Management Discussion and Analysis 2013
KRUNGTHAI BANK
Management Discussion and Analysis 2013
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Highlights of key events in 2013
Key events of the Bank
° April 5, 2013: The Bank held the 20 th Annual Ordinary General Meeting. ° May 31, 2013: The Bank opened the 12 th Krungthai Young Enterprise Project and the 7 th Krungthai Business Ethics Initiative (White Seedlings) Project. These projects emphasized on the development for younger generation to be well equipped with knowledge and ethics. ° August 30, 2013: The Bank implemented Google’s Enterprise products for its internal operations including a cloud-based set of communication and collaboration tools. With the Google Apps, KTB will be able to broaden its initiative to modernize its operations and be a banking business provider of the future. ° October 28, 2013: The Bank gave 77 scholarships for the 5th Krungthai University Graduates Project to potential high school students who can enter into top public universities in Thailand. ° November 7, 2013: The Bank launched its website service for smart phone and tablet holders. The customers can easily gain access to the Bank’s information from the Bank’s mobile website.
New product
° January 22, 2013: KTB and UnionPay International launched KTB-UnionPay Debit Card, the first UnionPay debit card issued by a local mainstream bank in Thailand. It will empower cardholders to enjoy life at more than millions worldwide outlet of shops, restaurants, department stores or cinemas where the UnionPay symbol is displayed. ° January 29, 2013: The Bank launched KTB Trade Online as the one-stop service channel with international security standard. Regarding as the only bank in Thailand to achieve the certificate of ISO 27001 in Trade Finance Category, KTB aimed to facilitate business customers with 24-hour service. ° February 27, 2013: The Bank signed an MOU with the Customs Department for Smart e-Guarantee and e-Payment services which facilitated the payment of taxes, duties, and tariffs on imported and exported goods. ° May 21, 2013: The Bank reduced the inter-region transfer fee between KTB accounts across all regions nationwide via Internet Banking and Mobile Banking. ° October 17, 2013: The Bank signed an MOU with the Stock Exchange of Thailand on Futures Currency service under The Thailand Futures Exchange PCL (TFEX). It provided an alternative in managing currency risk effectively for SMEs customers.
Awards & Achievements
° May 3, 2013: The Bank received the Achievement in Operational Risk Management Award 2012 from the Asian Banker magazine due to the outstanding improvement in operational risk management. ° May 28, 2013: The Bank received two of the ICT Excellence Awards 2012 in category of Innovation Projects and Business Enabler Projects. For the Innovation Projects category, the award was given to KTB for its service of Pay/Receive with Mobile by KTB netbank, an e-wallet service which payer can transfer money via mobile phone number to payee without knowing the bank account number. The Bank received the award in Business Enabler Projects category from the service of KTB e-Withholding Tax, in which Bank as the customer representative conducted process of withholding tax and submission of withholding tax form. The Bank received the award for the fourth consecutive year.
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° June 19, 2013: The Bank received the Excellence Award for the Outstanding Booth at Money Expo Bangkok 2013. The award is judged in recognition of the KTB booth presented under the theme “Carnival of Wealth”. ° June 26, 2013: The Bank received the Gold Awards for the category of Bank in Trusted Brand Award 2013 from Reader’s Digest Magazine for the second consecutive year. ° October 15, 2013: The Bank’s received three awards of the Best FX Bank in the Region of the Year 2013 from The Asian Money Magazine namely Best Domestic Provider for FX Options in Thailand 2013, Best Overall Domestic Provider of FX Services in Thailand 2013 and Best Domestic Provider for FX Research & Market Coverage in Thailand 2013. The awards reflected the clients’ satisfaction, trust, and good experience from the Bank’s service and advice. ° October 16, 2013: The Bank was awarded SOE Award 2013 for Outstanding State Enterprise Board of Directors. The prestigious award was presented for the State Enterprise Board of Directors who performed their duty as representative of government sector in overseeing state-owned enterprises as well as promoting efficiency and transparency of the management to be in compliance with Corporate Governance principles. ° November 20, 2013: The Bank was awarded “SET Award of Honor”, the Bank received this award for the fifth consecutive year (2009 -2013) from the Stock Exchange of Thailand.
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Management Discussion and Analysis This report discusses principal changes in the audited consolidated financial statements for the year ended December 31, 2013.
In 2013, the Bank practices TAS 12 Income Taxes; therefore, the Bank and its subsidiaries changed accounting policy of income taxes in current year and used retrospective approach. The effects from the change in accounting policy to the consolidated and the Bank’s financial statements are as follows:
Unit : Million Baht Consolidated Financial Statements December 31, 2013 December 31, 2012
Statements of Financial Position Increase in deferred tax assets 3,876.02 2,727.93 Increase in deferred tax liabilities 182.68 143.79 Net 3,693.34 2,584.14 Decrease in appraisal surplus on assets (1,586.91) (1,587.28) Decrease in revaluation surplus on investments (30.38) (765.81) Differences in translating the financial statements - 1.20 Retained earnings - Effects from income taxes 5,310.63 4,936.03
Statements of Comprehensive Income December 31, 2013 December 31, 2012 Increase (decrease) in income tax expenses (374.60) 160.58 Increase (decrease) in net profit 374.60 (160.58)
Moreover, in 2013, the Bank changes the capital calculation framework from Basel II to Basel III regulations in compliance with the BOT’s Notifications. The Bank calculated Common Equity Tier 1 ratio to comply with Basel III regulations. The BOT requires commercial bank to maintain the minimum of the capital ratio at curtain level as follows:
The minimum rate of its risk-weighted assets (RWA)
Common Equity Tier 1 capital 4.50% Tier 1 capital 6.00% Total capital fund 8.50%
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Overview of Operating Results
Krung Thai Bank PCL and subsidiaries’ operating profit before tax for 2013 was Bt 41,707 m, showing an increase of Bt 10,317 m or 32.87% compared to 2012. After deducting the Bt 7,778 m income tax expense, net income for 2013 amounted to Bt 33,929 m, showing an increase of Bt 10,563 m or 45.21% compared to 2012.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Operating profit before tax 41,707 31,390 10,317 32.87 Income tax expense 7,778 8,024 (246) (3.07) Net income 33,929 23,366 10,563 45.21 Table 1 Operating Results
Net Interest Income
Net interest income for 2013 was Bt 64,482 m, increased by Bt 6,360 m or 10.94% from 2012 due to the loan expansion. The Bank’s net interest margin (NIM) for 2013, based on earning assets, was 2.76% which decreased from 2.82% in 2012 by reason of the competition on the interest rate in the market.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Interest income 111,403 101,798 9,605 9.44 - Interbank and money market items 13,224 10,102 3,122 30.90 - Investments and trading transactions 190 191 (1) (0.52)
- Investment in debt securities 6,596 6,696 (100) (1.49)
- Loans 87,789 83,219 4,570 5.49 - Hire purchase and financial lease 3,584 1,570 2,014 128.28 - Others 20 20 - - Less Interest expense 46,921 43,676 3,245 7.43 - Deposits 28,809 23,580 5,229 22.18 - Interbank and money market items 4,004 4,603 (599) (13.01) - Contributions to Deposit Protection Agency 8,209 7,287 922 12.65 - Debts issued & Borrowings 5,894 8,203 (2,309) (28.15) - Others 5 3 2 66.67 Net interest income 64,482 58,122 6,360 10.94 Net interest margin [based on earning assets] * (%) 2.76 2.82 * excluding dividend income and fee from loan Table 2 Net Interest Income
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Net Fee and Service Income
The Bank’s net fee and service income in 2013 was Bt 15,712 m, increased by Bt 2,048 m or 14.99% from 2012. Fee income growth was mostly attributable to the expansion of the Bank’s transaction which supported fee and service income.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Fee and service income 17,369 15,149 2,220 14.65 Less Fee and service expense 1,657 1,485 172 11.58 Net fee and service income 15,712 13,664 2,048 14.99 Table 3 Net Fee and Service Income
Total Other Operating Income
Total other operating income for 2013 was Bt 14,137 m, increased by Bt 4,027 m or 39.83% from 2012, mainly due to the gain on investments. The Bank had the special transactions in 2Q2013 which was a loss from the revaluation deficit on some investments. Also, the Bank realized gain from the maturity of its investment in VAYUPAKSA FUND in 4Q2013.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Gain (loss) on trading and exchange, net 4,581 3,917 664 16.95 Gain (loss) on investments, net 2,560 351 2,209 629.34 Share of profit (loss) from investments on equity method 3,238 1,778 1,460 82.11 Dividend income 2,028 1,311 717 54.69 Other income 1,730 2,753 (1,023) (37.16) Total other operating income 14,137 10,110 4,027 39.83 Table 4 Total Other Operating Income
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Other Operating Expenses The Bank’s other operating expenses for 2013 were Bt 40,313 m, increased by Bt 4,970 m or 14.06% from 2012 mainly from employee expenses. However, Cost-to-Income ratio in 2013 equaled 44.31%, decreased from 44.70% in 2012.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Personnel expenses 23,512 20,074 3,438 17.13 Directors’ remuneration 98 88 10 11.36 Premises and equipment expenses 7,444 7,184 260 3.62 Taxes and duties 3,774 3,439 335 9.74 Others 5,485 4,558 927 20.34 Total other operating expenses 40,313 35,343 4,970 14.06 Cost-to-income ratio * (%) 44.31 44.70 * Non -interest expense (Excluding exceptional items: loss on impairment of properties foreclosed, loss on impairment of land, and l oss on impairment of other asset) / [Net interest and dividend income + Non-interest income (Excluding share of gain from investments on equity method and exceptional items: reversal of loss on impairment of properties foreclosed, reversal of loss on impairment of land, and reversal of loss on impairment of other asset)] Table 5 Other Operating Expenses
Bad Debts, Doubtful Accounts and Loss on Impairment
The Bank continuously improved asset quality level as shown in the declining of NPLs and NPLs ratio (gross) comparing to the end of year 2012. In this year, the Bank decided to provide additional provision for bad debts, doubtful accounts of Bt 5,600 m to strengthen allowance for doubtful accounts, apart from normalize provision of Bt 500 m per month in order to build up the Bank’s provisioning level. Therefore, in year 2013 the Bank’s total provision expenses for bad debts, doubtful accounts and loss on impairment were Bt 12,311 m, decreased by Bt 2,852 m (18.81%) from year 2012. As a consequence, the coverage ratio increased from 92.73% at the end of 2012 to 109.47%.
Unit : Million Baht 2013 2012 Change (2013/2012) Amount (%) Bad debts, doubtful accounts and loss on impairment 12,311 15,163 (2,852) (18.81) Table 6 Bad Debts, Doubtful Accounts and Loss on Impairment
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Financial Status
Assets
° Loans to Customers According to the Consolidated Financial Statements, the Bank’s loans to customers (less deferred revenue) as of December 31, 2013 totaled Bt 1,711,090 m, showing an increase of Bt 180,993 m or 11.83% from December 31, 2012. The increase of loan was attributed mostly by private and retail loans.
The following table provides information on the Bank’s loan portfolio according to its borrowers:
Unit : Million Baht Dec 31, 2013 Dec 31, 2011 Change The Bank’s Financial Statements Amount (%) Amount (%) (%) Private Corporate 688,716 40.14 594,604 38.64 15.83 Government and State Enterprise 137,428 8.01 171,864 11.17 (20.04) SME 340,053 19.82 315,214 20.48 7.88 Retail 548,904 31.99 456,602 29.67 20.21 Others 578 0.04 622 0.04 (7.07) Total loans 1,715,679 100.00 1,538,906 100.00 Less Deferred revenue 175 220 Total 1,715,504 1,538,686 11.49 *SME : loan to private companies that have employee no. less than/equal to 200 people and fixed asset (excluding land) less than/equal to Bt 200 m . Table 7 Loans classified by borrowers
Unit : Million Baht Dec 31, 2013 Dec 31, 2012 Change Consolidated Financial Statements Amount (%) Amount (%) (%) Agriculture and mining 38,350 2.23 33,621 2.19 14.07 Manufacturing and commerce 528,579 30.75 460,375 29.99 14.81 Real estate and construction 131,426 7.65 119,370 7.78 10.10 Public utilities and services 362,671 21.10 373,396 24.32 (2.87) Housing loans 279,474 16.26 221,126 14.41 26.39 Others 378,234 22.01 327,090 21.31 15.64 Total loans 1,718,734 100.00 1,534,978 100.00 Less Deferred revenue 7,644 4,881 Total 1,711,090 1,530,097 11.83 Table 8 Loans classified by business types
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° Investments Apart from loans to customers, the Bank’s total investments net as of December 31, 2013 totaled Bt 241,783 m, showing a decrease of Bt 59,257 m or 19.68% from December 31, 2012, due to the maturity of its investment in VAYUPAKSA FUND in 4Q2013.
Unit : Million Baht Dec 31, 2013 Dec 31, 2012 Change
Amount (%) Amount (%) (%) Investments, net 230,573 95.36 290,586 96.53 (20.65) Investments in subsidiaries and associates, net 11,210 4.64 10,454 3.47 7.23 Total investments, net 241,783 100.00 301,040 100.00 (19.68) Table 9 Investments
° Total assets Total assets as at December 31, 2013 were Bt 2,514,770 m, showing an increase of Bt 258,280 m or 11.45% from December 31, 2012. Liabilities
As at December 31, 2013, total liabilities were Bt 2,308,680 m, showing an increase of Bt 235,038 m or 11.33% compared to December 31, 2012. Deposits totaled Bt 1,883,781 m, showing an increase of Bt 216,820 m or 13.01% from December 31, 2012, due to the increase of all type of deposits.
Unit : Million Baht Dec 31, 2013 Dec 31, 2012 Change Amount (%) Amount (%) (%) Demand deposits 97,970 5.20 91,654 5.50 6.89 Savings deposits 967,702 51.37 890,595 53.43 8.66 Time deposits 818,109 43.43 684,712 41.07 19.48 Total Deposits 1,883,781 100.00 1,666,961 100.00 13.01 B/E 35,613 61,086 Table 10 Breakdown of Deposits by Product
Equity
The total equity as at December 31, 2013 was Bt 206,090 m, showing an increase of Bt 23,242 m or 12.71% from December 31, 2012.
Book value per share as at December 31, 2013 totaled Bt 14.75 per share, showing an increase from Bt 13.08 per share as at December 31, 2012.
Liquidity
As of December 31, 2013, loans to customers (less deferred revenue) -to-deposits ratio decreased to 90.83% in comparison to 91.79% as at December 31, 2012. However, if B/E and ST-debenture were included as deposit, loans to customers (less deferred revenue) -to-deposits include B/E and ST-debenture ratio would have been 88.87% as at December 31, 2013, which increased from 88.34% as at December 31, 2012.
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Sources and Uses of Funds
As of December 31, 2013, deposits, as a major source of funds, contributed to 74.91% of the Bank’s source of funds. Other sources of funds included shareholders’ equity, debt issued and borrowings, and interbank borrowings. For the period, 68.04% of funds were invested in loans to customers (less deferred revenue). Meanwhile, net investments and net investments in subsidiaries and associates, and net interbank and money market items contributed to 9.61% and 17.84% of the Bank’s asset, respectively.
Unit : Million Baht Dec 31, 2013 Dec 31, 2012 Change
Amount (%) Amount (%) (%) Deposits 1,883,781 74.91 1,666,961 73.87 13.01 Interbank and money market items, net 200,989 7.99 192,011 8.51 4.68 Debt issued and borrowings 133,000 5.29 146,636 6.50 (9.30) Others 90,910 3.61 68,034 3.02 32.62 Total equity 206,090 8.20 182,848 8.10 12.71 Total 2,514,770 100.00 2,256,490 100.00 11.45 Table 11 Sources of Funds
Unit : Million Baht Dec 31, 2013 Dec 31, 2012 Change The Bank’s Financial Statements Amount (%) Amount (%) (%) Loans - ≤ 1 year 544,648 31.75 448,358 29.14 21.48 - > 1 year 1,171,031 68.26 1,090,548 70.87 7.38 Less Unearned Discounts 175 0.01 220 0.01 (20.45) Total loans * 1,715,504 100.00 1,538,686 100.00 11.49 Deposits - ≤ 1 year 1,740,760 92.38 1,471,255 88.24 18.32 - > 1 year 143,502 7.62 196,119 11.76 (26.83) Total deposits 1,884,262 100.00 1,667,374 100.00 13.01 * Excluding accrued interest receivable and interbank loans Table 12 Loans and Deposits Classified by Maturity
Statutory Capital Fund
Since January 1, 2013 the Bank has implemented Basel III regulation to comply with BOT’s Notifications. As at December 31, 2013, the Bank’s Common Equity Tier 1 capital was Bt 180,823 m or 9.66% of its risk-weighted assets (RWA) .Tier 1 capital was Bt 190,396 m or 10.17% of its risk-weighted assets (RWA). Total capital fund was Bt 276,696 m or 14.79% of its risk-weighted assets (RWA). The ratios were higher than the minimum rate required by the BOT. The Bank believes this capital fund is strong and enables the Bank to expand the business as planned.
If the Bank calculates net profit of the second half of 2013 as capital, Common Equity Tier 1 ratio, Tier I ratio and Total Capital ratio will be 10.60%, 11.11% and 15.72% respectively.
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Unit : Million Baht Basel III Basel II December 31, 2013 December 31, 2012
The Bank’s Financial Statements The minimum Amount (%) rate required Amount (%) by the BOT (%) Common Equity Tier 1 capital 180,823 9.66 4.50 - - Tier 1 capital 190,396 10.17 6.00 164,709 10.21 Tier 2 capital 86,300 99,619 Total capital fund 276,696 14.79 8.50 264,328 16.38 Risk-weighted assets 1,871,376 1,613,459 Table 13 Statutory Capital Fund
Asset Quality
Non-Performing Loans
As at December 31, 2013, the Bank and subsidiaries’ gross non-performing loans (NPLs) were Bt 56,458 m, showing a decrease of Bt 3,058 m, or 5.14% from Bt 59,516 m of December 31, 2012. Thus, the Bank has ratio of NPLs to total loans decreased to 2.65% as at December 31, 2013 in comparison to 3.21% as at December 31, 2012. Net non-performing loans as at December 31, 2013 were at Bt 32,222 m or 1.53% of total loans.
As at December 31, 2013, the Bank’s gross non-performing loans (NPLs) were Bt 55,026 m, showing a decrease of Bt 4,145 m, or 7.01% from December 31, 2012.
Unit : Million Baht Dec 31, 2013* Dec 31, 2012* Consolidated Financial Statements Amount (%) Amount (%) Agriculture and mining 1,222 2.15 1,316 2.21 Manufacturing and commerce 24,513 43.25 25,490 42.79 Real estate and construction 12,606 22.24 14,270 23.96 Public utilities and services 9,640 17.01 12,665 21.26 Housing loans 4,880 8.61 3,896 6.54 Others 3,821 6.74 1,931 3.24 Total non-performing loans 56,682 100.00 59,568 100.00 *before the deduction of deferred revenue Table 14 Non-performing loans classified by business types
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Credit Ratings
Bank’ s credit ratings rated by Standard and Poor’s, Moody’s Investors Service and Fitch Ratings as follows:
° Standard & Poor s December 2013 December 2012
° Long -term / Short -term BBB / A -2 BBB / A -2
° Hybrid Tier 1 (USD) B+ B+
° Outlook Stable Stable December 2013 December 2012 ° Moody s Investor s Service
° Long-term/ Short-term Baa1 / P-2 Baa1 / P-2
° Hybrid Tier 1 (USD) B2 B2
° Outlook Stable Negative
° Bank Fundamental Strength Ratings : BFSR D D- December 2013 December 2012 ° Fitch Ratings Foreign Currency Credit Ratings
° Long-term/ Short-term BBB / F3 BBB / F3 - Subordinated Debt BBB- BBB-
° Hybrid Tier 1 (USD) B B
° Outlook Stable Stable
National Credit Ratings
° Long-term/ Short-term AA+(tha) / F1+ (tha) AA+(tha) / F1+ (tha) - Subordinated Debt AA(tha) AA(tha)
° Hybrid Tier 1 (Baht) BBB(tha) BBB(tha)
° Outlook Stable Stable
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