TISCO Financial Public : Management Discussion and Analysis Half Year Ending 30 Jun 2022

Management Discussion and Analysis

For the Second Quarter of 2022 ended June 30, 2022

(UnreviewedConsolidated Financial Statements)

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TISCO Financial Group Public Company (Limited)

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TISCO FINANCIAL GROUP PUBLIC COMPANY LIMITED

Economic Conditions and Movement of Financial Market

In the second quarter of 2022, Thai economy continued its recovery following an improvement in economic activities after the COVID-19 situation eased down, which resulted in an expansion in private consumption. The domestic car sale for the first 5 months of 2022 totaled 359,351 units, increased by 16.6% comparing to the same period of last year. Whilst, consumer confidence weakened from the ongoing concern about rising costs of living and high inflation situation that caused by Russia-Ukraine conflict. Thus, the headline inflation in the second quarter of 2022 increased by 6.5% (YoY) driven by rising oil price. Export sector continued to grow in line with expanding demands from trading partners. Moreover, tourism sector showed a good recovery with increasing number of incoming tourist arrivals thanks to the travel restriction easing. Meanwhile, industrial manufacturing sector remained sluggish due to parts shortage problem.

The Bank of Thailand maintained the policy rate at 0.50%. However, the rising policy rate trend is more prominent after the latest MPC meeting in June 2022, concerning the higher risk of inflation. In this quarter, the average 3-month fixed deposit rates of Top-4 commercial remained stable at 0.33% (QoQ). The lending rates of Top-4 commercial banks also stood unchanged, comprising of the average minimum lending rate (MLR) at 5.31%, the average minimum overdraft rate (MOR) at 5.85% and the average minimum retail rate (MRR) at 6.03%.

The capital market in the second quarter of 2022 was highly volatile from rising global inflation rates, together with potential risks from interest rate hikes in many countries and Quantitative Tightening (QT) by US Federal Reserve. SET index closed at 1,568.33 points, decreased by 126.91 points or 7.5% (QoQ) resulted from fund outflow especially by local institutions. Market trading volume dropped from the previous quarter with the average daily turnover of 70,593.38 million baht, decreased from 89,304.11 million baht in the first quarter of 2022.

Management Discussion and Analysis for the Second Quarter of 2022

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TISCO FINANCIAL GROUP PUBLIC COMPANY LIMITED

Operating Results

TISCO Financial Group Public Company Limited ("the Company") had net profit from operations in the second quarter of 2022 on a standalone basis totaling 156.85 million baht, mainly contributed by dividend income and service fee income derived from subsidiary companies within the group. As a holding company, TISCO Financial Group Public Company Limited operates as shareholder in other company and no other major business. Therefore, the analysis was based on the Company's consolidated operating performance and financial position which comprised of 2 main businesses: commercial banking business and capital market businesses.

Operating Results for the Second Quarter of 2022

The net profit for the second quarter of 2022 was reported at 1,848.43 million baht, increased by 182.38 million baht or 10.9% comparing to the second quarter of 2021. The growth was mainly contributed by an expansion in consumer loans especially Auto Cash loans via "Somwang" channels aligning with branch expansion strategy. Moreover, bancassurance business recovered well by 20.2% (YoY) following an increase in new business volume. In addition, expected credit loss (ECL) decreased (YoY) in line with an effective asset quality control. Meanwhile, total operating income slowed down due to businesses related to capital market. Brokerage fee decreased by 29.0% (YoY) following lower market trading volume amid volatile capital market. Asset management basic fee income declined by 15.5% (YoY) owing to a decrease in new fund issuances during an unfavorable capital market condition. Additionally, there was a decline in gain on investment value during the quarter.

Comparing to the first quarter of 2022, net profit increased by 52.94 million baht or 2.9% (QoQ), mainly due to the growth in consumer lending and the recognition of gain on financial instruments measured at fair value through profit or loss (FVTPL) amounting 173.12 million baht, comparing to loss of 32.18 million baht in the first quarter. Whereas, fee income weakened mostly from capital market businesses. Brokerage fee income decreased by 26.9% (QoQ) following lower market trading volume, and asset management basic fee declined by 6.1% (QoQ) amid unfavorable capital market condition.

Expected credit loss (ECL) remained low at 0.3% of average loans, in line with a well-controlled asset quality with reported NPL ratio at 2.20% of total loans. Additionally, the risk from COVID-19 pandemic has reduced in tandem with the improvement in the outbreak situation. Together with the highly sufficient provision level of the Company, the setup of ECL expense consequently declined comparing to the same period of last year and reflected the credit quality of loan portfolio. Whilst, loan loss coverage ratio remained strong at 253.1%.

Basic earnings per share for the second quarter of 2022 were 2.31 baht per share, increased from 2.08 baht per share (YoY) and from 2.24 baht per share (QoQ). The return on average equity (ROAE) was reported at 18.0%.

Management Discussion and Analysis for the Second Quarter of 2022

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TISCO FINANCIAL GROUP PUBLIC COMPANY LIMITED
		Table 1.1 : Statement of Comprehensive Income (Quarterly)
		Statement of Comprehensive Income
		Unit: Million baht			2Q2022			1Q2022		%QoQ		2Q2021		%YoY
	Interest income
		Interest on loans			1,778.74			1,695.54		4.9		1,798.65		(1.1)
		Interbank and money market items			35.63			35.03		1.7		42.21		(15.6)
		Hire purchase and financial lease income			1,779.21			1,803.33		(1.3)		1,897.85		(6.3)
		Investments			22.91			22.29		2.7		15.20		50.7
	Total interest income			3,616.49			3,556.19		1.7		3,753.91		(3.7)
		Interest expenses			(509.86)			(494.92)		3.0		(604.93)		(15.7)
	Net interest income			3,106.63			3,061.28		1.5		3,148.98		(1.3)
		Fee income			1,276.56			1,407.40		(9.3)		1,355.34		(5.8)
		Fee expenses			(108.58)			(129.36)		(16.1)		(130.46)		(16.8)
	Net fee income			1,167.98			1,278.03		(8.6)		1,224.88		(4.6)
		Gain (Loss) on the financial instruments measured			173.12			(32.18)		(637.9)		255.70		(32.3)
	at fair value through PL
		Gain (Loss) on Investments			2.63			(1.61)		(263.8)		0.82		222.2
		Share of profit from investment under equity			14.65			13.39		9.4		10.78		35.9
	method
		Other operating income			99.00			100.36		(1.3)		73.48		34.7
	Total operating income			4,564.01			4,419.27		3.3		4,714.64		(3.2)
		Operating expenses			(2,124.54)			(2,099.14)		1.2		(2,079.96)		2.1
		Expected credit loss			(139.87)			(85.33)		63.9		(555.35)		(74.8)
	Profit before tax and minority interest			2,299.60			2,234.79		2.9		2,079.32		10.6
		Corporate income tax expenses			(451.05)			(439.20)		2.7		(413.17)		9.2
	Profit before minority interest			1,848.55			1,795.60		2.9		1,666.15		10.9
		Non-controlling interests of subsidiaries			(0.11)			(0.11)		5.1		(0.09)		21.7
		Net profit			1,848.43			1,795.49		2.9		1,666.06		10.9

Operating Results for the First Half of 2022

The net profit for the first half of 2022 was reported at 3,643.92 million baht, increased by 214.24 million baht or 6.2% (YoY), mainly from a growth in consumer loans particularly Auto Cash loans that grew by 4.5% from 2021. Moreover, bancassurance business showed a recovery of 16.0% (YoY), while expected credit loss (ECL) decreased by 83.9% (YoY) following improved asset quality. In terms of core operation, total operation income softened by 8.5% (YoY) mainly resulted from businesses related to capital market, which included lower market trading volume and fewer new fund issuances comparing to the first half of 2021, as well as declining gain on financial instruments.

Basic earnings per share for the first half of 2022 were 4.55 baht per share, increased from 4.28 baht per share (YoY). The return on average equity (ROAE) was reported at 18.1%.

Management Discussion and Analysis for the Second Quarter of 2022

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TISCO FINANCIAL GROUP PUBLIC COMPANY LIMITED

Table 1.2 : Statement of Comprehensive Income (Half Year)

	Statement of Comprehensive Income
	Unit: Million baht		1H2022	1H2021	%YoY
	Interest income
	Interest on loans	3,474.28	3,604.79	(3.6)
	Interbank and money market items	70.66	85.44	(17.3)
	Hire purchase and financial lease income	3,582.54	3,800.22	(5.7)
	Investments	45.20	39.74	13.7
	Total interest income	7,172.68	7,530.20	(4.7)
	Interest expenses	(1,004.78)	(1,270.92)	(20.9)
	Net interest income	6,167.91	6,259.28	(1.5)
	Fee income	2,683.96	3,090.38	(13.2)
	Fee expenses	(237.95)	(322.63)	(26.2)
	Net fee income
	2,446.01	2,767.75	(11.6)

Gain (Loss) on the financial instruments measured at fair value through PL

Gain (Loss) on Investments

Share of profit from investment under equity method

Other operating income

140.94		568.32	(75.2)
1.03		4.24	(75.8)
28.04		23.94	17.1
199.36		192.55	3.5

Total operating income	8,983.28		9,816.07	(8.5)
Operating expenses		(4,223.68)		(4,134.87)	2.1
Expected credit loss		(225.21)		(1,398.04)	(83.9)
Profit before tax and minority interest		4,534.39		4,283.17	5.9
Corporate income tax expenses		(890.25)		(853.30)	4.3
Profit before minority interest		3,644.14		3,429.87	6.2
Non-controlling interests of subsidiaries		(0.22)		(0.18)	22.0
Net profit		3,643.92		3,429.68	6.2

Details of Financial Performance for the Second Quarter of 2022 comparing to the Second Quarter of 2021

Net Interest Income

In the second quarter of 2022, the net interest income totaled 3,106.63 million baht, decreased by 42.35 million baht (1.3% YoY). Total interest income was 3,616.49 million baht, declined by 137.42 million baht (3.7% YoY) following loan contraction. Whilst, interest expense was 509.86 million baht, declined by

95.07 million baht (15.7% YoY) from an effective cost management.

Yield on loans increased from 6.82% to 7.02% (YoY) following an increased proportion of high-yield loans. The cost of fund decreased from 1.16% to 1.06% (YoY) owing to an effective cost management during a low interest rate environment. Consequently, loan spread improved from 5.67% to 5.96% (YoY) whereas the net interest margin also increased to 5.05%.

Management Discussion and Analysis for the Second Quarter of 2022

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