[ T E A M W O R K ] Working together to always be your2 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.