ANNUAL REPORT 2013 GROWING IN STRENGTH WELCOMING MUFG/BTMU CONTENTS Message from the Chairman 4 Message from the Chief Executive 6 Officer 000 Our Organization Organizational Structure 11 Board of Directors 12 Senior Management 14 Financial Highlights 16 Awards and Recognition 18 Operating Environment 27 GOLDEN YEAR:18 KRUNGSRI HONORED WITH KEY AWARDS Competitive Capability 31 Risk Factors and Risk Management 73 Corporate Governance 85 Collective Action Coalition 99 Against Corruption (CAC) 000 Policy and Measures against 100 Insider Information 000 Internal Control and Internal 100 33 BANK SLATE: Audit System ASIA’S FIRST 000 FULLY-INTEGRATED BANKING APP A HIT Shareholding and Management 105 Structure 000 Corporate Social Responsibility 145 Financial Reporting and Financial 153 Statements 000 General Information 254 The Bank’s Securities 255 Group of Companies 259 Distribution Network Directory 261 SIMPLY46 BETTER: Summary of Specified Items per 271 452 NEW ATMS INSTALLED Form 56-2 NATIONWIDE MESSAGE FROM THE CHAIRMAN MESSAGE FROM THE CHAIRMAN its stake in Krungsri. The Ratanarak Group The acquisition of Krungsri will support BTMU’s understood the reasons behind GE’s decision strategy of expansion in Southeast Asia. and offered its full support. However, this Among MUFG/BTMU’s subsidiaries, Krungsri brought Krungsri to the crossroads once again, is the largest investment in Asia, and the requiring its core shareholder to consider second-largest stake globally after US-based a more permanent partnership. UnionBanCal Corporation. At this juncture, Krungsri possessed a successful From this year 2014, with BTMU’s prudent track record, had solid financial fundamentals, management, inspiring leadership and maintained an excellent management team solid financial position, Krungsri can now with a reputation for innovation, and was the look forward with confidence to an era of recipient of many international and professional improved financial performance, even with a awards covering the spectrum of industry fiercely competitive business environment or sectors and functions. unfavorable local and or international economic conditions to contend with. Everything was in place to attract the ‘best of the best’ as a partner, which for Krungsri’s Confidence in the sheer quality BTMU and leadership meant The Bank of Tokyo-Mitsubishi its parent, MUFG, brings to Krungsri is UFJ, Ltd. (BTMU), a core member of Mitsubishi well-placed: quality that flows through UFJ Financial Group, Inc. (MUFG). The only operation-enhancing attributes including contentious issue for the Ratanarak Group was a well-entrenched global presence and the Voluntary Tender Offer (VTO) process could impeccable top-level connections, customer- lead BTMU to climb above a 50% shareholding, centric entrepreneurial and professional values thus becoming the controlling shareholder of to enhance our own, disciplined work culture, Krungsri. utmost integrity, a long-embedded tradition of strict compliance with good corporate The Ratanarak Group could have denied BTMU’s governance principles, strong financial Dear Shareholders wish to launch the VTO and could instead have resources and a large Japanese clientele upon considered other candidates prepared to settle the integration of BTMU’s Bangkok branch The Year 2013 heralded a dramatic fate. Notwithstanding the achievement, for GE’s 25% holding. After an exhaustive review into Krungsri in compliance with the Bank of transformation of Bank of Ayudhya (Krungsri)’s Krungsri’s financial position remained fragile and a full evaluation of the long-term benefits to Thailand’s one presence policy. shareholder profile. Looking back over the and it could not grow at a rate commensurate Krungsri, however, it became clear that having past 15 years, it has been an illustrious journey with that of its strong peers. The prospect was BTMU as a single controlling shareholder was in It is with a sense of optimism and excited by containing the dreams, visions and commitment an inescapable reality: without expanding equity the best interests of the Bank. The Ratanarak new possibilities that we extend our best wishes that help us to defend and build Krungsri into to grow, stagnation was inevitable. Group therefore decided to yield its joint major and a very warm welcome to MUFG/BTMU a modern and prosperous financial institution. shareholder position and threw its support as we set out together towards a new era of The path was not an easy one, not paved This brings us to the second chapter of behind BTMU becoming the sole controlling inspiring achievements at Krungsri. with gold but one that demanded sacrifice, Krungsri’s modern history, nine years ago, when shareholder and management of Krungsri. The endurance, and team spirit which throughout the Bank’s major shareholder pondered how Ratanarak Group, without selling one single Finally, with our anticipation of Krungsri’s bright devoted Krungsri professionals successfully best to place Krungsri on a proper financial share during the VTO, willingly sacrificed its future, let us pause and look back for a moment delivered results with integrity, class, and a well- footing in order to generate consistent profits controlling position for the Bank’s greater to express our deepest thanks and best wishes deserved sense of pride. and dividends. As confidence in the Bank was good and future growth, and now settles for to all of our valued stakeholders, management restored, the Ratanarak Group constructively its place at the Bank as a significant minority and employees, who together formed a The story of Krungsri’s modern history begins proceeded to consider interested strategic shareholding group and a constructive partner formidable team that brought us this far along immediately after the Asian financial crisis financial institutional investors as joint core in Krungsri’s future. the road to success. in 1997, when Krungsri experienced its most shareholders in Krungsri. difficult struggle. The so-called ‘Tom Yum Kung crisis’ brought Krungsri’s major shareholder GE Capital International Holdings Corporation to confront the critical decision of whether to (GE) stood out amongst the parade of potential enter the Government’s assistance program partners, with its strong retail assets portfolio or set about raising fresh capital on its own. and top quality management. GE proved to The Ratanarak Group, then the controlling be an inspired choice and the perfect synergy shareholder, preferred the challenging route. boosted Krungsri’s performance and elevated its share price to new heights. Veraphan Teepsuwan Never a group to shirk a difficult mission, Chairman confident in its management’s ability and Seven years of successful joint partnership possessed of a strong will to succeed, the major followed. This chapter in Krungsri’s story ended shareholding group drew upon much of its with GE’s decision to review its investment available resources to restore the Bank’s equity policy and divest itself of some of its most position and finally prevail over an unimaginable valuable marketable assets, among them 4 Krungsri Annual Report 2013 Krungsri Annual Report 2013 5 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER TOWARDS A BRIGHTER FUTURE, FROM AN AWARD-WINNING YEAR The Krungsri Group turned in another Notwithstanding the prudential reserve booked solid performance in 2013 against the in June, an improved cost-to-income ratio backdrop of a slowing economy caused by and strong growth in fees and service income an easing in domestic demand and delays contributions resulted in a net profit of THB 12.0 in the government’s planned infrastructure billion. investments. The Gallup Great Workplace Award presented We also delivered an award-winning to Krungsri in 2013 was high praise indeed from performance: 2013 was a year of numerous the world’s leading research-based performance accolades for Krungsri from many well-known management company. industry and professional organizations recognizing the Group’s leadership in corporate Krungsri was the only Thailand recipient of governance, service excellence and customer the award from the 32 organizations honored insights. The pinnacle for the year was receiving worldwide. The award recognizes exceptional the prestigious Gallup Great Workplace organizations whose leadership truly engages Award commending our ongoing attention employees in the workplace. to investment in our most valuable resource: Krungsri’s employees. The Gallup award highlights Krungsri’s commitment to human resources excellence: A new chapter in Krungsri’s story of we view our people as our most important development and growth has been initiated with asset, and they will continue to form the a new strategic shareholder, BTMU, joining us in bedrock of Krungsri’s competitive advantage our quest to Make Life Simple for our customers going forward. as we reach for new heights of success for all of our stakeholders. Other key awards and certifications in 2013 included recognition for Krungsri Auto as a Growth in 2013 was achieved responsibly, in Superbrand, plus awards honoring Krungsri’s line with the overall operating environment and excellence in corporate governance, investor The Voluntary Tender Offer (VTO) conducted our business goals remains firmly established as slowing economy, while maintaining adequate relations, foreign exchange products and by BTMU in the latter part of 2013 resulted part of our foundation. Our responsible lending liquidity levels and asset quality. services, and financial innovations. in