TRIS Rating Upgrades Company Rating of “SCIB” to “A+” from “A”and Upgrades Issue Rating to “A”from “A-” with “Positive” Outlook

TRIS Rating Co., Ltd. has upgraded the company rating of Siam City Bank PLC (SCIB)

to “A+”from “A” and has also upgraded the rating of SCIB’s subordinated debentures to “A”

from “A-”. The outlook remains “positive”. The ratings reflect the enhancement from SCIB’s

stand-alone rating, as SCIB is a core subsidiary of the parent bank, Thanachart Bank PLC

(TBANK), which is rated “A +/Positive” by TRIS Rating. SCIB’s stand-alone rating reflects

the management team’s ability to run a medium-sized bank with a nationwide branch network,

high liquidity, good liquidity risk management, strong deposit base, and sufficient capital

funds to absorb certain amount of losses from unexpected downside risks. The ratings also

take into consideration deteriorating asset quality, following an anticipated rise in non-

performing loans (NPL). In addition, the ratings reflect uncertainty from the business

integration between SCIB and TBANK, which might limit business growth and profitability

during the merging period.

The “positive” outlook reflects SCIB’s role as the core business of TBANK. The

outlook also takes into account the expectation that SCIB will be able to leverage TBANK’s

strengths in controlling asset quality deterioration as well as transition risk during the

merger integration period. The bank’s good liquidity risk management system, experienced

management team, and sufficient capital fund will help mitigate future downside risks.

TRIS Rating reported that TBANK acquired SCIB by purchasing shares of SCIB from the

Financial Institutions Development Fund (FIDF) and other shareholders during the second

quarter of 2010. At the end of September 2010, TBANK held a 99.24% stake in SCIB. SCIB

became a core business of TBANK, contributing 56% of TBANK’s consolidated deposits and 47%

of TBANK’s consolidated assets and loans. For the first nine months of 2010, SCIB’s net

income accounted for 51% of TBANK’s consolidated net income. TBANK has been processing the

merger integration plan with SCIB. SCIB will continue to operate as a separate commercial

bank until the entire business transfer process has been completed. Under the integration

plan, SCIB’s banking license will be returned to the Bank of Thailand (BOT) by 31 December

2011.

TRIS Rating said, at the end of September 2010, SCIB was the eighth largest commercial bank in Thailand, with 4% market share in terms of assets, loans and deposits. Total assets were Bt395 billion as of September 2010, while total loans and total deposits were Bt273 billion and Bt278 billion, respectively. After the acquisition by TBANK, SCIB’s total loans and deposits declined for two consecutive quarters in the 2nd and 3rd quarter of 2010. Since October 2010, SCIB has jointly launched deposit products with TBANK by offering both banks’ customers with the same product features. However, a smooth transition during the business integration period has yet to be monitored.

Asset quality of SCIB has continuously deteriorated from 2006 to September 2010.

The ratio of classified loans with more than three months past due to total loans has

continuously increased, rising from 2.6% in 2005 to 9.3% in 2009 and 10.5% as of September

2010. This level is above the industry average of 5.7% for the 11 universal banks. At the

same time, the ratio of non-performing assets (NPA) (classified loans with more than three

months past due, plus the outstanding amount of troubled debt restructurings and foreclosed

property) to total assets also increased, rising from 9.1% in 2005 to 13.5% in 2009 and

14.3% as of September 2010.

SCIB’s ratio of allowance for doubtful accounts in 2009 was 122% of the BOT minimum

requirement, and further dropped to 109% as of September 2010. This is still lower than the

industry average of 149% for the 11 universal banks. The NPL coverage ratio also declined

slightly to 65%, from 67% in 2009, and lower than the average of 84% for the 11 universal

banks. However, SCIB had sufficient capital funds, as shown by the BIS ratio of 16.67% and

the Tier-1 capital ratio of 12.27% at the end of September 2010. NPAs were 0.8 times its

capital funds plus the allowance for doubtful accounts, down from 0.9 times in 2009. This

indicates sufficient cushion of capital fund and allowance for doubtful accounts to absorb

unexpected losses from future risks associated with adverse changes in the operating

environment.

SCIB reported a net profit of Bt4,147 million in 2009, almost equal to Bt4,114

million of the net profit in 2008. The bank’s return on average assets (ROAA) and return on

average equity (ROAE) slightly declined in 2009 to 0.98% and 9.81%, respectively, from 0.99%

and 10.60% in 2008. For the first nine months of 2010, the net profit was Bt3,435 million, a

17% growth from the same period in 2009. The non-annualized ROAA and ROAE were 0.84% and

7.63%, respectively, slightly increasing from 0.71% and 7.04% for the first nine months of

2009. Asset quality deterioration remains a major concern. The rising NPLs might affect the

profitability during the integration period, said TRIS Rating. -- End

Company Rating: Upgraded to A+ from A Issue Rating: SCIB196A: Bt10,000 million subordinated debentures due 2019 Upgraded to A from A- Rating Outlook: Positive ? Copyright 2010, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.