Unofficial Translation Notification of the Bank of Thailand Re: Worthless or irrecoverable assets and other doubtful Assets which may be worthless or irrecoverable ______________________ By virtue of the provisions of the first paragraph of Section 23 bis and Section 56 of the Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business B.E. 2522 as amended, the Bank of Thailand, with the approval of the Minister of Finance, hereby issues the following regulations: Article 1. The Notification of the Bank of Thailand Re: Worthless or irrecoverable assets and doubtful assets which may be worthless or irrecoverable, dated 24th December B.E. 2542 shall be repealed. Article 2. In this Notification, (1) worthless and irrecoverable assets refer to assets classified as Loss. (2) doubtful assets which may be worthless or irrecoverable refer to: (a) assets classified as Doubtful of Loss; (b) assets classified as Doubtful; (c) assets classified as Substandard; (d) assets classified as Special Mention; (e) assets classified as Pass. (3) provisions refer to as the provisions or allowances for assets or claims which may be worthless or irrecoverable, discounted asset value, asset devaluation, and adjustment on asset value which the company shall at the minimum provide the required provisions calculated from the asset classifications specified in this Notification. Article 3. Assets classified as Loss which shall be written off include: (1) claims for which a reasonable action has been taken for the recovery of debt but there is no possibility of such debt being recovered. Any one of the criteria below shall be taken into consideration: (a) the debtor is dead or adjudged of disappearance, or there is some evidence of disappearance, and the debtor does not have nay property to repay the debt; (b) the debtor has dissolved his business operation and is in debt to other creditors with preferential rights over the whole property of the debtor ranked ahead that of the company's in an amount exceeding the value of the property of the debtor; (c) the company has sued the debtor or has applied for participation in property in the case where other creditors have sued the debtor, and the court has ruled that the debtor does not have any property to repay the debt; (d) the company has filed for bankruptcy action against the debtor or has applied for participation in property in the case where other creditors have filed for bankruptcy action, and in such cases there has been a compromise with the approval of the court or the debtor has been adjudged as bankrupt and there has already been a distribution of the debtor's property; (2) claims which are irrecoverable by nature or circumstance; (3) other assets which are damaged or have become worthless; (4) losses from debt restructuring carried out in accordance with the regulations and guidelines prescribed by the Bank of Thailand. Article 4. Assets classified as Doubtful of Loss requiring 100% provisions shall satisfy one or a combination of the following criteria: (1) the debtor has been unable to pay interest and/or principal payments for a cumulative period of 12 months or more from the contractual due date, or from the date of demand by the company, whichever is earlier, excluding debtors classified as Loss; (2) Whereby the recorded book value of property acquired as a result of debt settlement or public auction exceeds the appraised value estimated by an independent appraiser or the valuer within the last twelve months, the approximate selling expenses must be deducted from the estimated appraised value before comparing it to the book value. In appraising the value of the property, the appraiser or valuer must comply with the regulation on appraising of collateral of financial institutions issued by the Bank of Thailand. The prescription stated in the said regulation concerning the criteria used for selecting the valuation method shall not be applicable. The companies shall instead comply with the following rules: (a) The independent appraiser must appraise property that the company acquired as a result of debt settlement or public auction whose book value exceeds 5 million baht. (b) The independent appraiser or the valuer can appraise property that the company acquired as a result of debt settlement or public auction whose book value is less than 5 million baht. (c) Where properties that bank acquired as a result of debt settlement or public auction with an aggregate book value exceeding 5 million baht and can not be disposed separately, same rule as stated in (2) (a) applies. (3) Whereby the recorded book value of other assets exceeds the fair value or expected recoverable value, company most assign the fair value or the expected recoverable value of the assets as prescribed by the accounting standard. (4) the difference of the value of the principal which exceeds the value of collaterals in the case of margin loans. (5) assets or claims whose entire value is expected to be irrecoverable: (6) losses as a result of debt restructuring carried out in accordance with the regulations and guidelines prescribed by the Bank of Thailand; (7) other grounds which indicate that the entire value or claims is expected to be irrecoverable as ordered by the Bank of Thailand. Article 5. Assets classified as Doubtful requiring a minimum of 50% provisions shall satisfy one or a combination of the following criteria: (1) the debtor has been unable to pay interest and/or principal payments for a cumulative period of over 6 months from the contractual due date, or the date of demand by the company, whichever is earlier, excluding debtors classified as Loss or Doubtful of Loss; (2) the court has made an order for the control over the property of the debtoe; (3) the debtor has ceased or dissolved his business operation or the business of the debtor is in the process of liquidation; (4) the debtor has delayed repayments, or has taken actions in order to prevent his creditors from receiving payment such as being out of the Kingdom or removing or disposing of his properties; (5) the debtors is in a weak financial position or the ability of the debtor to earn income is low, which indicates that the debtor may not be able to service the debt; (6) the company is unable to contact or find the debtor or the debtor has left his domicile stated in the agreement without informing the company; (7) the guarantor of the debt falls under any of the aforementioned grounds in article 5(1)-(6); (8) the business of the debtor is uncertain, or the debtor has not undertaken any business permanently, or the debtor has used the funds obtained for purposes other than those for which they were meant; (9) the company has sued the debtor or has applied for participation in property in the case where other creditors have sued the debtor; (10) the company has filed for bankruptcy action against the debtor or has applied for participation in property in the case where other creditors have filed for bankruptcy action; (11) the debtor has been operating his business at a loss for three consecutive years or more, or the debtor has cumulative losses such that he has more liabilities than he has assets unless the debtor can show that he has potential to make sufficient profits to compensate for the loss; (12) debtors for whom the company has not carried out proper analyses when granting the loan(s), prepared adequate legal documents, or carried out financial reviews of the debtors financial status, nor evaluated the quality of the debtor following the normal procedures; (13) the debtor has asked for an extension of time for debt repayment but failed to repay the debt within the period of time so extended; (14) assets or claims which are unlikely to be repaid in full (principal and interest); (15) other grounds which indicate that assets or claims may not be fully recoverable as ordered by the Bank of Thailand. Article 6. Assets classified as Wubstandard requiring a minimum of 20% provisions shall satisfy one or a combination of the following criteria: (1) the debtor has been unable to pay interest and/or principal payments for a cumulative period of over 3 months from the contractual due date, or the date of demand by the company, whichever is earlier, excluding debtors classified as Loss, Doubtful of Loss, or Doubtful; (2) the debtor has been unable to pay interest and/or principal payments for a cumulative period of 3 months or less, where there are factors which may cause the deterioration of the debtor's repayment capacity, for example, a recession in the industrial sector, or a deterioration in the collateral where the collateral is a source of income for the debtor; (3) the debtor has been operating his business at a loss for two consecutive years or more, or has cumulative losses such that the amount of assets deducted by debts is less than 50% of the paid up capital unless the debtor can show that he has the potential to make sufficient profits to compensate for the loss; (4) other grounds which indicate that there are or will be difficulties in the recovery of assets or claims, or where said assets or claims do not generate a reasonable income as ordered by the Bank of Thailand. Article 7. Assets classified as Special Mention requiring a minimum of 2% provisions shall satisfy one or a combination of the following criteria: (1) the debtor has been unable to pay interest and/or principal payments for a cumulative period of over 1 month from contractual due date, or the date of demand by the company, whichever is earlier, excluding debtors classified as Loss, Doubtful of Loss, Doubtful, or Substandard, which provisions should be made against the outstanding balance of principal exclusive of accrued interest; (2) the debtor has been able to pay interest and/or principal, but evidence indicates a possible or likely cause of an immediate deterioration in the debtor's repayment capacity, or cases where the loan collateral has not been properly handled; (3) other grounds which indicate a deterioration in the value of the assets of claims, or in the debtor's ability to repay the debt as ordered by the Bank of Thailand. Article 8. Assets classified as Pass requiring a minimum of 1% provisions shall satisfy one or a combination of the following criteria: (1) the debtor has no overdue payment and does not show any sign of default that is likely to cause losses to the company, yet the debt has the usual risk characteristics; (2) other debtors who are not classified as Loss, Doubtful of Loss, Doubtful, Doubtful, Substandard, or Special Mention, which provision should be made against the outstanding balance of principal exclusive of accrued interest. Article 9. For a debtor with more than one type of loan and each type is re-classified under a different degree of being worthless or irrecoverable, all other loans and commitments to that debtor shall be similarly classified under the lowest classification level with the following exceptions: (1) the company can demonstrate that the loan usage under any one project is clearly separable from other loans, and the loan shall be classified as Pass if it satisfied all of the following conditions: (a) an assessment of the loan has been carried out demonstrating that there is no uncertainty with regards to the debtor's ability to repay the loan. The assessment must include an evaluation of the likelihood of repayment taking account of the debtor's business and financial condiions as well as cash flows, and determine the feliability of the main source of funds to be used for repayment; (b) the relevant documents used in the evaluation of granting the loan must be prepared and ready for examination; (c) the company must be able to follow-up and closely monitor how the loan is used to ensure that it serves its purpose, and be able to provide supporting reports and recovery documents; (d) an amortization schedule reflecting the debtor's ability to repay the loan has been prepared which is in line with the debtor's income or cash flows; (2) where over 90% of the total book value (include accrued interest) of the debtor's loans are classified as Pass or this percentage falls below 90% as a result of debt reimbursement, the company may continue to classify these loans under the Pass classification. Article 10. For the debtor with supporting documents from a government bureau that work undertaken has been successfully completed from the bureau dated within six months of the date on which work has been completed, the amount of his loan(s) covered by such documents may be classified as Pass. Article 11. The Company is not required to classify nor make provisions for a debtor with margin loan undertaken for the purchase of securities unless the debtor satisfies article 4(4) Article 12. In cases where the company has carried out a troubled debt restructuring following Bank of Thailand rules for debt restructuring, the company shall comply with the following rules and procedures. (1) The company shall write off losses and make provisions as follows: (a) where the company has made concessions to the debtor by reducing the principal or interest, or has accepted the transfer of assets or financial instruments, or the conversion of the borrower's debt into equity (debt-equity swaps) in full satisfaction of a debt, the company shall write off the resulting losses as expenses and make a reversing entry on the portion above the required provisions of the provisions made for that particular debtor; (b) where the company has made concessions to the detor in the process of debt restructuring by lowering the interest rate below the market rate, but did not reduce the interest acrued nor the principal incurred before the restructuring process, the bank shall make the required provisions in full for any losses incurred following rules prescribed by the Bank of Thailand. If, however, a company carries out debt restructuring before the end of the second 6 - month accounting period of the year 2000, the company may apply the same rule of phase-in provisions as stated in article 14, but the extended time period permitted by the phase - in provision shall not exceed the term of the debt restructuring contract. In cases where the company has made provisions over and above the required provisions following the phase-in provisions, the company shall make a reversing entry on the exceeding portion. At the same time, the company must set aside additional provisions up to the same amount of the required phase-in provisions where the provisions made was below the required phase-in provisions; (c) where the company has made concessions to the debtor by reducing the principal or interest, or has accepted the transfer of assets, financial instruments, or the conversion of the borrower's debt into equity (debt-equity swaps), and has made any other concessions on the remaining balance of the debt in the process of troubled debt restructuring, the company shall follow the rules as detailed in (a) for the concession that involves reducing principal or interest or accepting the transfer of assets as partial or payment, and in (b) where the concession involves lowering of interest below the market rate. (2) During the process of determining the debtor's compliance with the terms of the debt restructuring contract, in which the debtor is required to make repayments for a period of three consecutive months or installments, whichever is longer, the company shall proceed with the reclassification procedures as follows: (a) debtors originally classified as Doubtful of Loss or Doubtful shall be re-classified as Substandard; (b) debtors originally classified as Substandard or Special Mention shall remain the same. The company shall then make the required provisions based on the above classifications following debt restructuring in cases where the required provisions in (2) based on debt classifications is greater than the required provisions for losses on restructuring outlined in (1) (b) and (c). Debtors, who have successfully complied with the terms of the debt restructuring contract and made the amount of repayments in accordance with the contract for at least a period of three consecutive months of installments, shall be re-classified as Pass. In cases where the debtor is unable to abide by the conditons of the restructuring contract, the company shall add up the time overdue under the restructuring contract and under the original contract together, re-classify the debtor, and make the apporpriate provisions following the rules detailed in this Notification. (3) In cases where the debtors have their debts restructured in accordance with the Bank of Thailand rules for debt restructuring and also meet one of the following criteria, the company may immediately reclassify these debtors as "Pass" without having to wait for the outcome of whether or not the conditions of the restructuring program had been fulfilled. (a) Debtors who are capable of paying interest without grace period on the interest repayment, at a rate not less than the market interest rate. Grace period on repayment of principal, however, would still be allowed. (b) Any company, as a result of debt restructuring, that has taken a loss of at least 20 percent of the total debt of any debtor that appeared on the book by either writing it off or making provisions to cover that loss. Moreover, analysis of debtor's business, financial condition, and cash flow have to be performed in accordance with the best practice, reasonableness and supporting evidence with would indicate the ability of the debtors in conforming to teh debt restructuring contract. (c) Debtoes with debts in a form of loan syndication or those with more than one creditors and whose creditors are in consensus to have theirs loans restructured as a whole, shall qualify for a reclassification scheme as mentioned in (3). However, analysis of debtors' business, financial condition, and cash flow have to be performed in accordance with the best practice, reasonsbleness and supporting evidence which would indicate the ability of the debtors in conforming to the debt restructuring contract. (d) Where the company had filed a lawsuit against the debtors and a contract of compromise, endorsed by the court, has been settled, and where the company had filed a bankruptcy lawsuit against the debtors and the court approved the debtors' requests for debt restructuring or rehabilitation plan. (4) In cases where the company had proceeded with the debt restructuring program upon an approval of the Bank of Thailand of the Corporate Debt Restructuring Advisory Committee, the company shall immediately reclassify these debts as "Pass" without having to wait for the outcome of whether or not the conditions of the restructuring program had been fulfilled. (5) In cases of apparent irregularities, the Bank of Thailand shall order the company to rectify or to have a free specialized agent to reappraise or review any of the debt restructuring deals. Article 13. Except for assets classified as Doubtful of Loss under article 4 (2) (3) (4) and (6), the company shall calculate the provisioning requirements for all asset classifications by first deducting the value of the collateral valued and appraised in accordance with the Bank of Thailand Regulations for Collateral Valuation and Appraisal from the book value of the debt, and using the remaining sum to calculate the provisions required. However, the deductible value shall not exceed the pledge value of the asset, mortgage value, or portion of the collateral value where a company has preferential right over. The amount eligible for deduction shall be in accordance with the type of the following assets: (1) cash and cash deposit collateral are deductible by 100% of its value; (2) near-cash collateral such as marketable securities are deductible on mere than 95% of its market value; (3) all other collaterals except (1) and (2) of the minority debtors which have the outstanding amounts less than 5 million baht and have been appraised or evaluated for no longer than 12 months are deductible by no more than 90% of their appraised value. If the appraisal or evaluation of collateral has been in progress for longer than 12 months, the collateral are deductible by no more than 50% of their appraised value. (4) all other collaterals except (1) and (2) of the minority debtors which have the outstanding amounts less than 5 million baht and have been appraised of evaluated for no longer than 36 months are deductible by no more than 90% of their appraised value. If the appraisal of valuation of collateral has been in progress for longer than 36 months, the collaterals are deductible by no more than 50% of their appraised value. (5) In case of any classified debtor for which the Ministry of Finance is the guarantor, or for which the government has set aside its budget for. or for which there is evidence of certain repayment from a government bureau, the amount of the debtor's loan covered by such a guarantee or repayment may be deducted from the book value of the debt when calculating provisioning requirements. The company may calculate the minimum provisioning requirements for assets classified as Special Mention under article 7 or assets classifed as Pass under article 7 by deducting the market value of the collateral from the book value of the debtor. Article 14. With the exception of assets classified as Doubtful of Loss under article 4(2) and (4) for shich the bank shall immediately make provision, the company may phase-in provisions up to the second half of the accounting period of the year 2000 (B.E.2543) for both asset classifications and losses on debt restructuring as in accordance with article 12 as follows. Provisions to be made no less than 20% of required provisions, by the end of the 2nd half of the accounting period of 1988 (B.E.2541) Provisions to be made no less than 40% of required provisions, by the end of the 1st half of the accounting period of 1988 (B.E.2542) Provisions to be made no less than 60% of required provisions, by the end of the 2nd half of the accounting period of 1988 (B.E.2542) Provisions to be made no less than 80% of required provisions, by the end of the 1st half of the accounting period of 1988 (B.E.2543) Provisions to be made no less than 100% of required provisions, by the end of the 2nd half of the accounting period of 1988 (B.E.2543) In cases where the company has provisions over and above the required provisions following the phase-in allowances, the company shall maintain its provisions until such a time that 100% of provisions have been made (without phase-in allowance) unless the decline of such provisions incurred as a result of the debt restructuring program under article 12 or a write off. In any event, such provisions shall not be less than the phase-in amount as mentioned in the first paragraph of this article. Article 15. Assets classified as Doubtful of Loss which have been fully provisioned, the company shall immediately have them written off as per following rules and procedures: (1) for debt with the underlying collateral, the company shall write off the debt equivalent ot the provisioned amount and the remaining sum shall be maintained in the debtor's account. (2) for debt with the underlying collateral, the company shall write off the debt in full. Article 16. The company sahll not make dividend payments, nor any other such payouts (which originate from the firm's profits) to its shareholders if it has not written off losses incurred as a result of worthless or irrecoverable assets or made the total provisions for worthless of irrecoverable assets required by the regulations fo the Bank of Thailand. Article 17. The company shall carry out analyses of potential debtors and related factors as part or the process of granting loans and dispatch the relevant details to the Bank of Thailand in accordance with the rules, procedures, and forms prescribed by the Minister of Finance. Article 18. This Notification shall come into force from the 1st of January 2000 except for the article 4(3) which shall come into force from the 1st of July 1999. Given on 17th March 2000 (B.E.2543) M.R.Chatu Mongol SonaKul Governor Bank fo Thailand___________________________________________________________________ This translation is for convenience of those who are not familiar with Thai language. For offivial propose, only Thai texts are relevant.