[ T E A M W O R K ]

Working together to always be your understanding partner Vision and Mission

Vision To be a leading financial service provider with excellence in universal banking capabilities, fostering strong partnerships with customers and focusing in consumers and SME businesses.

Mission 1. Build strong relationships with individual consumers and businesses in order to create lasting mutual benefits. 2. Create shareholder value and provide optimal shareholder return. 3. Trust in the capabilities of our employees and provide them with opportunities to develop and capitalize on their creativity and talent, as well as, rewarding them for their achievements. 4. Build a strong financial status and reputation for the Bank by adhering to internationally accepted standards of good corporate governance and transparency and maintaining our status as a good corporate citizen.



Message from the Board of Directors

Dear Valued Shareholders

The year 2007 marked another major milestone for TMB Bank. In December 2007, TMB Bank issued 25,000 million new shares worth 37,622 million baht, with a major portion of the capital increase subscribed by the Netherlands-based ING Bank N.V., one of the 20 largest financial institutions worldwide and the top 10 in Europe. The Bank’s capital base now has been strengthened with Capital Adequacy Ratio of 14.4%, which is on par with other leading banks in the country and well above 8.5% required by the Bank of Thailand. The strategic partnership with ING is expected to help strengthen the Bank’s business especially in retail banking, bancassurance, asset management, and risk management. The successful recapitalization with the new strong strategic partner is credited to the drive and leadership of Mr. Somchainuk Engtrakul, former chairman of the Bank, and other directors at the helm. The Board of Directors would like to express deep gratitude to Mr. Somchainuk Engtrakul and other directors for their important roles in steering the Bank forward firmly into our current position, ready for growth and high performance as expected by the shareholders. The Bank in 2007 posted a net loss of 43,656.69 million baht due to the significant provisioning for loan loss reserves and goodwill impairment to comply with the central bank’s guidelines to prepare for an implementation of the International Accounting Standard 39 (IAS 39), the Bank’s plan to reduce and accelerate divestment of non-performing loans (NPL), the planned higher provision to raise its loan loss reserve ratio to around 70%, in line with other leading banks. In 2007, the Bank, despite the loss, achieved our core strategy in restructuring assets and liabilities by raising the proportion of low cost deposits. This widened the Bank’s net interest margin from 2.1 % in 2006 to 2.4 % in 2007. The Bank’s non- interest income in 2007 also increased from the previous year, notably 39 % improvement from gain on foreign exchange. The achievement illustrated the Bank’s improved core business and benefits from execution of the plan. In 2007 we also have generated momentum with the launch of new products ranging from special deposit account, popular debit cards, and a new platinum credit card, which has helped expand our retail customer base. Our strong cash management service proved popular among our business customers and we targeted to expand the cash management service coverage nationwide. Even though the Bank’s NPL are relatively high after we applied more stringent qualitative loan review in unfavorable economic conditions, the Bank has significantly raised our level of loan loss reserve. Our strong capital base will help expedite NPL problem resolution that has carried over from the economic crisis in 1997 and the merger in 2004. The Bank’s earnings in the next 1-2 years are expected to clearly improve with the recapitalization and ING’s supports.

 Starting from 2008, all commercial banks are required to adjust themselves to comply with the amended regulations on bank supervision as well as the intensified competition. TMB Bank has set our 2008 strategic focus to strengthen our universal banking platform, build a strong retail banking business, enhance risk management, and align our brand with the targeted market position. Additionally, the Bank has set up joint programs to optimize benefits of collaboration with ING. These programs which cover both business and transformational initiatives will be driven with high priority. The Bank also places high importance on laying a strong foundation for information technology. Known as Service Oriented Architecture (SOA), the new technology enables the Bank to more flexibly offer services, and respond to marketing opportunities. The improved IT infrastructure will support TMB in its aspiration to firmly grow into a leading universal bank from our current position as Thailand’s sixth largest commercial bank with 622.2 billion baht asset and 8 % market share. The Board of Directors would like to deeply thank shareholders for their continued supports and customers for their enduring relationship as the Bank enters into our 51st year. The gratitude is also extended to all staff for their tremendous efforts and dedication to the Bank. We will put in all efforts to move TMB Bank forward as a leading universal bank.

(Dr. Sathit Limpongpan) (Dr. Subhak Siwaraksa) Chairman President and Chief Executive Officer

 Economic Review 2007 and Outlook 2008

World Economic Review 2007 However, the robust economic growth in China, The world economy in 2007 grew at an annual India and ASEAN countries partly cushioned the global rate of 4.9%, slightly slower than 5% in 2006, due to the economic growth slump in 2007. China is expected to economic slowdown in leading developed countries. continue recording a rapid growth of 11.4% in 2007 The US economy in 2007 recorded the slowest growth from 11.1% in 2006, driven mainly by exports and rate among its developed country peers at 2.2%, consumption. Given the Reserve Bank of India’s compared with 2.9% in 2006. Economic growth in stringent monetary measures and the stronger Rupee Japan and Euro-zone dropped from 2.2% and 2.8% in against the US Dollar, India economic growth in 2007 2006 to 1.9% and 2.6%, respectively in 2007. moderated from the previous year but remained solid The US economy took the hard blow from the real at 8.9%, buoyed by the dynamic growth in industry estate and the sub-prime mortgage woes. To and service sectors. Most ASEAN countries, also alleviate the problems, the US Federal Reserve (FED) enjoyed strong growth thanks to the increasing slashed its Fed Funds Rate in the three meetings held domestic demand and intra-regional trade. in September, October and December from 5.25% in the middle of 2007 (after the key rate was maintained World Economic Outlook in 2008 for 15 months) to 4.25%. The sub-prime turmoil sent The world’s economic growth in 2008 is predicted knock-on effects on financial and equity markets to fall from 4.9% in 2007 to 4.1% in 2008 on an worldwide and this led to the joint efforts by several anticipation of the slowdown growth across the regions central banks including the US Federal Reserve, the dampened by the US sub-prime fallout, which is Bank of England, the European Central Bank, the Bank vulnerable to consumption of industrialized countries of Canada, and the Swiss National Bank to inject hefty and sends an indirect effect to other regions. cash to bail out many financial institutions. Moreover, Economic outlook of the leading industrialized the spike of crude oil price (WTI) from US$60.85 per countries in 2008 is expected to cool down barrel at the end of 2006 to almost $100 a barrel significantly. The US, Japan, and Euro-zone are during late 2007 also eroded consumer confidence, expected to see the economic growth of 1.5%, 1.5%, private consumption, and economic growth of the and 1.6%, respectively. It is possible for the US to enter industrialized countries. a recession after the steep declines in several

 economic indicators including employment rate, retail Thai Economic Review 2007 sales, and manufacturing index in December 2007. This Thailand’s gross domestic product (GDP) growth in signaled that the sub-prime meltdown is far more 2007 slowed down from the previous year as a spate serious than expected and it forced the US Federal of negative factors including the unrest in the three Reserve to cut the key policy rate by 75 basis points border provinces in the Southern part of Thailand, the on January 22, 2008, the first between-meeting Fed relatively high oil price, the Baht appreciation, political Funds Rate cut since 2001. Still, another half a uncertainty and a series of New Year Eve bombs in percentage reduction in the Fed Funds Rate was Bangkok and its outskirts undermined consumer and followed in the meeting on January 30, 2008 thus investor confidence. These negative factors weakened leading Fed Funds Rate to stay at 3.0%. Further Fed domestic consumption and investment in the first half Funds Rate cuts, aimed at stimulating economy and of the year. Private consumption in the first half of easing credit crunch problem, are expected in the first 2007 increased at a weak 2.2%, the lowest level since half of 2008. the economic crisis, while private investment shrank Japanese economic downturn would continue in 0.6%, the first contraction in 8 years. Consumer and 2008 due to lackluster domestic demand coupled with investor confidence improved following August 19’s the weak export trend dampened by health of the US Referendum on the Constitution and the general economy, which is Japan’s major export destination. election at the end of 2007, resulting in a clearer With the yen appreciation trend, the record high oil picture of political situation and a pickup in domestic price would not put much pressure to the Bank of consumption in the second half of 2007. However, the Japan’s monetary policy and the central bank is overall consumption and investment in 2007 is expected to keep its key policy rate at 0.5% estimated to grow at 2.7% and 1.4%, dropped from throughout 2008 to boost the country’s economy. 3.0% and 3.8%, respectively in the previous year. Economic slowdown in the Euro-zone is on horizon Thailand’s export growth beat market’s expectation in 2008 as the stronger euro currency would hit exports. thanks to robust economic growth of major trading The European Central Bank must be more prudent in partners including China, India and other Asian implementing its monetary policy amid the inflationary countries, and high export growth in new markets. pressure, the rising oil price and the wage hike. These helped offset the slowdown exports to the major China is expected to sustain strong momentum market likes the US. Export growth in agricultural and with double-digit growth in 2008. Its economic growth industrial products was still in good shape and boosted in 2008, however, would moderate somewhat to 10.0% export growth in value terms to 18.1%. Exports were the in the aftermath of Chinese central bank’s tightened main driving force of the Thai economy in 2007. monetary policy to cool its red-hot economy and Imports in 2007 also accelerated from 7.9% in the inflationary pressure. The robust consumption and previous year to 9.6% as producers have focused to investment, especially in investment from overseas, are use more raw materials from overseas to lower impact the main engines driving the economic growth. For from the stronger Baht. The acceleration of imports India, it is estimated to deliver a strong growth of 8.1%, aligned with the strong export growth. Thailand propelled by domestic investment - infrastructure imported oil in the year declined as people has projects in particular - and the continuing capital changed behavior to consume alternative energy, inflow. leaving the country’s trade in surplus of $12 billion in 2007, increase considerably from $1 billion in 2006.

 The improved tourism industry increased the surplus Thai Economic Outlook 2008 in the service and transfer account, resulting in the Thailand’s economic growth is expected to current account surplus of around $14.9 billion or 6.1 % improve in 2008. TMB Research Department forecast of the country’s GDP. TMB Research Department that the Thai economic growth would expand around estimated that Thai economic growth in 2007 would 4.5-5.0% (based on assumptions that Dubai crude oil drop from 5.1% in 2006 to 4.8 %. price averages at about $80-85 per barrel, the Headline inflation in 2007 averaged at 2.3%, down average baht is in a range of 32.0-33.0 Baht to the US from 4.7% in 2006, as the average Dubai crude oil Dollar, political situation has been cleared, and the US price in 2007 rose only 11.7% to $68.27 per barrel, sub-prime turmoil is alleviated). Domestic consumption compared with $61.12 per barrel or 23.9% increase in and investment are expected to rebound back and 2006. The moderate headline inflation could also be play the greater role in contributing to the Thai ascribed to the Baht appreciation and the weak economic growth. Although the upward inflation domestic demand. The stronger Baht lowered costs of pressure weakens purchasing power, private import products and softened oil price in Baht terms, consumption in 2008 is estimated to surge from 1.4 % while the sluggish demand domestically prevented in 2007 to 3.0% in 2008 on the back that formation of producers from passing through full costs to consumers. the elected government helped restore consumer and For interest rate, the Bank of Thailand (BoT)’s investor confidence and the government has the fast- Monetary Policy Committee (MPC) has relaxed track policy to stimulate economy. The increase in monetary policy since early 2007 by cutting its 1-day farmer income from the higher agricultural product repurchase rate for five straight times totalling 1.75% prices, civil servants’ salary hike, and the increase in from 5.00% to 3.25% in July 2007 to stimulate domestic the daily minimum wage of 1-7 Baht will also give a demand, investment and consumption in particular. A big boost. series of the policy rate reduction in the first half of the The government’s spending sets to expand at a year was supported by the mild inflation rate. The solid pace following a 4.0% increase in salary of all MPC, however, maintained the key rate at 3.25% in civil servants starting from October 1, 2007. In addition, the remaining three meetings of the year following the public investment is expected to jump start due to the positive signs in economic indicators, and higher risk government’s budget disbursement acceleration, a 165 from inflationary pressure as oil price was soaring. billion Baht budget deficit plan for the 2008 fiscal year Commercial banks followed suit by gradually cutting plus another 60-80 billion Baht deficit for the mid-year their deposits and lending rates. Given the liquidity budget, and investment in mega infrastructure projects. surplus in the financial system resulting from the thin Private investment looks to gain momentum again demand in lending, deposit rates were cut at the on the continuing improvement in investor confidence, faster pace and greater percentage than lending low interest rate environment, and the country’s high rates. However, long-term deposit rates in the fourth utilization rate in 2007 at 76.0% - the level that several quarter of 2007 went up slightly due to the decline in industries need to expand capacity. The number and liquidity following the government’s bond issuance value of projects that asked for the Board of including the central bank’s savings bonds and the Investment (BOI)’s tax privilege in 2007 rose significantly, Financial Institutions Development Fund’s bonds. with the total value around 660 billion Baht of projects awarded the BOI’s incentives. These projects are expected to roll out investment this year. Investment of private sector in the mega projects would be another engine for private investment expansion.

 Exports, which were the mainstay of Thailand’s The weak US dollar trend, the stronger Asian economic growth in 2007, would play less role in 2008. currencies particular in China’s yuan, and possibility of Thailand’s exports are expected to slow down following Thailand’s current account surplus would strengthen the the global economic downturn, especially in the US baht further to 32.0-33.0 Baht to the US dollar in 2008. and EU which were hit by the sub-prime woe. The The baht is expected to be move more flexibly to country’s exports are facing with the tough move in line with fundamental. competition in the international trade arena, non-tax Despite the greater risk from inflationary pressure trade barriers and the stronger Baht. However, fuelled by the relatively high oil price and the increase economic growth in the Asian region will remain solid in prices of domestic goods and services, inflation rate and Thailand would continue to broaden into new is expected to be under the inflation targeting. As markets. Exports are expected to grow 9.0% in 2008 Thailand’s economy is on the recovery path amid the while import growth is expected to accelerate to 13.0% internal and external risks, the fragile state of domestic following domestic consumption and investment demand, and the looming US Fed’s further rate cuts in recovery, as well as the mega project investment. This the first half of the year to prevent the nation’s would narrow a trade surplus from 2007 to $7.5 billion economy from recession – which will effect fund in 2008. Based on forecast that service and transfer mobilization and strengthen the Baht value would have account surplus would continue, Thailand’s current negative effect on export potential, the BoT tends to account surplus in 2008 would be around $9.5 billion, adopt loosened monetary policy to boost the country’s accounting for 3.4% of the country’s GDP. economic growth in the first half of the year. The Headline inflation in 2008 would accelerate to a policy rate is likely to be trimmed by 0.25-0.50% to 2.75- range of 3.0-4.0% from 2.3% in 2007 following the oil 3.00% at the end of 2008. price spike and the gradual pass-through into higher prices of goods and services. The Baht appreciation, however, would absorb inflationary pressure to a certain level.

Thai Economic Estimates 2006 2007 2008 f GDP growth (%) 5.1 4.8 4.5 - 5.0 Private consumption (%) 3.2 1.4 5.0 Total investment (%) 3.8 1.4 5.6 Private sector (%) 3.7 0.5 5.0 Exports (Billion US$) 127.9 151.2 164.8 (%) change 17.0 18.1 9.0 Imports (Billion US$) 126.9 139.2 157.3 (%) change 7.9 9.6 13.0 Trade balance (Billion US$) 1.0 12.0 7.5 Current account (Billion US$) 2.2 14.9 9.5 % of GDP 1.0 6.1 3.4 Inflation rate (%) 4.7 2.3 3.0 - 4.0

Note : f is forecasted by TMB Research Department as of February , 2008  Commercial banks in 2007 and trends for 2008

Over a decade after the financial meltdown in The tougher competition among banks has been seen 1997, Thailand’s financial sector has made a radical in all products and services and they must also restructuring. The authorities have concentrated on compete with other financial institutions namely asset regulating and standardizing surveillance to be in line management and life insurance companies, and non- with international practices to increase financial bank credit card issuers. Besides, commercial banks are institutions’ stability and sharpen up their still required to comply with the Bank of Thailand competitiveness in the long run. For commercial banks, (BoT)’s tightened regulations. The most crucial they have accelerated solving prevailing problems requirements are setting aside additional provisions for incurred from the financial crisis, improved their 6- and 3-month overdue loans within June 2007 and operations in many aspects, increased potential in the end-2007, respectively in compliance with the competition, and formed alliances with foreign International Accounting Standard (IAS) 39, and extra institutions to strengthen their operations. Attempts to provisions for depreciat