Siam Commercial Bank Public : Basel III Pillar 3 Market Disclosure

THE SIAM COMMERCIAL BANK PCL

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CONTENTS

• 1. INTRODUCTION ................................................................................................................................................................ 1

• 2. SCOPE OF APPLICATION ............................................................................................................................................... 3

• 3. KEY PRUDENTIAL METRICS .......................................................................................................................................... 5

• 4. REGULATORY CAPITAL .................................................................................................................................................. 7

  4.1 Capital Management .................................................................................................................................................. 7

  4.2 Capital Structure And Adequacy ............................................................................................................................... 7

5. RISK MANAGEMENT ........................................................................................................................................................ 17

5.1 Risk Management Structure .................................................................................................................................... 17

5.2 Risk Management Policy ......................................................................................................................................... 18

5.3 Risk Management System ....................................................................................................................................... 19

5.4 Emerging Risks ........................................................................................................................................................ 22

6. CREDIT RISK ..................................................................................................................................................................... 27

7. MARKET RISK ................................................................................................................................................................... 48

8. OPERATIONAL RISK ......................................................................................................................................................... 50

9. INTEREST RATE RISK IN THE BANKING BOOK (IRRBB) ............................................................................................ 52

10. LIQUIDITY RISK ............................................................................................................................................................... 54

LCR Report ...................................................................................................................................................................... 55

11. EQUITY INVESTMENTS IN THE BANKING BOOK ....................................................................................................... 58

12. STRATEGIC RISK ............................................................................................................................................................ 60

13. REPUTATIONAL RISK ..................................................................................................................................................... 61

14. TECHNOLOGY RISK ....................................................................................................................................................... 62

15. PEOPLE RISK .................................................................................................................................................................. 63

16. MODEL RISK .................................................................................................................................................................... 64

Appendix ................................................................................................................................................................................. 66

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INDEX OF TABLES

Table 1: Key Prudential Metrics ............................................................................................................................................... 5

Table 2: Comprehensive Regulatory Capital and Capital Adequacy .................................................................................... 10

Table 3: Capital Requirements by Risk Type ........................................................................................................................ 11

Table 4: Main Features of Regulatory Capital Instruments ................................................................................................... 12

Table 5: Reconciliation of regulatory capital items ................................................................................................................ 13

Table 6: Capital Position During Transitional Period ............................................................................................................. 16

Table 7: Significant On- and Off-Balance Sheet Exposure Items ......................................................................................... 34

Table 8: Exposures by Geographical Area ............................................................................................................................ 35

Table 9: Exposures by Remaining Maturity ........................................................................................................................... 36

Table 10: Exposures and Provisions by Type of Financial Instruments ............................................................................... 37

Table 11: Loans and Investment in Debt Securities by Geographical Area and Asset Classification ................................. 39

Table 12: Provisions and Bad Debts Written-Off During Period on Loans and Investment in Debt Securities by

Geographical Area ................................................................................................................................................ 40

Table 13: Loans by Type of Business and Asset Classification ............................................................................................ 41

Table 14: Provisions and Bad Debts Written-Off for Loans by Type of Business ............................................................... 42

Table 15: Reconciliation of Changes in Provisions and Bad Debts Written-Off for Loans .................................................. 43

Table 16: Exposures by Asset Type under the Standardized Approach (SA) ..................................................................... 44

Table 17: Adjusted Exposures by Asset Type and Risk Weight under the Standardized Approach (SA) .......................... 45

Table 18: Collateralized Exposures by Asset and Collateral Type under the Standardized Approach (SA) ..................... 47

Table 19: Minimum Capital Requirements for Market Risk under the Standardized Approach (SA) .................................. 49

Table 20: Minimum Capital Requirements for Operational Risk under the Standardized Approach (SA) .......................... 51

Table 21: Impact on Net Interest Income in the Event that Interest Rates Rise by 1% ...................................................... 53

Table 22: Impact on Economic Value of Equity in the Event that Interest Rates Rise by 1% ............................................ 53

Table 23: Liquidity Coverage Ratio (LCR) ............................................................................................................................. 56

Table 24: LCR data for comparison ....................................................................................................................................... 57

Table 25: Minimum Capital Requirements for Equity Exposures in the Banking Book ....................................................... 59

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INDEX OF FIGURES

Figure 1: List of Companies and Business Types within the SCB Financial Group ............................................................. 4

Figure 2: Basel III Capital Structure as of December 31, 2021 .............................................................................................. 9

Figure 3: Capital Adequacy Ratios under the Standardized Approach (SA) of SCB and its Financial Group ...................... 9

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1. INTRODUCTION

Siam Commercial Bank PCL (SCB) and its Financial Group have adopted Basel III, the latest global regulatory framework for assessing bank capital adequacy and liquidity, on January 1, 2013 to further strengthen its risk management practices. The Bank's implementation of Basel III strictly follows the Basel Committee on Banking Supervision's guidelines and the Bank of Thailand (BOT)'s regulations.

In September 2017, the Bank was designated as one of the Domestic Systemically Important Banks (D-SIBs) by the BOT. This status resulted in a requirement to maintain an additional Common Equity Tier 1 (CET1) of 1.0% on top of the capital conservation buffer of 2.5%. Moreover, a countercyclical capital buffer (CCyB) of no more than 2.5% is being considered by the BOT as an additional macroprudential instrument to increase financial stability and resilience. This capital buffer can help dampen cyclicality by raising capital requirements during the upward credit cycle which can then be used to mitigate losses during the downward cycle. However, given the severe impact of COVID-19 on the Thai economy, the BOT is unlikely to impose CCyB for the time being.

Following the TFRS 9 adoption in January 2020, commercial banks are required to hold minimum provisions relative to a defined list of performing and under-performing assets and off-balance sheet items according to the following schedules: 0.33% in 2020, 0.67% in 2021, and 1.0% for 2022 onwards. If available provisions fall short of the required minimum, banks must adjust for such differences in the capital fund items starting from January 1, 2020.

According to the Extraordinary General Meeting of Shareholders of The Siam Commercial Bank Public Company Limited No. 1/2021, SCB Financial Group Restructuring Plan was approved, in which the Bank arranged for the establishment of SCB X Public Company Limited ("SCBX") to be a parent company of the companies in the financial group in order to broaden its vision and aspire to become "the most admired financial technology group in ASEAN" amid rapidly changing consumer behavior and business landscape upon technological development and intense competition from both existing and new players.

SCB and SCBX Financial Group are still subject to BOT regulations under the consolidated supervision guidelines and are required to maintain the minimum capital requirements including additional buffers as prescribed by the BOT. The policy of maintaining capital levels well above the minimum regulatory requirements, as well as adequate loan loss provisions, remains in place to allow the Financial Group to absorb unexpected events and new types of risks that may arise from new businesses under SCBX Financial Group in the future.