Appraisal Policy to serve as a guideline

for ensuring that collateral and NPA values

reflect fair market value, before approval of a

loan and subsequently following any update.


5.2.2 On- and Off-Balance-Sheet Netting

Policy and Process

SCB and its Financial Group can mitigate credit

risk by netting as long as the underlying

contract between the parties allows this. The

contract must be in line with the minimum

standard established by the Bank of Thailand

and must be approved by the relevant legal

unit of SCB and, if applicable, the Financial

Group company. The contract must be

regularly reviewed to identify any impact on

enforcement that might arise from changes in

regulatory requirements and/or laws. In

addition, SCB and its Financial Group must

have systems to monitor and control the risk

arising from maturity mismatch of assets and

liabilities that are subject to netting.

Specifically, all compliance monitoring and

control must be on a netting basis. Non-

compliance with the above principles will result

in the obligation not being eligible for netting.

5.2.3 Definition of Default

The SCB Financial Group has established a

definition of default and loss based on the

occurrence of either or both of the following

events:

• It is deemed that the debtor is unable to

meet, in full, their payment obligations in

accordance with the contract without taking

into account any repayment to be

recovered from collateral enforcement, e.g.,

consent for debt restructuring with a

significant haircut or postponement of

principal, interest, or fee payments due to

the deteriorated financial status of the

debtor.

• Default on repayment (principal and

interest) for more than 90 days from the

due date, or the debtor being classified as

substandard or lower according to the Bank

of Thailand notification regarding Debt

Classification and Reserves Criteria for

Financial Institutions.

For impairment of assets, SCB and its solo

consolidation companies are required to adopt

the asset classification criteria as established

by the Bank of Thailand. These classification

criteria require classification of loans as pass,

special mention, substandard, doubtful,

doubtful loss, and loss. The policy also requires

that debts be classified by debtor. However,

retail debtors are classified by account for both

secured loans and unsecured loans. In addition

to the classification according to the number of

days outstanding, SCB also adopts the

qualitative approach for classifying debts. Use

of the qualitative credit review process ensures

that classification is accurate and appropriate

with adequate loan loss provisions.

5.2.4 Classification and Provisioning Policy

The Bank’s debt classification, provision, and

bad debt or bad debt recovery write-off is in

accordance with the regulations of the Bank of

Thailand or other related regulators. The

Bank’s provision levels are adequate to provide

a cushion against expected losses from an

impairment of assets, particularly loans.

Typically, loans are classified based on the

borrower’s cash flow sufficiency to meet debt

service obligations and to ensure that the Bank

has adequate provision based on both

quantitative and qualitative criteria. In the

event of a single source of repayment for

multiple debtors or related parties, the Bank

applies the same debt classification; in all cases

the underlying aim is to ensure the adequacy

of the provisions.

General provision

According to the definition of the Financial

Group under the solo consolidation basis, a

general provision refers to the surplus reserves

set aside for possible impairment of loans in

the future. Such reserves support cover

against potential losses without reference to a

specific debtor. Although general reserves are

not identified by debtors, SCB and its Financial

Group maintain such reserves at an


appropriate level for possible future loan loss.

Setting aside reserves will be considered using

various factors, such as the economic

conditions that might impact the debt service

ability of borrowers, quality and characteristics

of the loan portfolio, regulatory requirements,

and accounting standards.

Specific provision

SCB and its Financial Group determine specific

provisions based on asset classification

according to regulations set by the BOT, or

even stricter criteria in some cases. For

example, for NPLs with an outstanding balance

of less than Baht 20 million and with collateral

quality that is assessed as fair or lower, the

Bank applies the present value of cash flow

from collateral disposal, which is more

conservative than the criteria specified by the

BOT. Furthermore, in the credit review

process, debtor status is taken into account

and a special provision may be considered to

ensure that the Bank has adequate provisions

to cushion against future losses and that net

loans are fairly stated.

5.3 Credit Approval Process

SCB and its Financial Group have implemented

effective segregation of duties between

business origination units and credit approval

units. Although the SCB retail credit approval

unit is under a business group, the unit is

independent from the marketing, product, and

business origination units within this business.

In this case, credit approval is processed under

the risk/product program framework and

scoring model approved by the Executive

Committee or the Retail Credit Committee,

wherein approval authorities and criteria have

clearly been specified, including the process for

handling exceptions.

Approval authority

All SCB Financial Group companies have

established credit approval authority, which is

approved by the Board of Directors of SCB or

its Financial Group companies; such authority

may be delegated to committees and further

to individuals at different corporate levels. Any

credit approval that does not comply with

policy or the underwriting standard must be

referred to and approved by the authority that

made the initial delegation.

SCB has divided approval authority at two

levels, namely at a committee level and at an

individual level. Committees that are

authorized to approve loans include the Credit

Committee, Executive Committee, and the

Board of Directors. Individual approval

authority starts from credit officers and goes

up to the chairman of the SCB Executive

Committee. In addition, the Bank also grants

individual approval authority with pre-specified

conditions to business units from the level of

sector manager/regional manager for the

Business Banking Group, and branch manager

for the Retail Banking Group for specific

industries or for specific circumstances and up

to a pre-determined limit.

Approval authority is established based on the

risk level or expected loss, which will depend

on the credit line, borrower risk rating, and

severity class. Approval authority for group

exposure is considered after taking into

account relationships in terms of shareholding

and controlling authority in accordance with

Section 4 of the Financial Institution Act.

5.4 Credit Risk Measurement

Characteristics of credit risk can differ

according to type of borrower, facility, and

collateral. Accordingly, different approaches

will be adopted for measuring risks, from

simple to complicated statistical tools, in order

to appropriately reflect each type of risk.

For commercial loans, credit risk is measured

at a borrower level, which is assessed from the

following factors:


• Probability of default (PD): For corporate

and business customers, risk rating will be

measured on a borrower level by use of a

borrower risk rating system to evaluate the

debtor’s ability to pay. The risk rating must

be reviewed annually or when material

changes occur to reflect debtor risk

behavior. For small businesses and retail

customers, risk measurement will be

performed on a pooled basis, such as

through using a PD pool. Several variables

will be applied in this approach to

determine segments, such as customer

profile, facility usage, and payment

behavior.

• Loss given default (LGD): This factor is used

to estimate the loss level when a default

event occurs. LGD is calculated from the

loss through three recovery paths: cure,

restructuring, and liquidation. The different

levels of risk for each type of collateral are

captured by discount factors in calculating

the discounted collateral value for a

particular path.

• Exposure at default (EAD): EAD is

calculated from the current outstanding

balance and the potential use of the unused

limit. It will vary according to each product

type. All off-balance sheet items must be

converted to on-balance items through use

of a credit conversion factor (CCF).

For small business and retail loans, similar

methods are adopted but on a pooled basis

taking into account the following items:

• The percentage of non-performing loans

will be measured from the ratio of debtors

in a portfolio that are late on payment by 90

or more days. For retail customers this ratio

will be calculated by product and customer

segment. For a given portfolio, this ratio

reflects the underlying credit quality.

• The percentage of write-off will be

measured from the ratio of debtors in a

portfolio who fail to meet their payment

obligation and benefit from a haircut. For

retail customers this ratio will be measured

by product and customer segment. For a

given portfolio, this ratio reflects the

underlying credit quality.

Results from the above measures will be

applied as a component in the credit approval

process, such as determining approval

authority and pricing as well as other

conditions, such as conditions relating to

collateral conditions, in order to ensure that

credit decisions are always made on a risk-

based basis.

5.4.1 Credit Risk Measurement under the

Standardized Approach

SCB and its Financial Group adopted the

Standardized Approach for measuring credit

risk assets. Under this approach, external

credit ratings will be applied to measure credit

risk. Standard & Poor’s ratings are applied for

sovereign and financial institutions, while TRIS

Ratings and/or Fitch Ratings (Thailand) are

applied for corporate borrowers.

In the event that the debtor has a rating

assigned by several rating institutions, SCB and

its Financial Group will select the rating

according to Bank of Thailand regulations. In

case two ratings are assigned, the rating with a

higher risk weight will be adopted for those

with different risk weights. For non-rated

companies, SCB will use the Bank of Thailand

guidelines to determine the appropriate risk

weights.

5.5 Credit Risk Monitoring and Control

5.5.1 Risk Monitoring Guidelines

Credit risk monitoring is an important credit

risk management process. SCB and its

Financial Group have adopted a monitoring

process to ensure that credit risk assessment

will be accurate, appropriate, unbiased,

complete, and monitored regularly in order to

assess credit risk in a timely manner.


The credit risk monitoring process of SCB and

its Financial Group is divided into three parts:

• The first part is credit risk monitoring

through use of risk management tools, such

as credit scoring or borrower risk rating, and

other such methods. These risk

management tools are statistically tested to

ensure that they can effectively reflect the

risk level and behavior of customers in a

manner that is acceptable to SCB and its

Financial Group, and they are regularly

reviewed to ensure their continued validity.

• The second part relates to credit risk

monitoring through limits, based on

approval authority, transaction volume, and

especially credit concentration limits. SCB

and its Financial Group have established

limits for financial transactions with

customers and limits for intra-group

transactions. In addition, SCB and its

Financial Group also determine a limit for

each industry.

• The third part is portfolio monitoring under

retail credit risk management, which

includes portfolio analysis together with

payment behavior measured against the

established benchmark to ensure that the

risk policy is being complied with and

reflected in the retail portfolio quality.

At the individual level, SCB and its Financial

Group have established credit review as a

priority process. At SCB, corporate borrowers

with credit lines of Baht 20 million and SME

borrowers with credit lines of Baht 50 million

or above are reviewed individually in terms of

credit rating, credit strategies, and next-year

business plans, at least once annually or upon

any significant adverse change in a customer’s

perceived credit worthiness. Those SME

customers with credit lines below Baht 50

million are reviewed on a pooled basis and on

an individual basis for those in the high-

default-risk group.

At the portfolio level, credit risk is monitored

to analyze credit quality and trends to

determine whether or not they are in line with

the target established at the beginning of the

year. Loan monitoring enables SCB to analyze

trends in loan growth and future problem

loans, and the effectiveness of its credit-

related strategies. For retail credit SCB also

analyzes payment behavior and monitors

credit quality through target key indicators.

Credit risk monitoring also includes comparison

of loans outstanding and non-performing loans

against historical data of SCB and of the Thai

commercial banking industry, which highlights

credit risk trends. In addition, credit risk stress

testing is performed using predetermined

scenarios, which cover a range of risk factors.

These tests allow SCB to forecast losses and

the adequacy of its capital level to support

such losses should stress situations arise in the

future. Testing results are used for risk

mitigation and capital planning as well as for

determining approaches to mitigate or

minimize any potential losses in these adverse

situations.

5.5.2 Risk Control Guidelines

Lending, investment, contingent liabilities, and

lending-like transactions with major borrowers

are controlled at two levels as follows:

1. Bank level: Concentration should not exceed

25% of the Bank's total capital. Additionally,

for all major borrower groups with total debts

exceeding 10% of the Bank's total capital, the

aggregate debt should not exceed three times

the Bank's total capital.

2. Full consolidation level: Concentration must

not exceed 25% of the full consolidation

capital.

Lending, investment, contingent liabilities, and

lending-like transactions involving major

shareholders or businesses with beneficial

interests are controlled according to Bank of


Thailand regulations, at both the SCB and at

the solo consolidation level.

SCB has placed priority on the development of

a process to monitor and control limits for

lending, investment, and contingent liabilities

to major borrower groups. A Primary Account

Manager (PAM) is designated to be responsible

for controlling limits for lending, investment,

and contingent liabilities for each major

borrower group within the limits set by Bank of

Thailand regulations. Limits are allocated by

the PAM to companies in the solo

consolidation group for lending, investment,

and contingent liabilities for each major

borrower or related parties. Full consolidation

companies are also required to submit a report

on credit lines and outstanding debts for such

groups on a monthly basis, while the PAM

controls the aggregate limit on a consolidated

level.

The Bank aims to ensure that its lending is not

concentrated in a particular industry. This will

be determined from industry trends,

proportion of the total banking industry,

probability of loss, and probability of default.

The Bank has applied statistical tools to

determine industry limits, such as the

Herfindahl-Hirschman Index (HHI), an index

adopting for measuring industry concentration.

Lending for risk program and product program

is determined by credit line specifying

objectives, type of credit line, customer

qualifications, criteria, and standard

conditions.

5.5.3 Counterparty Credit Risk and

Country Risk

SCB and its Financial Group control the credit

risk of counterparties by determining credit

lines for each counterparty group in order for

potential losses from transactions to remain

under the maximum level acceptable to the

Bank in the event of default by the

counterparty.

In addition, SCB also controls country risk by

establishing policy limits and country limits for

lending, investment, and contingent liabilities

for each country. Both direct and indirect

exposure to a particular country arising from

transactions with the Bank’s clients and

counterparties are captured for monitoring

against approved country-risk limits as

required by the Country Risk Management

Policy of SCB.

5.6 Credit Risk Report

SCB and its Financial Group are required to

regularly report on credit risk. Each relevant

unit prepares a monthly report and this report

is used for managing risk. Credit risk reports of

SCB and its Financial Group are submitted to

the Group Risk Management Committee on a

monthly basis, in terms of loan growth, credit

quality, credit concentration, investment

diversity, etc.

SCB and its Financial Group have developed a

Credit Risk Report by incorporating

outstanding assets on the balance sheet and

important off-balance sheet items. The report

also shows loss items that have been written

off during the accounting period without credit

risk adjustment (Table 6-13), such as

outstanding debts by geographical area

according to country or region. Finally,

exposures by risk type and risk weights under

the Standardized Approach are also reflected

in Table 14 - 16.


Table 6: Significant On- and Off-Balance-Sheet Exposure Items


Exposure items 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

1. On-balance-sheet items (1.1+1.2+1.3+1.4)

1.1 Net loans1/ 1,962,588 1,961,586 1,967,866 1,964,563

1.2 Net investment in debt securities2/ 325,465 324,531 334,046 332,744

1.3 Deposits 46,132 30,091 51,777 35,651

1.4 Derivative assets 58,559 43,759 57,427 43,759

2. Off-balance-sheet items3/ (2.1+2.2+2.3)

2.1 Avals to bills, guarantees and LC 52,762 46,738 54,027 46,992

2.2 Credit derivatives4/ 3,546,268 3,108,035 3,546,518 3,108,352

2.2 Undrawn committed lines 35,584 33,638 35,584 33,638

Note:

1/ Including accrued interest receivables and net of deferred income, allowance for doubtful accounts and allowance for revaluation from debt

restructuring and including net loans of interbank and money market

2/ Excluding accrued interest receivables and net of allowances for revaluation and impairment of securities

3/ Before using credit conversion factor

4/ Including equity-related derivatives



Table 7: Exposures Classified by Geographical Area(Unit : THB mi l l ion)

Bank-only

31 Dec 15

Geography Total Loans1/Debt

investment2/Deposits

Derivative

assetsTotal Contingent

OTC

derivatives4/

Undrawn

committed

Thailand 2,347,205 1,938,399 324,598 25,650 58,558 3,631,862 50,977 3,545,301 35,584

Foreign countries 45,539 24,189 867 20,482 1 2,752 1,785 967 -

Total 2,392,744 1,962,588 325,465 46,132 58,559 3,634,614 52,762 3,546,268 35,584

31 Dec 14


investment2/ DepositsDerivative


OTC

derivatives4/

Undrawn

committed

Thailand 2,310,410 1,925,236 324,028 17,387 43,759 3,187,859 46,318 3,107,903 33,638

Foreign countries 49,557 36,350 503 12,704 - 552 420 132 -

Total 2,359,967 1,961,586 324,531 30,091 43,759 3,188,411 46,738 3,108,035 33,638

Consolidated

31 Dec 15




OTC

derivatives4/

Undrawn

committed

Thailand 2,355,912 1,939,578 333,175 25,733 57,426 3,632,484 51,349 3,545,551 35,584

Foreign countries 55,204 28,288 871 26,044 1 3,645 2,678 967 -

Total 2,411,116 1,967,866 334,046 51,777 57,427 3,636,129 54,027 3,546,518 35,584

31 Dec 14




OTC

derivatives4/

Undrawn

committed

Thailand 2,320,138 1,926,640 332,241 17,498 43,759 3,188,067 46,318 3,108,111 33,638

Foreign countries 56,579 37,923 503 18,154 - 915 673 241 -

Total 2,376,717 1,964,563 332,744 35,651 43,759 3,188,982 46,992 3,108,352 33,638

Note:

1/ Including accrued interest receivables and net of deferred income, allowance for doubtful accounts and allowance for revaluation

from debt restructuring and including net loans of interbank and money market


3/ Before using credit conversion factor


Off-balance sheet3/

Off-balance sheet3/

Off-balance sheet3/

On-balance sheet

On-balance sheet

On-balance sheet

Off-balance sheet3/On-balance sheet


Table 8: Exposures Classified by Residual Maturity


Exposures Items < 1 yr >1 yr < 5 yr > 5 yr < 1 yr >1 yr < 5 yr > 5 yr

1. On-balance-sheet items (1.1+1.2+1.3)

1.1 Net loans1/ 851,623 605,911 505,054 911,842 595,201 454,543

1.2 Net investment in debt securities2/ 245,209 64,367 15,889 194,164 119,609 10,757

1.3 Deposits 46,132 - - 30,091 - -

1.4 Derivative assets 14,946 24,756 18,857 9,908 33,851 -


2.1 Avals to bills, guarantees and LC 33,172 19,584 6 42,638 4,097 4

2.2 Credit derivatives4/ 1,590,248 1,360,200 595,820 1,257,412 1,365,743 484,880

2.2 Undrawn committed lines 2,384 5,396 27,804 798 7,390 25,449

Exposures Items < 1 yr >1 yr < 5 yr > 5 yr < 1 yr >1 yr < 5 yr > 5 yr

1. On-balance-sheet items (1.1+1.2+1.3)

1.1 Net loans1/ 854,287 608,573 505,007 914,818 595,201 454,543

1.2 Net investment in debt securities2/ 253,778 64,367 15,901 202,366 119,609 10,769

1.3 Deposits 51,633 - 144 35,651 - -

1.4 Derivative assets 14,954 24,756 17,716 9,908 33,851 -


2.1 Avals to bills, guarantees and LC 34,431 19,590 6 42,891 4,101 -

2.2 Credit derivatives4/ 1,590,758 1,359,940 595,820 1,257,729 1,365,743 484,880

2.2 Undrawn committed lines 2,384 5,396 27,804 798 7,390 25,449

Note:

1/ Including accrued interest receivables and net of deferred income, allowance for doubtful accounts and allowance for revaluation

from debt restructuring and including net loans of interbank and money market


3/ Before credit conversion factor


Bank-only

31 Dec 15 31 Dec 14

Consolidated

31 Dec 15 31 Dec 14


Table 9: Loans & Investment in Debt Securities Classified by Geographical Area and Asset Classification


Bank-only

31 Dec 15Investment in

debt securities

Jurisdiction Normal Special mention Substandard Doubtful Doubtful loss Total DL

Thailand 1,911,206 33,435 24,985 14,629 17,656 2,001,910 339

Foreign countries 24,432 24,432

Total 1,935,638 33,435 24,985 14,629 17,656 2,026,343 339


debt securities


Thailand 1,878,894 62,790 16,709 8,265 16,700 1,983,358 1,133


Total 1,915,609 62,790 16,709 8,265 16,700 2,020,073 1,133

Consolidated


debt securities


Thailand 1,912,029 33,435 24,985 14,629 18,718 2,003,795 599

Foreign countries 28,258 60 180 564 29,062

Total 1,940,287 33,494 24,985 14,809 19,281 2,032,857 599


debt securities


Thailand 1,879,921 62,790 16,709 8,265 17,824 1,985,508 1,327


Total 1,918,224 62,790 16,709 8,265 17,824 2,023,812 1,327

Note:

1/ Including outstanding amounts of loans and accrued interest receivables, interbank and money market (excluding allowance of doubtful accounts)

Total loans 1/

Total loans 1/

Total loans 1/

Total loans 1/


Table 10: Provisions and Bad Debt Written-Off on Loans and Investment in Debt Securities, Classified by Geographical Area


Bank-only

31 Dec 15Investment in debt

securities

Jurisdiction General provisions Specific provisions Write-off Specific provisions

Thailand 44,372 26,566 339

Foreign countries 243 - -

Total 19,140 44,615 26,566 339


securities

Jurisdiction General provisions Specific provisions Write-off Specific Provisions

Thailand 40,287 15,673 1,133


Total 17,835 40,652 15,673 1,133

Consolidated


securities


Thailand 45,582 26,594 599


Total 19,140 45,851 26,594 599


securities


Thailand 41,013 15,843 1,327


Total 17,856 41,393 15,843 1,327

Note:

1/ Including outstanding amounts of loans and accrued interest receivables, interbank and money market (excluding allowance of doubtful accounts)

Total loans 1/

Total loans 1/

Total loans 1/

Total loans 1/


Table 11: Loans Classified by Type of Business and Asset Classification(Unit : THB million)

Bank-only

31 Dec 15

Type of business Normal Special mention Substandard Doubtful Doubtful loss Total

• Agriculture & mining 15,337 344 146 78 44 15,949

• Manufacture & commerce 749,416 7,965 14,134 10,000 10,938 792,453

• Real estate and construction 137,629 864 503 164 1,481 140,641

• Infrastructure & services 249,377 962 1,601 317 1,866 254,123

• Housing loans 477,709 9,862 4,711 2,648 1,366 496,296

• Others 306,170 13,438 3,890 1,422 1,961 326,881

Total 1,935,638 33,435 24,985 14,629 17,656 2,026,343

31 Dec 14




• Real estate and construction 120,991 1,266 652 447 1,029 124,385

• Infrastructure & services 215,408 1,884 1,951 448 1,306 220,997

• Housing loans 443,296 11,143 4,542 3,145 2,084 464,210

• Others 301,066 14,660 4,106 1,669 2,127 323,628

Total 1,915,609 62,790 16,709 8,265 16,700 2,020,073

Consolidated

31 Dec 15




• Real estate and construction 137,629 899 503 164 2,542 141,737

• Infrastructure & services 249,895 963 1,601 317 2,021 254,797

• Housing loans 477,730 9,862 4,711 2,648 1,366 496,317

• Others 306,993 13,438 3,890 1,422 2,025 327,768

Total 1,940,287 33,495 24,985 14,809 19,281 2,032,857

31 Dec 14




• Real estate and construction 120,993 1,266 652 447 2,089 125,447

• Infrastructure & services 215,938 1,884 1,951 448 1,306 221,527

• Housing loans 443,303 11,143 4,542 3,145 2,084 464,217

• Others 302,093 14,660 4,106 1,669 2,191 324,719

Total 1,918,224 62,790 16,709 8,265 17,824 2,023,812

Note: 1/ Including outstanding amounts of loans and accrued interest receivables, interbank and money market (excluding allowance of doubtful accounts)

Total loans 1/

Total loans 1/

Total loans 1/

Total loans 1/


Table 12: Provisions and Bad Debts Written-Off for Loans1/ Classified by Type of Business(Unit : THB million)

Type of business

General

provisions2/

Specific

provisions

Bad debts

written-off

during period

General

provisions2/

Specific

provisions

Bad debts

written-off

during period

• Agriculture & mining 698 11 648 22

• Manufacture & commerce 26,311 14,905 24,556 6,506

• Real estate and construction 1,387 42 1,356 49

• Infrastructure & services 2,113 399 1,841 325

• Housing loans 6,056 2,627 5,453 381

• Others 8,050 8,582 6,798 8,390

Total 19,140 44,615 26,566 17,835 40,652 15,673

Type of business

General

provisions2/

Specific

provisions

Bad debts

written-off

during period

General

provisions2/

Specific

provisions

Bad debts

written-off

during period

• Agriculture & mining 833 11 648 22

• Manufacture & commerce 26,516 14,905 24,556 6,506

• Real estate and construction 2,074 70 2,033 50

• Infrastructure & services 2,258 399 1,841 325

• Housing loans 6,056 2,627 5,453 381

• Others 8,114 8,582 6,863 8,559

Total 19,140 45,851 26,594 17,856 41,393 15,843

Note:

1/ Including outstanding amounts of loans and accrued interest receivables of interbank and money market

2/ Disclosed in total amounts

Consolidated

31 Dec 15 31 Dec 14

Bank-only

31 Dec 15 31 Dec 14


Table 13: Reconciliation of Change in Provisions for Loans1/


Particulars

General

provisions2/

Specific

provisionsTotal

General

provisions2/

Specific

provisionsTotal

Balance, beginning of year 17,835 40,652 58,487 20,174 39,156 59,330

• Charge-offs during period - (26,566) (26,566) - (15,673) (15,673)

• Increase/decrease in provisions 1,305 30,529 31,834 (2,339) 17,169 14,830

• Other provisions3/ - - - - - -

Balance, end of year 19,140 44,615 63,755 17,835 40,652 58,487

Particulars

General

provisions2/

Specific

provisionsTotal

General

provisions2/

Specific

provisionsTotal

Balance, beginning of year 17,856 41,393 59,249 20,177 40,492 60,669

• Charge-offs during period - (26,594) (26,594) - (15,843) (15,843)

• Increase/decrease in provisions 1,284 31,052 32,336 (2,321) 16,744 14,423

• Other provisions3/ - - - - - -

Balance, end of year 19,140 45,851 64,991 17,856 41,393 59,249

Note:

1/ Including outstanding amounts of loans including accrued interest receivables of interbank and money market

2/ Disclosed in total amounts

3/ e.g. Provisions for losses from foreign exchange, provisions for M&A or sell-off

Bank-only

31 Dec 15 31 Dec 14

31 Dec 15 31 Dec 14

Consolidated


Table 14: Exposures Classified by Asset Type under the Standardized Approach (SA)


Asset type

On-balance

sheet

Off-balance

sheet*Total

On-balance

sheet

Off-balance

sheet*Total

1. Performing

1.1 Claims on Sovereign & Central Banks,

MDBs, PSEs-Sovereign313,726 166,577 480,303 291,468 216,877 508,345

1.2 Claims on Bank, PSEs-Bank 63,270 113,332 176,602 65,175 112,626 177,801

1.3 Claims on Corporate, PSEs-Corporate 822,061 149,205 971,266 824,608 118,195 942,803

1.4 Claims on Retail portfolios 481,058 4,561 485,619 471,990 4,699 476,689

1.5 Claims on Retail mortgage loans 459,289 - 459,289 423,032 - 423,032

1.6 Other assets 198,671 - 198,671 187,396 - 187,396

2. Non-Performing loans 23,951 1,027 24,979 19,978 1,101 21,079

3. First-to-Default credit derivatives and securitisation - - - - - -

Total 2,362,026 434,702 2,796,729 2,283,648 453,498 2,737,146

Asset type

On-balance

sheet

Off-balance

sheet*Total

On-balance

sheet

Off-balance

sheet*Total

1. Performing

1.1 Claims on Sovereign & Central Banks,

MDBs, PSEs-Sovereign326,047 166,577 492,624 304,097 216,877 520,974

1.2 Claims on Bank, PSEs-Bank 65,361 113,331 178,692 69,765 112,626 182,391

1.3 Claims on Corporate, PSEs-Corporate 825,366 150,521 975,887 816,519 118,815 935,334

1.4 Claims on Retail portfolios 481,863 4,900 486,763 472,581 4,961 477,542

1.5 Claims on Retail mortgage loans 459,289 - 459,289 423,032 - 423,032

1.6 Other assets 229,169 - 229,169 208,988 - 208,988

2. Non-Performing loans 24,558 1,027 25,585 29,794 1,101 30,895

3. First-to-Default credit derivatives and securitisation - - - - - -

Total 2,411,653 436,356 2,848,009 2,324,775 454,380 2,779,155

Note:

*Off-balance-sheet exposures (including Repo and Reverse Repo transactions) after multiplying with Credit Conversion Factor (CCF),net of specific provision

Consolidated

31 Dec 15 31 Dec 14

Bank-only

31 Dec 15 31 Dec 14


Table 15: Exposures After Adjusting for Credit Risk Mitigation Classified by Asset Type and Risk Weights under the Standardized Approach (SA)(Unit : THB million)

Bank-only

31 Dec 15

Asset Type

Risk weights (%) 0 20 50 100 150 0 20 35 50 75 100 250 625 937.5 100/8.5%

Performing

1. Claims on Sovereign & Central Banks,

MDBs, PSEs-Sovereign330,777 - 1 - 379 - - - - - -

2. Claims on Bank, PSEs-Bank - 62,040 32,591 19,456 19 - - - - -

3. Claims on Corporate, PSEs-Corporate - 29,479 52,842 31,369 162 829,382 - - - -

4. Claims on Retail portfolios 472,588 - - - - -

5. Claims on Retail mortgage loans 420,286 - 37,042 1,816

6. Other assets 105,847 - 84,090 8,734 - - -

Risk weights (%) 20 50 100 150 75

Non-Performing loans 123 8,301 10,213 6,127 110

Total 330,777 91,642 93,735 61,037 6,687 105,847 - 420,286 - 509,740 915,288 8,734 - - -

Capital deduction prescribed by the BOT: - None -

31 Dec 14

Asset Type

Risk weights (%) 0 20 50 100 150 0 20 35 50 75 100 250 625 937.5 100/8.5%

Performing


MDBs, PSEs-Sovereign324,475 - 6 - 841 - - - - - -


3. Claims on Corporate, PSEs-Corporate - 30,383 79,842 22,976 - 784,407 - - - -

4. Claims on Retail portfolios 463,009 - - - - -


6. Other assets 96,078 - 85,480 5,838 - - 1

Risk weights (%) 20 50 100 150 75


Total 324,475 98,188 97,318 41,348 6,661 96,078 - 388,712 - 495,737 871,507 5,838 - - 1


Rated exposure Unrated exposure



Table 15: Exposures After Adjusting for Credit Risk Mitigation Classified by Asset Type and Risk Weights under the Standardized Approach (SA) (Continued)

Consolidated

31 Dec 15 (Unit : THB million)

Asset Type

Risk weights (%) 0 20 50 100 150 0 20 35 50 75 100 250 937.5 100/8.5%

Performing


MDBs, PSEs-Sovereign339,472 - 1 3,627 379 - - - - - -


3. Claims on Corporate, PSEs-Corporate - 29,479 52,842 31,369 162 833,537 - - - -

4. Claims on Retail portfolios 473,352 34 - - - -


6. Other assets 135,034 - 73,483 20,651 - - -

Risk weights (%) 20 50 100 150 75


Total 339,472 92,323 93,747 65,967 7,388 135,034 - 420,286 - 510,504 908,871 20,651 - - -


31 Dec 14

Asset Type

Risk weights (%) 0 20 50 100 150 0 20 35 50 75 100 250 937.5 100/8.5%

Performing


MDBs, PSEs-Sovereign333,316 - 6 3,788 841 - - - - - -


3. Claims on Corporate, PSEs-Corporate - 30,383 79,842 1,762 - 797,510 - - - -

4. Claims on Retail portfolios 463,518 36 - - - -


6. Other assets 115,345 - 75,691 17,950 - - 1

Risk weights (%) 20 50 100 150 75


Total 333,316 99,272 97,390 34,346 6,736 115,345 - 388,712 - 496,246 874,857 17,950 - - 1






Asset typeEligible financial

collateral2/

Guarantee &

credit derivatives

Eligible financial

collateral2/

Guarantee &

credit derivatives

Performing

1. Claims on Sovereign & Central Banks, MDBs, PSEs-Sovereign 160,513 - 209,577 -

2. Claims on Bank, PSEs-Bank 53,611 9,010 62,525 26,552

3. Claims on Corporate, PSEs-Corporate 25,549 10,876 25,176 7,652

4. Claims on Retail portfolios 13,031 - 13,680 -

5. Claims on Retail mortgage loans 145 - 187 -

6. Other assets - - - -

Non-Performing 106 1,031 139 1,677

Total 252,955 20,917 311,284 35,881

Asset typeEligible financial

collateral2/

Guarantee &

credit derivatives

Eligible financial

collateral2/

Guarantee &

credit derivatives

Performing

1. Claims on Sovereign & Central Banks, MDBs, PSEs-Sovereign 160,513 - 209,577 -

2. Claims on Bank, PSEs-Bank 53,611 9,010 62,525 26,552

3. Claims on Corporate, PSEs-Corporate 26,015 10,876 25,817 7,652

4. Claims on Retail portfolios 13,377 - 13,987 -

5. Claims on Retail mortgage loans 145 - 187 -

6. Other assets - - - -

Non-Performing 106 1,031 139 1,677

Total 253,767 20,917 312,233 35,881

Note :

1/ Credit risk mitigation excludes securitization. Values after on-balance-sheet and off-balance-sheet netting.2/ Eligible financial collateral that the BOT allows to use for risk mitigation. For applying the Comprehensive approach, the values after haircut shall be disclosed.

Table 16: Exposures Covered by Risk Mitigation Classified by Asset Type and Type of Collateral Under the Standardized Approach (SA)1/

Consolidated

31 Dec 15 31 Dec 14

Bank-only

31 Dec 15 31 Dec 14


6. Market Risk Management

6.1 Market Risk Management

SCB and its Financial Group have divided

market risk positions into trading books and

non-trading books. Trading books comprise

trading transactions in the financial markets

and short-term positions held for sale and/or

trading or arbitrage, while non-trading books

mainly comprise positions from interest rate

risk management in the banking book and

investment risk management.

6.2 Market Risk Management Policy

SCB and its Financial Group companies with

material market risk exposures are required to

formulate a Market Risk Policy and a Trading

Book Policy or Investment Policy for managing

market risk. The policies must be proposed to

the Group Risk Management Committee and

the Executive Committee of the Bank for

review prior to seeking approval from the

Board of Directors of the respective

companies. This policy must be reviewed at

least once annually, or as deemed appropriate

and/or upon any significant change in

strategies or market situation which have a

material impact on the policy. Companies in

the Financial Group with material market risk

exposure are required to set up an

independent market risk management unit

responsible for measuring, evaluating,

controlling, monitoring, and reporting on

market risk and, further, to ensure market risk

exposure is managed within predetermined

limits.

6.3 Market Risk Assessment

SCB and its Financial Group have adopted

appropriate statistical and non-statistical tools

for market risk assessment. The tools depend

on the risk characteristic of each company.

These tools include stress testing, value at risk

(VaR), position size, sensitivity analysis,

management action trigger, and others.


perform stress testing for all material positions

held in the portfolio. Stress testing is a method

for measuring the potential loss on a portfolio

in case of extreme yet plausible market events.

Risks arising from stress events, although

unlikely, can cause substantial losses if incurred

and may impact the stability of the Bank. The

independent Market Risk Management

Division has the responsibility to define and

review market risk stress methodology,

perform stress testing, and monitor stress

exposure against the management stress

trigger, and to report stress exposure to senior

management regularly.

6.4 Market Risk Limits

Market risk limits are key controls designed to

ensure that market risk exposure is aligned

with the market risk appetite of SCB and its

Financial Group. The most appropriate limits to

control a business’s market risk exposure will

be determined in a limit review process taking

into account several key factors, for example,

the business strategy, historical performance,

market risk capital requirement, market depth,

liquidity, etc. Market risk limits are reviewed

and approved by the Board of Directors or

delegated committees of the respective

companies at least once annually and/or upon

any significant change in strategy or market

situation. Market risk limits apply at the close

of the business day and are monitored daily.

Intraday limits have been implemented to

monitor and control foreign exchange net open

position and interest rate sensitivity limits

during the course of the trading day.


6.5 Market Risk Monitoring and Reporting

Market risk reports presenting risk exposure

against limits are produced and sent to

relevant parties including the book owner and

senior management on a daily basis. Market

risk exposures are regularly reported to the

Board of Directors or delegated committees of

the respective companies. On a monthly basis,

the market risk exposure of SCB and its

Financial Group is summarized and reported to

the Group Risk Management Committee.

6.6 Capital Adequacy


comply with the Bank of Thailand's notification

on maintaining adequate capital to support

market risk using the Standardized Approach.

With effect from 31 December 2013, SCB has

obtained approval from the Bank of Thailand to

apply the Duration Method for the calculation

of market risk capital charges for interest rate

risk and the Contingent Loss Method for

foreign exchange options. The following table

shows the capital reserves for market risk of

the Bank and its Financial Group as at

December 31, 2015 .

Table 17: Minimum Capital Requirements of Market Risk Under the Standardized Approach (SA)


Market risk – Standardized Approach 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

Interest rate risk 2,887 2,906 2,887 2,908

Equity position risk - 63 128 128

Foreign exchange risk 879 915 953 925

Commodity risk - - - -

Total minimum capital requirements for

market risk 3,765 3,885 3,968 3,961



7. Operational Risk Management

7.1 Operational Risk Management Principles

SCB and its Financial Group recognize that

operational risk is an underlying consequence

of business operations and have always

considered operational risk management as a

priority, especially in today's ever-changing

environment, e.g., of economic uncertainties,

increased competition, growing complexity of

products, dependency on technology,

increasing occurrence of natural disasters,

epidemics, and political/civil unrest.

The SCB Board of Directors requires that all

business units in the Bank must be responsible

for determining their own operational risk,

assisted by the operational risk management

tools and using the framework established by

Group Operational Risk Management. In this

context, each business and support unit within

the Bank is responsible for managing its

operational risk by identifying and assessing

key risks and controls, as well as to regularly

monitor and report on the status of its

operational risk to business unit committees

and relevant senior committees. Senior

management has the duty of managing the

operational risks of units under each specific

area of responsibility together with

implementing and sustaining a sound internal

control environment.

7.2 Governance Framework

SCB and its Financial Group have determined a

governance framework for operational risk

management. The "three lines of defense"

principle has been adopted for operational risk

management to ensure that SCB and its

Financial Group effectively identify, measure,

assess, monitor, control and report exposures

to such risks. The three lines of defense are:

• 1st line of defense comprises business and

support units that have primary

responsibility for identifying and managing

risks arising within their own units and for

regularly determining and reporting on the

adequacy of internal controls over such

risks.

2nd line of defense comprises centralized

risk management and control units, e.g., the

Operational Risk Management Division,

Compliance and Operational Control

Function, and other specialized units (e.g.,

IT Security, Fraud Management, etc.).

These units have a duty to propose the

policy framework and a sound risk

management process and internal control,

while also supporting, assisting, and

providing recommendations related to

operational risk management approaches to

the 1st line of defense

3rd line of defense comprises mainly the

internal audit function, which has the

responsibility to independently conduct

audits of business processes and operations

to ensure the effectiveness of SCB and its

Financial Group's internal control system. It

reports its results to both the Audit

Committee and the SCB Board of Directors.

7.3 Risk Management Process and

Approaches

SCB and its Financial Group realize that

operational risk is a key risk arising from its

business operations across the Bank and

therefore emphasizes operational risk

management, aiming to improve its risk culture

in this area over time.

Business and support units within SCB and its

Financial Group are responsible for managing

their operational risk by deploying appropriate

methodologies and approaches. In the main,

this will involve the identification and

assessment of risk, the evaluation of control

effectiveness, the establishment of action

plans in order to reduce or prevent these risks,


and ensuring that the operational risks are

within acceptable levels and also appropriate

to the nature of a particular business.

The operational risk management

methodology is used to mitigate risk. In

addition to the core operational risk

framework components, SCB and its Financial

Group have strengthened areas such as risk

and control self-assessment (RCSA), monitoring

key risk indicators (KRI) and incident loss

management (ILM).

The Bank also applies international best

practices to mitigate the overall operational

risk through tools such as business continuity

planning (BCP) and business impact analysis

(BIA), new product approval (NPA), insurance

management, and outsourcing/insourcing

management.

7.4 Operational Risk Report

Key units of the Bank and Group companies

regularly report operational risk to senior

management in order to make senior

management aware of any key risk issues that

have arisen that may require management

attention. Group companies are required to

report operational risks to SCB. The

Operational Risk Management Division will

analyze this risk information for further

reporting to the Group Risk Management

Committee on a monthly basis. This supports

the Committee’s decision-making on risk

management.



Standardized Approach to calculate regulatory

capital for operational risk. The table below

shows capital requirements for operational risk

as at 31 December 2015.

Table 18: Minimum Capital Requirements of Operational Risk Under the Standardized Approach (SA)


Operational risk – Standardized Approach 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

Operational risk – Standardized Approach 16,525 15,559 17,080 16,082

Total minimum capital requirements for

operational risk 16,525 15,559 17,080 16,082



8. Interest Rate Risk in the Banking Book

Interest rate risk in the banking book position

represents financial instruments or other

positions for non-trading purposes which may

impact the net interest income and economic

value of SCB and its Financial Group in the

event of changes in interest rates.

8.1 Governance


management of SCB and its Financial Group

can be categorized as follows:

Centralized interest rate risk in the banking

book management: SCB is responsible for

interest rate risk management and adopts

the same policy across all business units

within the Bank for managing, evaluating,

monitoring, reporting, and controlling

interest rate risk in the banking book.

Decentralized interest rate risk

management: Each company in the

Financial Group is responsible for managing,

evaluating, monitoring, reporting, and

controlling interest rate risk in the banking

book under the risk limits established by the

Bank. In order to manage interest rate risk

in the banking book effectively, SCB and its

Financial Group have further divided the

decentralized interest rate risk in the

banking book management into two groups:

companies with material interest rate risk in

the banking book and those with non-

material interest rate risks in the banking

book.

The Group Treasury Division is responsible for

managing overall interest rate risk in the

banking book and the Balance Sheet

Monitoring Division is responsible for

monitoring and controlling the impact to net

interest income (NII) and economic value of

equity (EVE). In order to manage risk

effectively, SCB and its Financial Group have

established criteria to measure impacts from

interest rate changes to net interest income

and economic value of equity using models and

simulating future stress scenarios. Regular risk

analysis reports are submitted to the Assets

and Liabilities Management Committee, the

Risk Management Committee, the Executive

Committee, and the Board of Directors,

respectively.

8.2 Risk Assessment and Control

Interest rate risk in the banking book of SCB

and its Financial Group is caused by borrowing

and lending activities, and arises from re-

pricing risk, yield curve risk, option risk, and the

basis risk between lending interest rates, such

as MLR, MOR and MRR, and those of deposits.

SCB and its Financial Group measure the

impact on net interest income within one year

compared with the net interest income target

of SCB and its Financial Group and the impact

on economic value of equity compared with

the capital fund on a quarterly basis or more

often.

In the event that interest rates rise by 1%, as of

the end of December 2015, net interest income

of SCB will increase by Baht 327 million or

0.42% of target net interest income, while the

economic value will decrease by Baht 5,816

million or -1.84% of capital fund. In terms of

the SCB Financial Group, net interest income

will increase by Baht 373 million or 0.44% of

target net interest income, while the economic

value will decrease by Baht 5,813 million or

-1.79% of capital fund.


Table 19: Impact on Net Interest Income (Earnings Perspective)


Currency 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

THB 553 1,726 583 1,835

USD (323) 11 (321) 14

EURO and other foreign currencies 96 28 111 28

Total impact 327 1,765 373 1,877

% of Target Net interest income 0.42% 2.28% 0.44% 2.19%


Table 20: Impact on Economic Value of Equity (Economic Value Perspective)


Currency 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

THB (5,938) (2,430) (5,937) (2,431)

USD 99 106 99 104

EURO and other foreign currencies 24 (7) 26 (7)

Total impact (5,816) (2,331) (5,813) (2,334)

% of Total bank capital -1.84% -0.79% -1.79% -0.77%



9. Equity Investment in the Banking Book

SCB and its Financial Group maintain long-term

equity investments in the banking book, which

comprise:

• Equity investment intended mainly to

generate dividend yield and/or capital gains

from changes in equity prices in the long-

term and/or to strengthen business

alliances in some instances.

• Strategic equity investments with growth

potential and/or those intended to support

the business of the SCB Financial Group.

SCB, as the parent company of the Financial

Group, has established the Group's Equity

Investment Risk Management Policy. The

Policy requires that only companies within the

Financial Group that are engaged in the

financial business under the regulation of

supervisory bodies and those permitted to

engage in portfolio management may engage

in equity investment.

9.1 Governance


approval authority for investment at a

committee level or individual executive level in

accordance with the investment approval

authority approved by each Group company’s

Board of Directors and/or SCB’s Board of

Directors. Investment approval authority

varies by transaction type, based on risk

attributes and investment values.

The Equity Investment Management Division,

organized under the Finance Function, is

responsible for managing the equity

investments of the Bank and companies in its

Financial Group and to comply with established

policy and guidelines. The Equity Investment

Management Division is responsible for

monitoring the compliance of investment

transactions with relevant rules and

regulations, including external regulations. In

addition, the Equity Investment Management

Division is also responsible for seeking approval

and reporting relevant equity investment

transactions at meetings of the Equity

Investment Management Committee,

Executive Committee, and/or the Board of

Directors in accordance with the approval

authorities.

Furthermore, SCB and its Financial Group also

monitor and control investment risks, in terms

of determining policies and risk ratios related

to investment transactions, through either the

Group Risk Management Committee or, if

applicable, the risk management committees

of companies in the Financial Group in

accordance with a predetermined risk

management structure.

9.2 Risk Assessment and Control

Equity investments in the banking book are

classified and measured in accordance with

Thai Accounting Standards and are categorized

as available-for-sale investments, general

investments, and investments in subsidiaries

and associates.

The investments with book values stated

higher than the market price or fair value or

recoverable amount are required to be fully

provisioned for any impairment. The relevant

accounting standard and BOT notifications are

used to determine the fair value or recoverable

amount.

Finally, an annual review of the investment

portfolio is conducted, based on the latest

available information of each investment, in

order to establish the appropriate investment

strategy, including, if applicable, the

divestment approach. In case an investment is

impaired, it is the SCB Financial Group’s policy

to set a full provision on an investment having

a likelihood of permanent impairment in order

to mitigate any significant impact resulting

from fluctuations in share value.




Standardized Approach to calculate regulatory

capital for equity exposures in the banking

book. The following table shows SCB and its

Financial Group capital requirements for equity

exposures in the banking book as at 31

December 2015.

Table 21: Minimum Capital Requirements of Equity Exposures in the Banking Book


Exposures 31 Dec 15 31 Dec 14 31 Dec 15 31 Dec 14

1. Equity exposures - Standardized approach

1.1 Listed (domestc and foreign)

Cost value 6,223 7,365 6,569 7,791

Market value 8,126 15,263 8,441 15,672

1.2 Others (domestc and foreign) 29,734 24,703 28,538 22,675

2. Total gain (loss) arising from sales during the

period8,054 1,458 8,254 1,968

3. Increase (decrease) in value from AFS 1,924 7,923 1,922 7,921

Total minimum capital requirements 3,797 3,624 5,276 4,699



10. Strategic Risk

Strategic risk refers to the risk of a current

and/or prospective impact on the Bank’s

earnings, capital and survival arising from

changes in the environment the Bank operates

in, adverse strategic decisions, improper

implementation of major projects, and lack of

responsiveness to industry, economic and

technological changes.

The Board of Directors has adopted Strategic

Risk Management Guidelines as a framework

to provide a formalized and structured

approach to managing strategic risk. The

strategic risk is managed through the strategy

setting process and the strategic risk

assessment. The strategy setting process –

including strategic planning, business

alignment, change management, project

implementation, monitoring and performance

evaluation and feedback – ensures that

sufficient information is taken into

consideration in formulating and implementing

strategy. The strategic risk assessment is part

of the Bank’s risk materiality assessment

framework, and it monitors potential strategic

risk arising from both external and internal

factors.

The Corporate Strategy and Business

Development Function currently supports the

Board of Directors and senior management in

formulating and reviewing the SCB Group

strategy as well as recommending remedial

action (if required). Also, the Corporate

Strategy and Business Development Function is

responsible for conducting the strategic risk

assessment on a regular basis.


11. Reputation Risk

Reputation risk can arise from adverse public

perception of the Bank. Given its nature, this

type of risk is difficult to identify or assess

because it is influenced by changing political,

economic and social conditions during a

particular period. These conditions include

specific public expectations of the Bank.

To manage the risk to its reputation, the Bank

relies upon the participation of the Board of

Directors and senior management in order to

obtain different opinions for assessing this risk

and establishing safeguards.

The Board of Directors has established

procedures for the Bank in dealing with

businesses or issues that might be subject to

public interest or concern whereby, in the first

instance, if the Bank or any of its subsidiaries

engage in any such business or issues, the

management concerned must seek approval

from the chairman of the Executive Committee

or the president before initiating or

participating in any such transaction, in order

to determine the appropriateness of the Bank’s

involvement. The matter is then reported to

the chairman of the Board, the chairman of the

Audit Committee, and the chairman of the

Nomination, Compensation and Corporate

Governance Committee. In the second stage,

the Executive Committee has the authority to

approve the transaction with the consent of

the chairman of the Board, the chairman of the

Audit Committee, and the chairman of the

Nomination, Compensation and Corporate

Governance Committee.

The CSR and Corporate Communication

Function is responsible for coordinating with

business and functional units within the Bank

and its Financial Group to identify and monitor

reputation risk factors including:

1. Transactions that might affect the Bank's

reputation

2. Incidents of regulatory non-compliance

3. Customer complaints

4. Adverse impact from employee-related

issues

5. Incidents of negative media coverage

6. Financial standing and integrity of the Bank

This division also conducts an assessment of

overall reputation risk and reports the findings

to the Bank's Risk Management Committee

and Executive Committee on a regular basis.


Appendix

Details of company under SCB Financial Group (Solo and Full Consolidation)

Solo Consolidation Group Business Type Non-Solo Consolidation Group Business Type

Siam Commercial Bank PCL* Banking SCB Securities Co., Ltd.* Securities

Cambodian Commercial Bank Co., Ltd.* Banking

SCB Asset Management Co., Ltd.* Fund

management

Siam Commercial Leasing PCL* Leasing SCB Life Assurance PCL Life insurance

Rutchayothin Asset Management Co., Ltd.*

Asset management

VinaSiam Bank Banking

Mahisorn Co., Ltd.* Support business

Siam Pithiwat Co., Ltd.* Support business

SCB Training Centre Co., Ltd.* Support business

SCB Plus Co., Ltd.* Support business

* Companies are consolidated under Full Consolidation Financial Statements.

Documents

PILLAR III DISCLOSURE December 2015€¦ · Pillar III Disclosure 2015 | 2 Index of Tables Page Table 1 Comprehensive Regulatory Capital and Capital Adequacy 6 Table 2 Capital Requirements