1

Third Quarter 2006 Vol.2 No.4

At a glance From CIRO

Dear KBank investors and analysts, KBank Interest rates Deposits (%) Effective Date Our third quarter results were in line with expectations, and our nine month year to date Savings 0.75 4 Jul 03 performance was satisfactory. NIM remained well above industry average at 4.10%. Loan growth Fixed-3m 3.50-4.25 1 Aug 06 accelerated to 4.4% year to date, driven by the high growth SME portfolio. Fee income grew by Fixed-6m 3.75-4.50 1 Aug 06 16% YoY due largely to the Channel Expansion project initiated at the beginning of this year. NPLs Fixed-12m 4.00-5.00 1 Aug 06 continued to be closely monitored and managed. Total NPLs dropped to 8.11% in 3Q06. Fixed-24m 4.75 12 Apr 06 For 2006, our loan growth target remains around 6-9%, and will continue to be driven Fixed-36m 4.75 12 Apr 06 by the SME segment in 4Q06 as we further penetrate this untapped and underserved market. Our Lending (%) Effective Date NIM for 2006 will likely be at 3.9-4%, with fee in come growth between 15-20% YoY. Provisioning MLR 7.75 1 Aug 06 expense at the Bank only level will be at Bt1.5bn+ in 4Q06. Operating expenses will increase in MOR 8.00 1 Aug 06 4Q06 due to two major investment projects – Channel Expansion and K-Transformation – bringing MRR 8.25 1 Aug 06 the cost to income ratio for 2006 into the 50-52% range. Max rate MRR+5.00 1 Aug 06 With respect to regulatory updates, we expect no further impact from the assets sold to Note: Interest rates above are for domestic retail customers the Thai Asset Management Corporation (TAMC) since 2000, in which gain/loss sharing is KBank NPL scheduled for 2006 and 2011. We will also sell about Bt4.4bn of NPAs to Asset Bank Consol Management (BAM) for which we also expect no financial impact. In exchange, BAM will give us

Bt bn % Bt bn % zero-coupon bonds with maturity between 2-9 years. The sales of NPLs to BAM are also under 3Q05 47.9 7.81 59.9 9.65 review and will take place in 2007. As for the IAS39 which will require banks to comply with more 4Q05 44.4 7.08 56.2 8.88 stringent guidelines on provisioning for NPLs, we are now in the process of assessing the impact 1Q06 42.9 6.89 54.8 8.73 and expect no substantial impact under our internal general and specific provisioning regime. 2Q06 42.5 6.70 54.0 8.45 Heading into 2007, we will continue to build quality assets and better capture fee- 3Q06 42.5 6.52 53.3 8.11 based income with continued progress in our strategic investment projects. Our loan growth target is set between 8-13%, fee income growth is expected to be above 20% and the NPL ratio is Industry (14 Thai banks) expected to fall to 5%+. Cost to income ratio will rise next year to 55%+ as investments and HR Sep-06 (Bt bn) Chg(%) upgrades progress. NIM is projected to be within the range of 3.8-3.9%. Bank-only YoY MoM In order to achieve long-term sustainable profitability, we will continue to emphasize Net Loans 4,804 8.67 0.53 brand building with the goal of serving the complete financial needs of our customers within the four Assets 7,482 11.32 0.94 product domains under the KASIKORNBANKGROUP brand. We believe that our focused Deposits 6,064 10.08 1.02 strategies and HR and IT enhancement through the K-Transformation project will help ensure long- Equity 675.0 term competitiveness in the industry. NPL (amt) 463.9 In November we held our annual non-deal roadshow and analyst meeting to give a NPL (%) 8.90 briefing on our 2006 performance and the outlook for 2007. The full version of the presentation LDR (%) 79.22 may be downloaded from www..com/investor_relations. If you have further queries, Source: Bank of , KBank please send an email to our mailbox.

KBank Price Performance Best regards, Close 25/07/06 Adit Laixuthai, Ph.D. SET Index 732.80 First Senior Vice President & Chief Investor Relations Officer Bank Sector Index 283.57 Corporate Secretariat Division KBANK (L) 71.5 3 Months 17.21 6 Months 8.33 KBank IR Consensus Survey 1 Year 22.22 KBANK (F) 76.0 The Investor Relations Unit has conducted the 3Q06 consensus survey among analysts to 3 Months 21.60 document their opinions, recommendations and earnings estimates for KASIKORNBANK PCL 6 Months 10.14 (KBank), and to get their general views on the Thai banking industry. Both telephone interviews 1 Year 24.59 and research reports provided the sources of information for our consensus survey conducted Oct KBank Mkt. Cap. (Bt bn) 148 2 - 6, 2006. The total number of analysts that currently cover KBank shares is 43 from 41 securities Note: Outstanding shares = 2,382,147,733 as of Oct 17, brokerage companies, both local and foreign. 2006. Source: KBank 3Q06 Earnings Forecasts KBank Price Performance (3Q06) No. of Analyst

Mn shares Bt/shr 16 25.0 80 14 20.0 70 12 15.0 10 60 10.0 8 50 5.0 6

- 40 4 1 Jul 06 25 Oct 06 2 Volume (L) Volume (F) KBANK (L) KBANK (F) - 2,700-2,900 2,901-3,100 3,101-3,300 3,301-3,500 3,501-3,700 Source: Bloomberg

N=30 Mean = 3,089 Std. Dev. = 205

Note: KBank’s 3Q06 actual profit was Bt3,076mn. 1 2

KBank IR Quarterly Review

KBank Financial Summary (Consolidated) 3Q06 Balance Sheet 3Q06 2Q06 QoQ 3Q05 YoY Performance (%) 3Q05 4Q05 1Q06 2Q06 3Q06 (Bt mn) (Bt mn) %Chg (Bt mn) %Chg ROA 1.70 1.27 1.67 1.63 1.40 ROE 19.23 13.83 18.07 17.25 14.69 Cash 14,646 14,372 1.9 13,039 12.3 Interest spread 3.73 3.99 3.96 4.10 3.89 Interbank & Money Market Items 82,356 82,750 (0.5) 84,088 (2.1) NIM 3.79 4.08 4.07 4.26 4.07 Sec under resale agreement 30,560 1,000 2,956.0 9,360 226.5 Cost-to-Income Ratio 50.18 55.72 47.41 49.07 52.04 Investments -net 101,305 81,678 24.0 96,851 4.6 Note: ROA, ROE and NIM are calculated using QoQ averages of total assets, total Loans & AIR 655,981 636,622 3.0 616,205 6.5 shareholders’ equities and total earning assets, respectively, as denominators. Total Reserves 36,263 36,115 0.4 38,449 (5.7)

Loans & AIR - net 619,718 600,506 3.2 577,756 7.3 Asset Quality & Properties foreclosed - net 16,769 17,208 (2.6) 17,960 (6.6) CAR (%) 3Q05 4Q05 1Q06 2Q06 3Q06 Premises & equipment 22,087 21,600 2.3 21,388 3.3 Asset Quality (%) Other assets 21,018 25,454 (17.4) 19,480 7.9 Total reserve / Loans 6.2 6.0 5.9 5.7 5.5 Total Assets 908,459 844,568 7.6 839,923 8.2 Total reserve / NPL 64.2 66.6 67.5 66.8 68.0 Deposits 730,209 687,164 6.3 702,378 4.0 CAR (%) Interbank & Money Market items 25,494 22,619 12.7 25,573 (0.3) Tier I 9.58 9.53 9.94 10.47 11.17 Borrowings 47,216 33,543 40.8 20,655 128.6 Tier II 4.93 4.93 5.12 5.03 4.92 Other liabilities 20,495 18,813 8.9 15,251 34.4 CAR 14.51 14.47 15.07 15.51 16.09

Total Liabilities 823,414 762,139 8.0 763,857 7.8 ∗ If 3Q06 net profits were included, the tier-1 and total capital funds would be 11.65%, Fully paid-up share capital 23,819 23,816 0.0 23,725 0.4 16.57% respectively. Premium on share capital 17,900 17,894 0.0 17,724 1.0

Premium on expired warrants Deposit Structure (%) 3Q05 4Q05 1Q06 2Q06 3Q06 Appraisal surplus 9,918 9,953 (0.4) 10,060 (1.4) Current 6.00 5.75 5.82 5.59 5.19 Revaluation surplus on investments 84 (638) 113.1 (207) 140.6 Savings 57.45 56.50 52.38 49.34 44.11 Legal reserve 1,470 1,470 0.0 770 90.9 Term-Less than 6 months 27.52 27.55 28.57 26.55 24.02 Other reserves - - - Term-6 months - 1 year 1.74 2.52 5.70 10.54 16.48 Retained earnings (deficit) 31,853 29,933 6.4 23,683 34.5 Term-1 year - over 1 year 7.29 7.68 7.53 7.98 10.19 Total Shareholders' Equity 85,044 82,428 3.2 76,066 11.8 Total 100 100 100 100 100 Liab & Shareholders' Equity 908,459 844,568 7.6 839,923 8.2

Income Statement 3Q06 2Q06 QoQ 3Q05 YoY AMC Progress (%) 3Q05 4Q05 1Q06 2Q06 3Q06 (Bt mn) (Bt mn) %Chg (Bt mn) %Chg PhethaiAMC (Principal balance: Bt74bn **) Portfolio Resolved (%) 76 ** 79 ** 82 ** 83 ** 85 ** Interest & dividend income 13,144 12,838 2.4 9,412 39.7 Recovery Rate (%) * 52 ** 52 ** 51 ** 51 ** 50 **

Interest expenses 4,632 4,050 14.4 1,740 166.3 * Recovery rate = Present value of future cash flow Net income from interest & dividend 8,513 8,789 (3.1) 7,673 10.9 Principal balance ** In March 2005, Ploy AMC sold the entire asset to the Bank and Phethai AMC. Non-interest income 3,740 3,359 11.4 3,256 14.9 Non-interest expenses 6,377 5,961 7.0 5,484 16.3 Pre-provision profit 5,876 6,186 (5.0) 5,444 7.9 Provision expenses (reversal) 1,458 1,314 10.9 1,258 15.9 Income before income tax 4,418 4,872 (9.3) 4,186 5.6 Income tax expense 1,343 1,327 1.2 589 127.8

Net income 3,076 3,545 (13.2) 3,578 (14.0) EPS 1.29 1.49 (13.2) 1.5 (14.4) 3Q06 Performance: Due to the higher interest rate environment, both on lending and deposits, interest expenses Non-Interest Income 3Q06 2Q06 QoQ 3Q05 YoY started to rise slightly faster than income received due to the lag (Bt mn (Bt mn) %Chg (Bt mn) %Chg effect on maturity and repricing of fixed deposits. Thus, our net Gain on investments 69 61 13.4 47 48.8 interest margin (NIM) contracted by 19bps to 4.07% in 3Q06 from Gain (Loss) on transfer of financial assets 0 0004.26% in 2Q06. Non-interest income increased from the previous Share of profit (loss) from invt on equity method 73 44 66.6 28 161.6 quarter, however non-interest expenses increased much faster, Fees and service income 2,739 2,536 8.0 2,363 15.9 reflecting a pattern of expenses that is likely to grow toward the Domestic Banking n.a. n.a. 72% second half of the year with the addition of expenses related to International Banking n.a. n.a. 8% the Bank’s strategic projects. Loan loss provision expenses were Credit card n.a. n.a. 20% also higher in 3Q06. As a result, net income dropped QoQ and the Gain on exchanges 552 410 34.8 392 40.8 cost-to-income ratio edged up to 52.0% in 3Q06 from 49.1% in Other income 307 308 (0.5) 426 (27.9) 2Q06. Total non-interest income 3,740 3,359 11.4 3,256 14.9

Non-Interest Expenses 3Q06 2Q06 QoQ 3Q05 YoY NPL Movement: NPLs in 3Q06 dropped by 18 bps QoQ (Bt mn) (Bt mn) %Chg (Bt mn) %Chg from 6.70% to 6.52% on the Bank Only basis, and by 34 bps QoQ Personnel expenses 2,070 1,819 13.8 2,375 (12.8) from 8.45% to 8.11% on the consolidated basis. The NPL Premises and equipment expenses 1,308 1,306 0.1 1,056 23.8 decrease was mainly from write-offs and debt restructuring. Taxes and duties 559 550 1.6 406 37.6 Coverage ratio was at 68%. Fees and service expenses 705 764 (7.8) 515 36.8 23 36 (36.0) 14 67.6 Directors' remuneration Loss on impairment of properties foreclosed 0 00

Contributions to FIDF 689 695 (0.9) 701 (1.7) Other expenses 1,024 792 29.3 417 145.2 Total non-interest expenses 6,377 5,961 7.0 5,484 16.3

2 3 KBank IR Quarterly Review

3Q06 Performance Based on Consolidated Financial Statements

Interest Income Higher interest income from loans contributed to higher interest income.

• Interest income on loans amounted to Bt10.9bn, an increase of 5.1% QoQ, as a result of loan growth, together with rising interest rates. Lending rates were up by 25bps in 3Q06, to stand at 7.75% for MLR. MLR has been increasing by 125bps from 6.50% in Dec 05 to 7.75% in Aug 06.

Interest Expense

Higher expenses from fixed deposits led to an increase in interest expense.

• Interest expenses on deposits increased by Bt501mn, or 14.5% QoQ, due to an increase in fixed deposit rates. Fixed deposit rates increased by at least 100bps, from 2.00% -3.75% in Dec 05 to 3.50% -4.75% in Sep 06. The Bank has also started to offer a special flexible 8-month fixed deposit account with an interest rate of 5 percent, p.a., paid monthly to depositors. This new deposit campaign ran for 1 month during Aug to Sep 06.

Bad Debt and Doubtful Accounts or Loan Loss Reserves (LLR)

LLRs have increased since the new provisioning scheme (General and Specific Provisions) was put in place starting in 3Q05.

• In 3Q06, the Bank set aside an additional reserve of Bt1,450mn, based on bank only, and Bt1,458mn, based on consolidated basis. This was slightly higher than the reserve set aside in 2Q06, due to the higher amount of new loans extended during 3Q06. In 2Q06, the reserve amount was Bt1,290mn and Bt1,314mn, respectively.

Non-interest Income Higher fee and service income and gain on exchange contributed to higher non-interest income.

• Fee and service income increased by Bt204mn or 8.0% QoQ, mainly from higher fees received from bancassurance, merchant fees on credit cards, and loan related fees such as letters of guarantee. • Gain on exchange increased by Bt142mn or 34.8%, due mostly to gains resulting from changes in fair values using the mark-to-market approach on normal hedging transactions for the Bank’s customers, including forward exchange contracts, cross currency swaps, and interest rate swaps.

Non-interest Expense

Higher personnel expenses and other expenses were the main factors in the increase in non-interest expenses.

• Personnel expenses increased by Bt252mn or 13.8%, mainly from a higher provision for employee bonuses. The Bank set aside a higher provision amount for bonuses in the second-half as compared to the first-half of the year. • Other expenses increased by Bt232mn or 29.3%, due mainly to higher expenses on the Bank’s strategic projects and loss on impairment of foreclosed properties.

Summary:

Due to the higher interest rate environment, both on lending and deposits, interest expenses started to rise slightly faster than income received due to a lag effect on maturity and repricing of fixed deposits. Thus, our net interest margin (NIM) contracted by 19bps to 4.07% in 3Q06 from 4.26% in 2Q06. Non-interest income increased from the previous quarter, however non-interest expenses increased much faster, reflecting a pattern of expenses that is likely to grow toward the second half of the year, with the addition of expenses related to the Bank’s strategic projects. Loan loss provision expenses were also higher in 3Q06. As a result, net income dropped QoQ and the cost-to-income ratio edged up to 52.0% in 3Q06 from 49.1% in 2Q06.

3 4 KBank IR Quarterly Review

Hot Stuffs

K-Transformation and Channel Expansion Projects

Comprehensive K-Transformation NPLs Balanced 8-Strategic Re-engineering Resolution Scorecard Program KASIKORNBANKGROUP Channel Expansion Strategy

199419952001 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

8-Strategic Program 1. Customer Relationship Management Please refer to the details below for an update of the projects 2. Credit Transformation 3. Fee-based Business K-Transformation and Channel Expansion 4. E-Approach Development 1. Know Our Customer (KOC) 5. Centralized Back Office Reconfiguration 2. Multi-channel Sales and Services (MSS) 6. Value-based Management 3. IT Capital (ITC) 7. Human Resource Management 4. Channel Expansion (CE) 8. Core Banking Replacement Postponed to 2006

Benefit, Progress and Action Plans on K-Transformation & Channel Expansion

Know Our Customer Multi-channel Sales and IT Capital Channel Expansion (CE) (KOC) Services (MSS) (ITC) Benefit - Increase ability to formulate - Enhance multi-channel - Reduce overall time-to- - Convenience and strategies sales and service capability market accessibility - Innovative campaigns and - Drive revenue growth - System and information - Revenue enhancement product offerings - Reduce cost and efficiently access anywhere, anytime - Maximize customer value manage customer - One single customer and drive profitability relationships depository date (KGroup) - Increase customer - New integrated satisfaction management system Progress and Action Plans Year 2006 Completed - Launched five pilot - New MSS business model - Chart of account redesign campaigns through basic development & key process - Detailed gap assessment customer information design with Core Banking system - Expand 80 branches in analysis - MSS vendor selected vendor middle income life style area In progress - Evaluating key tools to - Gap analysis and inception - 1st release of core General - Increase 1,160 ATM in high enable the analysis of data, with MSS vendor Ledger system traffic locations and campaign development and - Full alignment of plans and community areas campaign management activities for all initiatives within KT Year 2007 - Analytical tool - Call Center System - General Ledger System - Expand 37 new branches implementation Development development and and 600 additional ATMs - Campaign Management - Internet Banking System implementation Tool pilot rollout Development Year 2008 - Full implementation - Mulit-channel Sales & - Core Banking System pilot - Continue to enhance Service System Development rollout revenue from strong branch (Full implementation in 2009) and ATM network

4 5

KBank IR Quarterly Review

What’s up?

KASIKORNBANKGROUP (KASIKORNBANKGROUP.COM)

Nov 06 • KBank arranged an Analyst and Fund Manager Meeting with Dr. Prasarn Trairatvorakul, President, speaking on the Bank’s performance this year, as well as the economy and the Bank’s performance for the coming year. Oct 06 • Mr. , CEO, participated in a seminar entitled “Thailand and Yunnan: Gateway to China-ASEAN Economic Cooperation”, co-organized by KBank and China’s National Development Research Institute. The seminar took place in Kunming, China, and was designed to promote KBank and its subsidiaries as well as invite Chinese investors to develop businesses in Thailand. • KGroup participated in Money Expo Chiangmai. At the exhibition, KBank and its subsidiaries offered exclusive promotions and free gifts to both retail and SME customers. • KSecurities arranged a seminar entitled “Entrust your Money Management to KSecurities” as part of the company’s effort to promote efficient ways for Private Wealth Management to 60 KGroup customers and new investors. Sept 06 • KBank participated in the 15th Housing & Condo Expo at the Queen Sirikit National Convention Center. At the exhibition, KBank offered special housing promotions to customers who purchased properties from KBank partners, who had about 45 projects at the event. • KLeasing recently introduced a new product, “K-Car for Cash”, that allows customers to use their cars as loan collateral. A total of Bt200mn in loans is expected by the end of this year. KLeasing also plans to offer an Operating Lease service for executive and company cars, which it will start with service to the subsidiaries of KBank.

Corporate Business August 06 • The Bank has developed “K-Supply Chain Financing” to support supply chain businesses. This product will increase financial capacity, raise working capital and save costs for the operation of Dealer, Sponsor and Supplier. The Bank target for this product is Bt10bn in loans in one year.

Retail Business

Nov 06 • The Bank relaunches “K-Express Cash”, a new personal loan product offering loans without collateral. Personal customers must have a monthly income over Bt15,000 and have worked for more than six months. Entrepreneurs must have a monthly income of at least Bt20,000 and have been established in business for one year. The maximum credit line is three times monthly income or Bt1.5mn, whichever is lower. Oct 06 • The Bank opened Sub-branch, the 539th branch, plus the KBank Suvarnabhumi Airport foreign exchange booth located at the Bus Terminal of the airport. • The Bank plans to expand business in Samui Island, which currently has four branches, 35 ATMs and five foreign exchange booths. The Bank will open two more foreign exchange booths and two more branches in order to increase KBank’s market share in Samui Island, especially from property businesses. • Bangkok Airways signed an agreement with KBank for the use of K-Payment Gateway, which offers online payment service for E-Ticketing through Visa and Master Card. Currently, around 400 companies have used K-Payment Gateway and KBank forecasts a higher number of customers using this service in the future.

SME

August 06 • The Bank developed a new lending process called “K-SME approved in three days”. Entrepreneurs with an annual sales turnover of less than Bt50mn can apply for SME credit with a maximum credit line of Bt10mn per customer. This product will help them develop their financial plan and manage business more efficiently. • The Bank developed a new loan product, “K-Trade Plus”, for SME businesses. This loan does not require collateral but a personal or corporate guarantee is still requested. Targeted customers for K-Trade Plus are SMEs with an annual sale turnover of Bt30-400mn and at least two years of established business. The credit line will vary depend on business growth projection.

Corporate Recognition Nov 06

• Honored as Thailand’s second Strongest Bank and the Asian Pacific’s 137th Strongest Bank by the Asian Banker annual ranking of Asia Pacific’s top

300 commercial banks.

• Received an “Excellent” rating in Corporate Governance of Thai listed Companies 2006 from Thai Institute of Directors Association. Oct 06 • Received the “Bank of the Year 2006” award from Money and Banking Magazine, along with SCB. Sept 06 • Received the “Financial Management Excellence” award in the 5th Thailand Corporate Excellence Awards hosted by the Thailand Management Association and the Graduate Institute of Business Administration of Chulalongkorn University.

5 6 KBank IR Quarterly Review

Updates

KASIKORNBANKGROUP: Performance and Target Source: KAsset, KLeasing, KFactoring, KSecurities, and KResearch

KFactoring KAsset KResearch KSecurities KLeasing EST. 1990 EST. 1992 EST. 1995 EST. July 2005 EST. August 2005

Company profile Factoring service Fund management Research house for staff Financial solution and Hire purchase & customers of KGroup service - Domestic - Mutual fund Finance lease and general public with – Investment banking - International - Provident fund Floor plan topics in Economics, and underwriting Equipment lease - Private fund Business and Money&Banking – Securities brokerage Asset size (3Q06) Bt4.55bn Bt1.31bn Bt23.68mn Bt0.92bn Bt9.11bn Net income/loss (9M06) Bt58.62mn Bt247.16mnBt2.13mn Bt(62.36)mn Bt(179.29)mn Outstanding loans (Bt4.4bn) Asset Under Management Trading volume Outstanding loans(Bt9.1bn) Highlight (3Q06) n.a. with 54.1% growth (Bt240.3bn) with 11.2% (Bt28.4bn) 218.5% Loan growth growth Factoring Business Volume (Bt16.7bn)

Market share (3Q06) 21.0% (Ranked no.1) 15.7% (Ranked no.1) n.a. 0.5% n.a.

Factoring Business Asset Under Management Retaining reputation 1% Market share Outstanding loans 2006 Target Volume (Bt23.6bn) with (Bt240.3bn) with 11.2% as the most reliable (Bt13.7bn) with 474.2% 25.3% growth growth research house growth

3 year outlook Strengthen no.1 position Strengthen no.1 position One of the leading Aiming Increasing to be topdemand 3 market for securities firms leadereconomic position research in 2010 Industry outlook and Supportive government Greater demand due to Increasing demand for Potential growth due to Bright spot in auto industry policy for propelling the tax benefit scheme “information” due to the increase in wealth due to economic growth opportunity evolving environment and low car ownership rate growth of SME sector in Potential growth due to management business and Thailand through financial Mandatory Provident the implementation of solution Fund establishment Deposit Insurance Agency Fulfilling KGroup customers’ Contribution to needs and enhancing KGroup KGroup staff knowledge&capabilities

Completing range of products to fulfill KGroup customers’ needs

BAM: Overview and updates Source: BAM, BOT and MOF website The BOT allowed Banks BAM banks to expected expected to AMC merged The BOT count the to buy NPA with BAM and finalized a zero-coupon Banks gradually The BOT planed worth Bt30bn Asian was ready to framework to bonds from signed transfer AMC (1) was BAM (2) was to reduce NPL directly from Financial buy NPA from buyout NPA BAM as MOU with NPA to established established to 2% by 2007 (3) (4) banks (5) Crisis banks from banks liquid assets BAM BAM

May97 Jun97Aug98 Nov05 Feb06 Jun06 Jul06 Sep06 Oct06 Feb07

Note (1) Asset Management Corporation (AMC) is held 100% by Financial Institution Development Fund (FIDF). AMC has the main objective in managing NPA and NPL from finance companies, which were closed during the crisis. (2) Bangkok Commercial Asset Management (BAM) was established from Financial Sector Restructuring (14 August 1998) and is held 100%

by FIDF. BAM has the main objective in managing impaired assets of financial institutions especially from of Commerce (BBC). (3) BAM would pay via zero-coupon bonds. (4) NPA would be divided into four investment grades: A, B, C and D.

Grade Purchasing price* Tenor of bond (years) A 82% 2

B 77% 4 C 72% 7 D 67% 9 Source: BAM

*Please note that the discount is calculated on appraisal value not book value. (5) Banks did not state the amount planed to sell in the MOU. (6) BAM has a plan to buy NPL from banks in the near future.

Issue on KBank (1) Expected to sell NPA worth Bt4.4bn (Book value), which Bt2.4bn and Bt2.0bn come from KBank and Phethai AMC, respectively. (2) Expected to gradually sell NPA to BAM starting in February 2007 (3) No financial impact is expected

6 7

Econ wrap-ups

Economic Summary- September 2006 Source:

Jul 06 Aug 06 Sep 06

Industrial Capacity Utilization (%) 73.9 74.2 73.3 Consumer Price Index: (Headline)(%) 4.4 3.8 2.7 Consumer Price Index: (Core) (%) 2.0 1.9 1.9 Export (US$mn) 11,043 11,728 11,785 Export (%chg) 17.7 17.0 14.5 Import (US$mn) 11,266 11,457 10,383 Import (%chg) 16.3 11.2 9.1

Trade Balance (US$mn) -223 271 1,402 Current Account Balance (US$mn) 309 813 1,175 Net Capital Flow (US$mn) -466 -488 n.a. Balance of Payments (US$mn) 454 485 2,555 Interbank Rate (%-average) 4.96 4.95 4.96 Official Reserves (US$bn) 58.8 59.4 61.6 Exchange Rate (average Baht: US$) 38.00 37.64 37.43

Highlights

Manufacturing production: The Manufacturing Index (MPI) increased by 5% YoY, decelerating from the previous month in line with the reduced demand for textile, steel, electrical appliances and rubber products. Furthermore, production of leather and furniture also declined due to the decreased competitive advantage of both sectors. However, electronics expanded well in line with exports. At the same time, beverage production increased for inventory accumulation. Domestic spending: The private consumption index (PCI) rose by 2% YoY, in line with an increase of passenger car sales which saw a high- level expansion due to the low base last year and the launch of a new model. The quantity of domestic electricity consumption and value-added tax at 1995 prices also increased satisfactorily. Inflation: The Consumer Price Index (CPI) rose by 2.7% YoY vs. 3.8% in Aug. The decrease was mostly due to the energy prices and prices in the raw food category which slowed down slightly due to meat prices and vegetable and fruit prices. Trade Balance: Export value totaled USD11,785mn, up by 14.5% YoY. Major exporting products which expanded satisfactorily included electronics, vehicles, steel products and petroleum products. Import value totaled USD10,383 up by 9.1% YoY. This resulted in a trade surplus of USD1,402mn. The service and transfers account showed a deficit of USD227mn and the current account recorded a surplus of USD1,175mn.

Inflation Report Source: Bank of Thailand (October 30, 2006)

The Bank of Thailand issued an Inflation Report in October 2006 citing that during the second quarter of 2006 the Thai economy grew by 4.9%, decelerating from a 6.1% growth in the first quarter. This reflected a softening domestic demand in the private sector while external demand remained strong, leading to high growth in exports of goods and services. When seasonally adjusted, the economy expanded from the previous quarter by only 1%. In the third quarter of 2006, recent indicators showed a slight recovery in private consumption and private investment. However, high oil prices during July and August 2006, political uncertainty as well as southern unrest continued to put pressure on consumption and investment. Nevertheless, export growth remained strong in line with favorable external demand. After assessing the risks to the economy going forward, the risks included fluctuations in world oil prices owing to supply uncertainty and global demand, slower-than-expected trading partner's economic growth and improvements in business sentiments due to clearer government policies, the MPC predicted that the Thai economy in 2006 and 2007 would expand between 4.5-5% and 4.5-5.5%, respectively. The MPC expects headline inflation in 2006 and 2007 to be around 4.3-4.8% and 1.5-3%, respectively. Meanwhile, core inflation is expected to be around 2-2.5% in 2006 and 1.5- 2.5% in 2007. In order to determine the appropriate monetary policy stance going forward, the MPC stated that there was a more moderate pace due to the slowdown in domestic spending. However, export performance remained favorable. Economic stability improved, as evidenced by the decline in inflation and the current account turning positive. The MPC felt that the current policy interest rate level was appropriate, and at their September and October Meeting decided to maintain the 14-day repurchase rate at 5%

7 8

KBank IR Quarterly Review

Econ wrap-ups: Thailand after the coup

Thai Economy Outlook in 2007 KResearch has lifted its Thai economic growth projection for 2007 from 3.5-4.5% to 4-5% due to numerous favorable factors such as earlier-than-expected disbursements on the budget totaling Bt1.52 trillion for FY2007 by the interim government, declining inflation at home, the likelihood of stable domestic oil prices next year, as well as possible cuts in the policy rate during 2007.

(Units: y-o-y change, unless otherwise stated) 2007 Indicator 2006 Reasons Previous Revised Forecast Forecast Private consumption 3.9% 3.5-4% 4-4.5% The downward trend in inflation Falling inflation, and with new Government Expenditures 1.2% 2% 5.05% FY Budget Gross capital formation 4.5% 3.5% 4-5.2% Private investment 5.1% 5.6-5.9% - Projection unchanged Government budgetary Public investment 2.8% -3.8% -0.8% to +3.2% disbursements Sluggishness in the US Exports 17% 9-12% 12-15% economy may not be as severe Imports 10% as expected Brent, average (USD/Barrel) 65 67 60 Domestic Diesel (THB/liter) 25.6 26.5 24.5 In accordance with global prices Headline CPI inflation 4.7% 3.3-3.8% 3-3.5% Falling with oil prices A boost in domestic spending, GDP 4%-4.5% 3.5-4.5% 4-5% especially by the government sector

Thai Major Political and Economic Events since the 19th September Coup Source: Newspaper, The Daily Manager Newspaper

Date Event September 19, 2006 Gen Sonthi Boonyaratglin, Head of the Council of Democratic Reform under the Constitutional Monarchy or the CDRM and the Army Chief, successfully launched the coup. September 21, 2006 The Peoples Alliance for Democracy (PAD), a group which led a street campaign against the Ousted Prime Minister , said they would stop their campaign and appeal to the new government to form an independent committee to investigate allegations of corruption against the Ousted Prime Minister . September 21, 2006 The CDRM installed the nine NCCC (the National Counter Corruption Commission) members and retained Auditor General Khunying Jaruvan Maintaka. October 1, 2006 HM the King endorsed Gen , a respected retired army officer and advisor to the King, who was

nominated by the Head of the CDRM, to become Thailand's 24th prime minister. October 2, 2006 HM the King graciously grants the interim constitution on October 1 B.E. 2549. October 2, 2006 The CDRM set up the Asset Examination Committee (AEC). The committee is empowered to investigate any projects or acts by members of the Thaksin government and others who are suspected of irregularities, including tax evasion. October 2, 2006 The Ousted Prime Minister Thaksin Shinawatra resigned from the Head of Thai Rak Thai Party.

October 8, 2006 HM the King issued a royal command to approve the Cabinet of Prime Minister Gen Surayud Chulanont. October 4, 2006 The Supreme Administrative Court released an appeal decision ordering its lower court to review an administrative case that could see Shin Corp lose its licences for communication satellites, mobile phone services and television broadcasting. October 12, 2006 Prime Minister Gen Surayud invited ambassadors to his Government House office. He reassured them that his interim civilian government would carry on the mega projects initiated by the Ousted Prime Minister Thaksin

Shinawatra. October 12, 2006 HM the King issued a royal command to approve a list of the members of the National Legislative Assembly (NLA) picked by the Council for National Security (CNS), formerly the CDRM. October 13, 2006 The Deputy BOT Governor Tarisa Watanagase said the BOT would propose the drafts of the revised BOT Act and the Financial Institutions Business Act to the Finance Ministry. After that, the BOT will ask the Cabinet and National Legislative Assembly for approval.

October 18, 2006 Mrs. Tarisa Watanagase Tarisa, formerly a deputy governor, received the Cabinet's approval to become the first female governor of the Bank of Thailand in its 64-year history. October 26, 2006 The National Legislative Assembly (NLA) picked Meechai Ruchupan as the NLA speaker. November 6, 2006 The Revenue Department decided to take legal action against Ousted Prime Minister Thaksin Shinawatra's children after they failed to pay personal income tax on the controversial Temasek Holdings takeover of Shin Corp.

November 8, 2006 The National Legislative Assembly (NLA) has passed a draft bill lifting the ban on political meetings for people in a bid to ease restrictions enforced by martial law. This draft bill was designed to cancel the Announcement No 7 issued by the CDRM. November 9, 2006 The University of the Thai Chamber of Commerce (UTCC) said the consumer confidence index in October had risen to the highest level in seven months on the easing of both political tensions and oil prices. The index advanced from 82.1 points in September to 83.5 points last month. All related indexes showing the concerns of consumers also hit a seven-month peak.

November 10, 2006 Over 500 participants, both local and foreign investors, at an "Open House with Economic Ministers" seminar praised the interim government's economic team for clarifying policies. November 10, 2006 MR Pridiyathorn Devakula, the deputy prime minister and finance minister, has formed a panel to investigate the entire Shin Corp deal in connection with alleged tax evasion by the Shinawatra family, before submitting the findings to the Assets Examination Committee (AEC).

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KBank IR Quarterly Review

Let’s talk

The following is an interview with KBank executives: Mr. Ampol Polohakul, First Senior Vice President of Retail Banking.

RETAIL BANKING

Retail loans Q: Which of the retail business loans – mortgages, credit cards or personal loans – has the maximum business growth potential?

A: For KBank, credit cards are the best growth product. We continue to choose to not jump aggressively into the consumer loan business, as we think the risk is too high for the portfolio. For credit cards, we have been one of the strong brands in the market. We try to use our strong brand as a stepping- stone to capture more of the consumer demand in this area, which is a very strong growth market. We try to touch up the brand by improving our value proposition. The Thai credit card market is very competitive. There are both local and international banks that are very aggressive. The BOT recently raised the interest rate capped for credit cards from 18% to 20%.

As for mortgages, there has been quite a slowdown this year, although it does seem a little bit better after the coup. With interest rates stabilizing and

trending downward, consumers have more confidence in their purchasing power.

Q: Do you think interest rates really make a difference in the mortgage business? A: Yes, in terms of decision-making it has quite a big impact, especially on the decision of when to buy housing. But, obviously, it also depends on the life stage of the consumer. If their life stage requires housing, they will purchase regardless. In that case, interest rates are a factor in the decision of how big a house to purchase. Right now the trend is towards the medium price market. Before it was the higher price market, but now it has come

down to the medium price market.

Deposits Q: There has been some migration from savings deposits to fixed deposits. Currently for KBank, savings deposits as a percentage of total

deposits is 44%, down from 57% at the end of 2005. How much lower is it going to go? A: We believe that the savings proportion will stay the same, because we see that deposit rates cannot come down as much as they went up last year. Even with the interest rates going down, the difference between the rates of fixed and savings deposits will not change much. As for savings deposits, we don’t plan to raise rates now or in the near future, because we are still coping with the high operating cost of providing services to these customers, and do not want to lose the fee based income that we can earn from them.

However, if the savings proportion is going to decline, it will be just a small amount. Past statistics corroborate this. In the past, when there was a big

difference between savings and fixed deposits, 5% for example, the savings deposits proportion was close to 35%. But this was before the mutual fund market developed. If people wanted higher yields they just left their money in fixed deposits. With the introduction of mutual funds everything changed. The mutual fund market is growing quite aggressively. Mutual funds are a better choice for the high yield seeker.

We also believe that we are more of an operating bank for the customers, especially for the savings depositors. Those who need to do transactions and those who have investment portfolios might still leave some money in their savings account. So although there is still a possible tendency for deposit migration from savings to fixed, it would not be as aggressive as before. And when the rate comes down in the future, that will also stop customers from

migrating.

Q: Other than bank deposits and mutual funds, is bancassurance also a choice for depositors? A: That’s for the longer term. The trend is coming and people are being more accepting of insurance products. We are still in the growing phase, the learning phase. In terms of customers who purchase insurance products, the number is still smaller than those in developed countries. But the trend is there.

Q: Are you seeing aggressive competition from other big banks in terms of retail business overall, from both lending and deposits? A: Certainly, but not just the big banks. Competition comes from a lot of smaller banks as well. The retail market is a high growth business and everybody is coming in. On the lending side are some players, and on the deposit side are other players. It depends on which market and which segment we are talking about. But the big banks are certainly among the aggressive ones.

Q: Last year interest rates rose because of competition for deposits. Are those pressures from the competition for deposits over? A: If you look at the announced rates and the advertisements in the market, it will still appear very competitive. This is because a lot of smaller banks still want to grow their deposits. And they can grow only by offering higher rates, hoping the high rates will prompt customers to switch. So again the competition on that side comes from the smaller banks. As for bigger sized banks like us, that have convenient locations, a branch network, an ATM network, the service convenience is still there. Therefore, regarding the savings and the current account deposits, with the strength of the branch network and the infrastructure, we believe we can compete with the low cost offerings. Our value proposition of convenience plays a big role.

In terms of fixed deposits, the market return would be the cap or constraint of what other banks can offer. If they want to be more competitive by offering higher interest rates, they would hurt themselves, as their cost of funds will jump. There is a market mechanism that will force the rate of fixed deposits to come down a little bit.

Besides the above, people still have a lot of stickiness with big banks. Right now if you look at the rates, the difference between the rates of fixed deposits that one of the biggest banks offers has a 50bps lower interest rate compared to smaller banks. But the switch is not there. Price differentiation is only applicable to a yield seeker group of customers, which is only a small percentage of the total deposit market. Most people

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KBank IR Quarterly Review

Let’s talk

are still quite inactive in seeking yield. It is still quite difficult to cause big bank customers to switch even by offering higher rates. Higher rates can only draw the yield seekers. We also have such customers but only a few.

Q: KBank has 44% of deposits that are savings, and you mentioned that the savings rate will not come down. Does this mean the outlook for margin in the next 12 months is going to be very difficult? A: Yes, and therefore we are focusing more aggressively on fee income. We are in the process of changing the performance measurement system of the branch. We need to communicate to the branches that not all deposits are equal. Each type of deposit is giving different profitability to the Bank. Unlike two years ago when either Bt1mn of fixed or savings deposits gave the Bank the same return, now there is a big difference. We are in the process of making sure the branches know the profitability and the return that each product yields for the Bank. We want them to focus on the high profitability products. We don’t want to pursue growth at any cost, but rather growth with profitability. That’s what we are doing.

For next year, the branches will be equipped with better MIS and a better performance measurement system that will align them with the business direction in which we are headed. The branch network is still the key to consumer banking. We rely on them for customer acquisition and also for fee based income.

Branch Network Q: In terms of branches and networks, do you think the existing capacity is enough? How much more will you add?

A: We are not worried about the capacity of our infrastructure. We still have a lot of capacity available. The only problem is with demand for service during peak hours - Mondays, Fridays, lunch hours, month ends, etc. These are the only times we have issues dealing with customers as they normally come in large numbers. Certain locations still have problems in that regard. We have to think of ways to provide better service, but not at too high a cost.

In terms of ATMs and system capacity, we do not have any problems. We have added 1,200 ATMs this year. The number of ATMs, the convenience of their location, their availability, and especially the features and services that customers can access at the ATMs are all very significant factors. We are

now offering something different to customers such as money transfers. When customers transfer money, they can ask the Bank to send an SMS (short message service) to the receiver confirming the deposit. We provide this service because we know that our customers not only want to do transactions with us, but they also want information. Through such services, we can keep customers informed of what is going on with their accounts. In this way we use the infrastructure to enhance our service.

Q: Do you think it is important to grow your branch network? A: Certainly, but not as aggressively as others have done. We believe that convenience is a significant factor for customers making the decision of which

bank they are going to go with. Location convenience depends very much on life style and we are currently observing many changes in the lifestyles of the middle income and the platinum segment. With hypermarkets and community malls popping up everywhere, we have to be in those places where consumers spend their time and where they think is convenient. Therefore, we plan to expand our network by selectively choosing locations deemed convenient by our target customers.

Q: If you were to draw up a wish list that would make your job better accomplished, what would be at the top of the list?

A: The first thing is that we want to understand customers a lot better – how they select products, what their problems are – so that we can be a part of solving their concerns.

Q: Don’t you have the CRM system? A: The system is there, but it’s data. I’m not talking about that sort of customer information. We want to know what they want, what their problems are. As a financial solution provider, we want to know if customers are concerned about returns, risks, or their kids, their kids’ education, etc. We want to know how we can create or package products that will give our customers peace of mind that everything is being well taken care of. We want our

customers to have easier lives and leave their problems with KBank. As consumer marketing, we need to be able to understand customers’ problem and concerns.

Wealth Management Q: In many countries, there are a lot of activities that involve domestic money parked overseas, especially for high net worth customers. What do you feel about that type of activity or transaction in Thailand? A: Legally it is still quite difficult for Thai banks to provide that kind of service without strategic partners. The Bank of Thailand has regulations keeping

us from doing that.

This is a big issue for us as we are aggressively pursuing the platinum segment. Next year we plan to form a separate department with a group of professionals who will be very active in providing assistance in the areas of asset management and wealth management. The regulations are a major stumbling block, although we believe it’s possible. Our subsidiaries companies, such as KAsset, will have an important role to play. There are legal ways, but they are not as direct or easy as what our international competitors can do. We hope to bundle products in a way that is comparable with our competitors. We believe that the wealth management solution we will provide next year will be a better value proposition to customers and offer them

better portfolio management compared to what they have now. But again, it is going to be quite difficult to compete with international banks.

DISCLAIMER: Any opinions contained in this message are those of the author and are not given or endorsed by KASIKORNBANK (KBank) or the office through which this message was sent unless otherwise clearly indicated in this message and the authority of the author to so bind KBank entity referred to is duly verified. This message and any attachments are confidential to the ordinary user of the e-mail address to which it was addressed and may also be privileged. If you are not the addressee you may not read, copy, forward, disclose or use any part of the message or its attachments and if you have received this message in error, please notify the sender immediately by return e-mail and delete it from your system. Internet communications cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, arrive late or contain viruses. The sender therefore does not accept liability for any errors or omissions in the context of this message, which arise as a result of Internet transmission. Please direct further inquiries or comments to: Investor Relations Tel: +662 470 2659 to 2662 or Fax: +662 470 2690 Email: [email protected]

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