UOB (Thai) Annual Report 2018 “/” Joanne Pang Contents 02 Company Profile 02 Our Commitment to Fair Dealing 03 Financial Highlights 04 Chairman’s Statement 06 Board of Directors 06 Senior Management Team 08 Organisation Structure 09 Management Discussion and Analysis 2018 15 Independent Auditor’s Report 17 Financial Statements and Notes to Financial Statements 103 Other Information 115 Risk Management 126 Report of the Audit Committee 128 Opinion of the Audit Committee on the Bank’s Internal Control System 129 Report of the Nomination and Compensation Committee 131 Corporate Governance 135 Branch Network 143 Company Information “/” by Joanne Pang Mixed media on cotton 140 x 150 cm Ms Pang’s painting, “/”, is the design inspiration for this year’s Annual Report. The artist is a lecturer at LASALLE College of the Arts in Singapore and her painting received the Gold award in the Established Artist Category in the 2018 UOB Painting of the Year (Singapore) competition. The painting title is also meant to be read as “either… or” and represents a strike in motion. It reflects the artist’s movements between action and inaction during the painting process as well as captures the concept of time passing and stopping. Through technique and medium, her painting strokes express the impact of force, dynamism and transformation. The essence of the painting captures UOB’s approach to banking where due consideration is given before timely decisions are made for optimal impact. UOB’s support of art is a natural extension of our commitment to our stakeholders in the communities in which we operate. The UOB Painting of the Year competition, in its 37th year in 2018, is the Bank’s flagship art programme held across four Southeast Asian countries. UOB (THAI) ANNUAL REPORT 2018 1 Company Profile United Overseas Bank (Thai) Public Company Limited (UOB Our Commitment to Fair Dealing (Thai)) is a fully-licensed commercial bank. With its network of 154 branches and 393 ATMs (as of 31 December 2018), UOB (Thai) Regulatory compliance is a top priority at UOB. We are offers consumer and corporate customers a comprehensive committed to upholding the highest standards of ethics, suite of quality products and services to meet their financial integrity and fairness to our customers and actively promote objectives and needs. To complement its commercial banking such awareness in our organization. business, UOB (Thai) has a subsidiary providing debt collection services. With customers as our focal point, we ensure that fair dealing is entrenched in all aspects of our relationship with the customers. UOB (Thai) is rated among the top banks in Thailand by Moody’s Investors Service and Fitch Ratings. • Fair Dealing is central to our corporate culture Moody’s Investors Service: • Our offering products and services are suitable for our International Ratings customers. Long-Term Baa1 Short-Term P-2 • We ensure the competency of our sales staff in providing quality advices and appropriate recommendations. Fitch Ratings: • We provide the customers with clear, relevant and timely International Ratings information, which would enable the customers to make Long-Term A- informed financial decisions. Short-Term F2 Viability bbb- • We take customer complaints seriously and have robust process Support 1 in place to ensure that the customer complaints are managed in a National Ratings transparent, independent, and efficient manner. Long-term AAA(tha) Short-term F1+(tha) • Personal data protection and customer privacy are crucial to maintaining customers’ trust. We exercise robust controls UOB (Thai) is 99.66 per cent owned by Singapore-based United over access to customer data and monitoring process to Overseas Bank Limited (UOB), which has a global network of ensure customer’s privacy and confidentiality of customers’ data more than 500 offices in Asia Pacific, Europe and North America. are effectively managed and fully protected. A regional bank rooted in Thailand, UOB (Thai) provides customers with financial expertise and connectivity across Asia. It offers innovative financial solutions, quality products and excellent service through understanding and identifying the needs of its customers. 2 UOB (THAI) ANNUAL REPORT 2018 Financial Highlights Consolidated Financial Statements 2018 2017 Financial Position (Million Baht) Assets 525,104 516,928 Loans 382,949 350,593 Allowance for doubtful accounts 10,190 9,997 Deposits 405,178 370,168 Liabilities 468,894 464,982 Shareholders' equity 56,209 51,946 Capital funds 60,371 61,446 Earnings Performance (Million Baht) Net interest income 14,370 13,595 Non-interest income 4,935 4,639 Net profit before tax 5,347 4,402 Net profit after tax 4,326 3,526 Ratios (%) Net interest income to average assets 2.76 2.81 Return on average assets 0.83 0.73 Return on average equity 8.00 7.03 Earnings per share - basic (Baht) 1.74 1.42 NPLs (gross) to total loans 2.49 2.48 Book value per share (Baht) 22.61 20.90 Common equity tier 1 16.80 16.05 Capital adequacy 19.23 20.14 UOB (THAI) ANNUAL REPORT 2018 3 Chairman’s Statement Our Operating Environment in 2018 Thailand's economy weathered the headwinds caused by market uncertainty and global trade tensions in 2018 and grew by 4.1 per cent. This growth was buoyed by domestic demand, driven largely by private consumption expenditure which expanded at its fastest pace in nearly two years amid improving wage growth and subdued inflation. Private investment also grew We are committed to enhancing the banking to almost a six-year high, supported by increased construction- experience for our customers and to developing related investments, particularly in machinery. fi nancial solutions essential to the lifestyles Our 2018 Performance of Thai consumers. UOB (Thai) continued to deliver strong performance in 2018. We achieved 22.7 per cent growth in net profit after tax to reach Baht 4.3 billion. Total income was Baht 19.3 billion, driven largely by overall loan growth. Total loans were at Baht 382.9 billion, a year-on-year increase of 9.2 per cent (Baht 32.4 billion), led by the increase in both wholesale and retail loans, while the total deposits base was at Baht 405.2 billion, an increase of Baht 35.0 billion from Baht 370.2 billion in 2017. The non-performing loan ratio was maintained at 2.5 per cent, which continued to be lower than the industry average. We remained disciplined in maintaining a strong balance sheet which helped drive the quality of our performance for the year. Corporate Developments In 2018, we continued to forge ahead, seizing opportunities to deepen our presence in service of our customers. We cemented our commitment to Thailand as we laid the foundation stone for our new headquarters in Sukhumvit. The new building, which is scheduled for completion in 2021, will be the main office and centre for the Bank’s operations in Thailand and will house more than 3,000 employees. It reinforces UOB's unwavering support of the country’s industry, enterprise, consumers and community. During the year, we continued to transform our branch network as consumer banking experiences continue to change. As part of our omni-channel approach, we piloted three new branch concepts. These were designed to meet the lifestyles and needs of different customer segments: families; young professionals and entrepreneurs; and business owners and the upper affluent. For each segment, UOB took a design thinking approach to enhance their banking experience, drawing on our insights and understanding of them, what they expect and how they use the branches. Keeping our customers at the heart of all we do, we continued to harness the benefits of digitalisation to make banking simpler, safer and smarter for them. For SMEs, we rolled out a cloud-based, integrated business solution, UOB BizSmart, to help them manage administrative tasks digitally, thereby improving their business efficiency. 4 UOB (THAI) ANNUAL REPORT 2018 Our commitment to enhancing the banking experience for our customers and to developing financial solutions essential to the lifestyles of Thai consumers was recognised again by the industry. For the fourth consecutive year, UOB (Thai) was named Best Foreign Retail Bank in Thailand by The Asian Banker and also received the Best Digital Sales Initiative award and the Excellence in Customer Centricity (Highly Commended) Award. 2019 Outlook In 2019, we expect global economic growth to slow, albeit at a moderate pace. China’s economic growth is expected to ease further to 6.3 per cent, which will likely weigh on the outlook for the rest of Asia, while Europe’s growth is likely to ease to 1.6 per cent. Japan could also experience a challenging year with less than one per cent growth given the global trade tensions and a domestic consumption tax increase expected in October. In light of the political stability and the restoration of foreign investors’ confidence, we expect Thailand’s economy to maintain its growth momentum in 2019. Investments in transport infrastructure and developments for the Eastern Economic Corridor will continue at an accelerated pace. These will in turn boost private investment and attract inbound as well as outbound foreign direct investments. Acknowledgement On behalf of the Board of Directors, I would like to welcome on board Dr Chim Tantiyaswasdikul, our new Independent Director, and thank our former Director, Khun Chinnawat Bulsuk who retired on 1 August 2018 after 14 years of dedicated service, for his wise counsel and guidance. I wish to extend my appreciation to our customers and