Siam Commercial Bank Public : Management Discussion and Analysis for 4Q2021

Press Release: January 21, 2022

SCB ANNOUNCED 2021 NET PROFIT OF BAHT 35.6 BILLION

Bangkok: Siam Commercial Bank and its subsidiaries reported a consolidated net profit of Baht 35.6 billion, a 30.8% increase yoy. The increase was mainly due to higher operating profit and lower provisions. Pre-provision operating profit grew 7.9% yoy to Baht 86.8 billion, mainly as a result of non-interest income growth and effective cost control. For the fourth quarter of 2021, net profit was Baht 7.9 billion, up 58.7% yoy from the same period last year.

For 2021, net interest income fell 1.8% yoy to Baht 95.2 billion as net interest margin was compressed in the currently low interest rate environment and a focus on high quality loans.

Non-interest income increased 15.3% yoy to Baht 55.2 billion largely from mark-to-market gains on investment portfolios held by the Bank and its subsidiaries as well as strong growth momentum in wealth management and bancassurance businesses.

Expenses declined 1.2% yoy to Baht 63.5 billion owing primarily to the Bank's effective cost management. As a result, the cost-to-income ratio improved to 42.3% in 2021.

The Bank set aside total loan loss provisions of Baht 42.0 billion for 2021, which was 9.9% lower than in 2020, after elevated provisioning the year before.

Non-performing loan (NPL) ratio rose to 3.79% at the end of 2021 from 3.68% at the end of 2020, largely from qualitative loan downgrades of customers severely affected by the

pandemic. Nonetheless, NPL coverage was maintained at a high level of 139.4% and the Bank's capital adequacy ratio remained strong at 18.7%.

Arthid Nanthawithaya, Chairman of the Executive Committee and CEO, commented:

"Consistent growth in non-interest income allowed the Bank's earnings growth to resume its positive trajectory in 2021. At the same time, the Bank has also made

significant progress in working with customers in the relief program on comprehensive debt restructuring under the Bank of Thailand's framework to increase their chances

of long-term survival. In addition, our digital platforms, such as SCB EASY mobile

banking app and Robinhood food delivery services, have gained widespread popularity which helped expand the Bank's digital user base to over 20 million. Because the path of Thailand's economic recovery remains uncertain in 2022, the Bank will continue to

pursue growth with prudence and stability as well as helping affected customers and every sector of the society to get through this crisis together."

SCB - Financial Highlight

						(Consolidated)
Unit: Baht million	2021	2020	% yoy		4Q21	% qoq	% yoy
Income	150,342	144,768	3.9%		39,210	6.2%	7.8%
NII	95,171	96,899	-1.8%	24,787	5.3%	4.9%
Non-NII	55,171	47,869	15.3%	14,423	7.8%	13.2%
Operating Expenses	63,547	64,330	-1.2%	17,256	9.1%	7.5%
Pre-Provision Operating Profit	86,795	80,437	7.9%	21,954	4.1%	8.1%
Expected credit loss	42,024	46,649	-9.9%	11,954	19.1%	-16.0%
Net Profit	35,599	27,218	30.8%	7,879	-10.7%	58.7%
Loans	2,301,835	2,255,242	2.1%	2,301,835	1.0%	2.1%
Total Assets	3,314,565	3,278,384	1.1%	3,314,565	1.3%	1.1%
Deposits	2,466,717	2,420,455	1.9%	2,466,717	2.3%	1.9%
ROE	8.4%	6.7%	1.7%		7.3%	-1.0%	2.4%
ROA	1.1%	0.9%	0.2%	1.0%	-0.1%	0.4%
NIM on Earning Assets	3.00%	3.23%	-0.23%	3.12%	0.10%	0.10%
Cost to Income Ratio	42.3%	44.4%	-2.1%	44.0%	1.2%	-0.1%
Loan to Deposit Ratio	93.3%	93.2%	0.1%		93.3%	-1.3%	0.1%
NPL%	3.79%	3.68%	0.11%		3.79%	-0.10%	0.11%
NPLs	109,114	101,462	7.5%	109,114	1.9%	7.5%
Coverage Ratio (Total Allowance to NPLs)	139.4%	140.8%	-1.4%	139.4%	1.8%	-1.4%
CAR	18.7%	18.2%	0.5%		18.7%	0.3%	0.5%
Regulatory Capital	424,227	400,911	5.8%	424,227	2.5%	5.8%
Traditional Branches	718	811			718
Investment Centers	5	9		5
Business Centers	1	1		1
Express (service points)	74	0		74
Foreign Exchange Kiosks	42	67		42
ATM Machines	8,896	9,164		8,896

Management Discussion and Analysis

For the fourth quarter and the full year ended December 31, 2021

IMPORTANT DISCLAIMER:

The information contained in this document has been obtained from several sources, and Siam Commercial Bank PCL (the "Bank") cannot confirm, in all cases, the accuracy and completeness of such data, particularly those sourced from outside the Bank. In addition, any forward looking statements are subject to change as market conditions and actual outcomes may differ from forecasts. The Bank makes no representation or warranty of any type whatsoever as to the accuracy or completeness of the information contained herein. In addition, the information provided is preliminary and subject to change following the audit of the financial results for the fourth quarter and the year ended December 31, 2021.

2021 was the second year that Thailand had to manage the COVID-19 pandemic. Nevertheless, the

Bank's performance remained resilient with net profit showing significant growth in 2021 backed by adequate coverage ratio and strong capital base. The Bank's strong income growth was driven by

wealth and bancassurance businesses as well as gains from investments. Higher income coupled with

cost control initiatives helped shore up operating profit growth.

Throughout this pandemic, helping customers in need has been one of SCB's foremost concerns and

priorities. In particular, the Bank has been proactively working with customers on long-term debt solutions to ensure their business survival and/or to restore personal financial health. As a result, more than half of the customers in the relief program were successfully migrated to comprehensive debt restructuring at the end of 2021.

While managing this crisis, the Bank has not lost sight of its objective to generate sustainable return for shareholders. The Bank is embarking on a new growth path and reorganize itself under a new mothership called SCBX to unlock value.

Operating performance

The Bank reported an operating profit for full-year 2021 of Baht 86.8 billion, up 7.9% from last year, driven by higher non-NII and lower operating expenses. Higher operating profit combined with lower provisions led to a 30.8% increase in net profit to Baht 35.6 billion.

Despite prolonged nationwide lockdowns during the second and third COVID-19 outbreaks, the Bank delivered robust non-NII growth driven by recurring income from wealth and bancassurance businesses and transactional banking activities as well as non-recurring items from gain on fair value adjustment from investments and gains on sales of written-off unsecured loans and other non-performing assets. With operating expenses well controlled, the Bank's cost-to-income ratio further declined to 42.3%.

The Bank's loan growth in 2021 was 2.1%. This conservative loan growth was driven partly by the Bank's choice to focus on quality growth, but also by fierce market competition and high liquidity in the

financial sector. The above factors, and to a limited extent the impact from comprehensive debt restructuring, resulted in a decline in NIM for full-year 2021 to 3.00%.

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Asset quality and COVID-19 impacts

Unlike 2020 when Thailand was able to keep COVID-19 under control, the Delta variant had wreaked havoc to the country in 2021 with the number of cases rising sharply during the third quarter, reaching 23,000 cases per day at its peak. Case numbers eventually came down to 2,000-3,000 per day at the end of the year but then rose again to 7,000-8,000 per day at the start of 2022 due to the Omicron variant. Though far more contagious than the earlier variants, Omicron has so far been found to cause milder symptoms partly due to higher vaccination rates in many parts of the world. Therefore, the SCB EIC maintains the same forecast for 2022 GDP growth at 3.2%, with the number of tourists estimated at 5.9 million.

During 2021, a slew of public health measures, in the form of movement restrictions, lockdowns, curfews, and isolation of identified clusters, were imposed in an attempt to contain the Delta variant that fueled a prolonged third wave. Gradual easing began in September when some businesses, such as shopping malls and fresh markets, were allowed to reopen and airlines to resume domestic flights in and out of cities in severely affected areas. The government further lifted restrictions in October by shortening curfew hours in these affected areas, allowing schools that met safety protocols to resume in-person learning as well as restaurants to offer dine-in services before 9 pm. Border restrictions were relaxed in November when Thailand started to open the country to tourists from over sixty countries, resulting in a total of 0.3 million visitors in 2021.

In parallel with the government's efforts to soften the impact of the pandemic, the Bank of Thailand

(BOT) issued various COVID-19 relief measures in 3Q21 which included two-month debt moratorium for SMEs and retail customers in dark-red zones starting in July. Additional measures were announced on August 20, 2021 to preserve and increase liquidity for SMEs and retail customers. Reduction of FIDF fees from 46 bps to 23 bps per year was also extended for another year to the end of 2022. The BOT also urged banks to work with customers on long-term debt restructuring solutions and offered support by relaxing loan classification and provision requirements based on the extent of restructuring activity as announced on September 3 (see summary of the BOT measures in the Appendix).

Throughout this crisis, helping customers has always been the Bank's key priority. The Bank provided Baht 839 billion in relief loans (39% of total loans) at the start of the pandemic in 2Q20 which shrank to Baht 402 billion (18% of total loans) by the end of 2020 as the situation improved in the second half of 2020. Following the BOT's two-monthdebt moratorium measure in July, relief loans climbed to Baht 464 billion (20% of total loans) at the end of September, but then declined to Baht 397 billion (17% of total loans) at the end of 2021.

Since 2Q21, the Bank has been proactively working with customers in the relief program to develop comprehensive debt restructuring solutions. The key objective is to migrate these customers from the relief program toward long-term solutions in order to increase their chances of business and/or personal financial survival. The Bank's approach is in line with the BOT measures announced on September 3 which explicitly urged banks to help customers develop long-term debt restructuring plans tailored to

each individual customer's repayment ability and recovery pattern. The BOT classifies these customers

into two groups based on the complexity of their restructuring arrangements: those requiring only term

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extensions (so called 'orange scheme') and those needing more extensive restructuring conditions to reduce debt repayment burdens (so called 'blue scheme').

The Bank's goal is to restructure Baht 380 billion worth of loans, of which around 80% is expected to go through the blue scheme, down from the initial assessment of about Baht 450-500 billion. At the end of 2021, loans in the amount of Baht 278 billion had been successfully restructured under this long- term debt restructuring program. The impact on bank-wide NIM will be fully realized in 2022 and is expected to be not more than 10 bps. The program prevents the Bank from facing the so-called staging cliff effect as the relief program draws to an end.

The Bank's NPL ratio at the end of 2021 declined slightly qoq to 3.79%, though up yoy from 3.68% at the end of 2020. In 4Q21, the Bank had prudently set aside a qoq higher level of provision of Baht 12 billion as a preemptive measure against impact of COVID-19on the loan portfolio. Full-year provision was reported at Baht 42 billion or a credit cost of 184 bps and coverage ratio remained high at 139.4%.

New strategic direction

Amid rapidly changing consumer behavior and business landscape, organizational success requires agility and flexibility in growing new businesses. The Bank therefore has broadened its vision and aspire

to become "the most admired financial technology group in ASEAN."

To achieve this vision, the Bank has established a new entity SCBX as a mothership to lead strategic initiatives and deploy capital to unlock value. The new group structure is designed to grant full autonomy to each subsidiary, allowing them to drive their own business model, optimize their unique risk-return profile, attract niche talent, and ultimately achieve superior shareholder returns. At the Extraordinary General Meeting of Shareholders on November 15, 2021, shareholders unanimously approved the proposed restructuring plan, transfer of credit card and unsecured businesses and some subsidiaries to SCBX, and special dividend payment of Baht 70 billion to SCBX.

Upon approval from the BOT and the SEC, SCBX will make a tender offer to the Bank's shareholders for a 1-for-1 share swap. This tender offer and the reorganization plan will be cancelled if the share conversion rate turns out to be below 90%. After the completion of share swap, SCBX will be officially listed on the SET and a transfer of Baht 70 billion as a one-off dividend payment to SCBX will occur. Some of this payment will be used to fund related business transfers as part of the reorganization. Specifically, unsecured lending business and some selected companies under SCB Bank will be transferred to SCBX. The remaining amount will be kept at SCBX to pay for business operations, including new investments and future dividends.

Full details of the business restructuring are in the SET filing dated September 22, 2021.

Digital Initiatives

The Bank uses a multi-platform approach to provide digital lending services by offering access on both its own mobile banking platform (SCB EASY) and the platforms of subsidiary companies. At the end of 2021, the number of digital users rose significantly to 20 million from 14 million users at the end of 2020, with digital loans accounting for approximately 26% of total unsecured loans. With digital loans

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