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BANK OF CHINA LIMITED, BANGKOK BRANCH

STATUTORY FINANCIAL STATEMENTS

31 DECEMBER 2010

AUDITOR’S REPORT

To the Board of Directors of Bank of China Limited

I have audited the accompanying balance sheets as at 31 December 2010 and 2009, and therelated statements of income, changes in head office and other branches of the same juristicperson’s equity and cash flows for the years then ended of Bank of China Limited, BangkokBranch. The Branch’s management is responsible for the correctness and completeness ofinformation in these financial statements. My responsibility is to express an opinion on thesefinancial statements based on my audits.

I conducted my audits in accordance with generally accepted auditing standards. Thosestandards require that I plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statementpresentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all materialrespects, the financial position as at 31 December 2010 and 2009 and the results of itsoperations and its cash flows for the years then ended of Bank of China Limited, BangkokBranch in accordance with generally accepted accounting principles.

Sakuna YamsakulCertified Public Accountant (Thailand) No. 4906PricewaterhouseCoopers ABAS Limited

Bangkok1 March 2011

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Bank of China Limited, Bangkok BranchBalance SheetsAs at 31 December 2010 and 2009

2010 2009Notes Baht Baht

Assets

Cash 11,705,251 10,357,018Interbank and money market items 5

Domestic items - interest bearing 944,820,922 730,780,372Domestic items - non-interest bearing 48,843,427 63,966,128Foreign items - interest bearing 16,044,148 8,342,338Foreign items - non-interest bearing 1,761,416 6,807,075

Total interbank and money market items, net 1,011,469,913 809,895,913

Investments 6

Current investments, net 580,841,789 664,554,100Long-term investments, net 1,652,788,022 1,745,134,863

Total investments, net 2,233,629,811 2,409,688,963

Loans and accrued interest receivables 7

Loans 3,242,692,083 4,059,306,207Accrued interest receivables 4,264,419 3,149,570

Total loans and accrued interest receivables 3,246,956,502 4,062,455,777

Less Allowance for doubtful accounts 8 (32,426,921) (40,593,062)

Total loans and accrued interest receivables, net 3,214,529,581 4,021,862,715

Intangible assets, net 10 3,708,048 4,538,517

Leasehold, net 11 76,195,234 86,704,922

Premises and equipment, net 12 33,908,117 38,100,007

Other assets 13 22,631,600 24,922,808

Total assets 6,607,777,555 7,406,070,863

The accompanying notes on page 9 to 36 are an integral part of these financial statements.

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Bank of China Limited, Bangkok BranchBalance Sheets (Cont’d)As at 31 December 2010 and 2009


Liabilities and Head office and other branchesof the same juristic person’s equity

Liabilities

Deposits 14

Deposits in Baht 1,904,209,356 1,150,571,215

Deposits in foreign currencies 202,025,892 267,235,771

Total deposits 2,106,235,248 1,417,806,986

Interbank and money market itemsForeign items - interest bearing 15 - 500,532,000

Total interbank and money market items - 500,532,000

Liabilities payable on demand 105,892,053 155,847,162

Accrued interest payable 675,464 1,052,650

Other liabilities 16 72,478,101 45,743,715

Total liabilities 2,285,280,866 2,120,982,513

Head office and other branches of the same juristic person’s equity

Funds brought into Thailand for maintainingassets under the Act 17 2,037,093,419 2,037,093,419

Accounts with head office and other branches of the same juristic person, net 22 2,165,772,187 2,970,015,439

Revaluation surplus on investments 6 67,594,406 62,759,947

Retain earnings 52,036,677 215,219,545

Total Head office and other branches of the same juristic person’s equity 4,322,496,689 5,285,088,350

Total liabilities and Head office and other branches of the same juristic person’s equity 6,607,777,555 7,406,070,863

Off-balance sheet items - contingencies 21

Letters of credit 21,236,767 86,005,793

Other contingencies 12,952,919,586 6,578,569,980


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Bank of China Limited, Bangkok BranchStatements of IncomeFor the years ended 31 December 2010 and 2009


Interest and dividend income Loans 47,937,304 83,688,132

Interbank and money market items 8,984,159 8,882,885

Investments 85,298,594 102,069,681

Total interest and dividend income 142,220,057 194,640,698

Interest expense

Deposits 2,207,885 5,496,448

Interbank and money market items 1,270,465 3,123,201

Loans remitted into Thailand for capital reserve 17 4,167,224 5,895,025

Loans from Head office and other branches of the same juristic person 25,015,376 30,866,263

Total interest expense 32,660,950 45,380,937

Net income from interest and dividend 109,559,107 149,259,761

Reversal bad debt and doubtful accounts 9 7,605,409 111,560,557

Net income from interest and dividend after bad debt and doubtful accounts 117,164,516 260,820,318

Non-interest income Fees and service income

Acceptances, aval and guarantees 42,436,226 30,570,694

Others 6,235,193 9,334,411

Gain on foreign exchanges 30,726,033 24,998,099

Other income 1,272,740 5,815,502

Total non-interest income 80,670,192 70,718,706


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Bank of China Limited, Bangkok BranchStatements of Income (Cont’d)For the years ended 31 December 2010 and 2009

2010 2009Baht Baht

Non-interest expensesPersonnel expenses 59,613,819 58,049,016

Premises and equipment expenses 33,235,753 34,509,227

Taxes and duties 2,644,260 2,880,495

Fees and service expenses 2,499,950 2,567,364

Other expenses 20,860,261 8,010,090

Total non-interest expenses 118,854,043 106,016,192

Profit before income tax 78,980,665 225,522,832

Income tax (26,943,988) (10,303,287)

Net profit for the year 52,036,677 215,219,545


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Bank of China Limited, Bangkok BranchStatements of Changes in Head office and other branches of the same juristic person’s equity For the years ended 31 December 2010 and 2009

Funds brought Accounts with into Thailand head office and

for maintaining other branches Revaluationassets under of the same surplus (loss) Retain

the Act juristic person on investments earnings TotalBaht Baht Baht Baht Baht

Balance at 1 January 2009 2,037,093,419 3,949,450,337 160,604,558 97,680,963 6,244,829,277Revaluation loss on investments - - (97,844,611) - (97,844,611)Accounts with head office and other branches

of the same juristic person - (979,434,898) - - (979,434,898)Profit transferred to Head office - - - (97,680,963) (97,680,963)Net profit - - - 215,219,545 215,219,545

Balance at 31 December 2009 2,037,093,419 2,970,015,439 62,759,947 215,219,545 5,285,088,350Revaluation surplus on investments - - 4,834,459 - 4,834,459Accounts with head office and other branches

of the same juristic person - (804,243,252) - - (804,243,252)Profit transferred to Head office - - - (215,219,545) (215,219,545)Net profit - - - 52,036,677 52,036,677

Balance at 31 December 2010 2,037,093,419 2,165,772,187 67,594,406 52,036,677 4,322,496,689


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Bank of China Limited, Bangkok BranchStatements of Cash FlowsFor the years ended 31 December 2010 and 2009


Cash flows from operating activitiesNet profit before income tax 78,980,665 225,522,832

Adjustments to reconcile net profit to net cashprovided by (used in) operating activities:

Depreciation and amortisation 10, 11, 12 17,920,504 18,240,931

Bad debt and doubtful accounts 9 (7,605,409) (111,560,557)

Amortisation of discount and premium on debt instruments (6,484,257) (3,569,641)

Interest expense 32,660,950 45,380,937

Interest income (142,220,057) (194,640,698)

Loss on impairment of other assets (reversal) (804,550) 951,119

Gain on disposal of equipment - (5,352,573)

Net loss from operations before changes in operating assets and liabilities (27,552,154) (25,027,650)

(Increase) decrease in operating assetsInterbank and money market items (201,540,384) (511,691,815)

Loans 816,614,124 1,010,635,742

Unrealised gain on revaluation of derivative (6,554,634) 15,296,730

Other assets 144,663 (367,977)

Increase (decrease) in operating liabilities Deposits 688,428,262 36,026,671

Interbank and money market items (500,532,000) 500,532,000

Liabilities payable on demand (49,955,109) 138,761,922

Unrealised loss on revaluation of derivative 11,719,325 (29,120,170)

Other liabilities 11,339,876 3,295,912


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Bank of China Limited, Bangkok BranchStatements of Cash Flows (Cont’d)For the years ended 31 December 2010 and 2009

2010 2009Note Baht Baht

Net cash provided by operating activitiesbefore interest received, interest and income tax paid 742,111,969 1,138,341,365

Interest received 150,570,092 216,564,639

Interest paid (32,277,800) (65,380,468)

Income tax paid (23,268,802) (1,609,883)

Net cash provided by operating activities 837,135,459 1,287,915,653

Cash flows from investing activitiesProceeds from redemption of available-for-sale

investments 1,040,500,000 514,000,000

Purchase of available-for-sales investments (853,122,133) (756,330,473)

Proceeds from disposal of equipment - 7,005,535

Purchase of equipment 12 (2,388,457) (554,764)

Net cash provided by (used in) investing activities 184,989,410 (235,879,702)

Cash flows from financing activitiesAccounts with head office and other branches

of the same juristic person (805,557,091) (962,082,845)

Funds transferred to Head office (215,219,545) (97,680,963)

Net cash used in financing activities (1,020,776,636) (1,059,763,808)

Net increase (decrease) in cash and cash equivalents 1,348,233 (7,727,857)

��Cash and cash equivalents at the beginning of the year 10,357,018 18,084,875

��Cash and cash equivalents at the end of the year 11,705,251 10,357,018


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Bank of China Limited, Bangkok BranchNotes to the Financial StatementsFor the years ended 31 December 2010 and 2009

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1 General information

Bank of China Limited is incorporated and domiciled in China. The address of Bank ofChina’s registration in Thailand, as a branch, is as follows:

179/4 Bangkok City Tower, South Sathorn Road, Tungmahamek, Sathorn, Bangkok,Thailand.

The operations of Bank of China Limited, Bangkok Branch (“the Bank”) are the domesticbanking activities (Full Branch).

These financial statements were authorised by the management on 1 March 2011.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the Bank’s financial statementsare set out below:

2.1 Basis of preparation

The Thailand operations of Bank of China are segments of Bank of China and are notseparate legal entities. The financial statements of the Thailand operations of Bankof China have been prepared from the records of the Thailand operations and onlyreflect transactions recorded locally.

The financial statements have been prepared in accordance with Thai generallyaccepted accounting principles under the Accounting Act B.E. 2543, being thoseThai Accounting Standards issued under the Accounting Profession Act B.E. 2547and in compliance with the Bank of Thailand notification dated 3 August 2008prescribing the forms for balance sheets and the profit and loss accounts forcommercial banks.

The financial statements have been prepared under the historical cost conventionexcept for some investments and derivative financial instruments as disclosed in theaccounting policies below.

The preparation of financial statements in conformity with Thai generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements and the reported amountsof revenues and expenses in the reported period. Although these estimates are basedon management’s best knowledge of current events and actions, actual results maydiffer from those estimates.

Bank of China Limited, Bangkok BranchNotes to the Financial Statements (Cont’d)For the years ended 31 December 2010 and 2009

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2 Summary of significant accounting policies (Cont’d)

2.1 Basis of preparation (Cont’d)

An English version of the financial statements has been prepared from the statutoryfinancial statements that are in the Thai language. In the event of a conflict or adifference in interpretation between the two languages, the Thai language statutoryfinancial statements shall prevail.

2.2 New accounting standards, new financial reporting standards, new interpretationand amendments to accounting standards

a) Accounting framework

The amendment of accounting framework is effective on 26 May 2010.

b) New accounting standards, new financial reporting standards, newinterpretation and amendments to accounting standards

The following new accounting standards, new financial reporting standards,new interpretation and amendments to accounting standards are mandatory forthe accounting periods beginning on or after 1 January 2011 and 1 January 2013,but the Bank has not early adopted them:

Effective for the periods beginning on or after 1 January 2011TAS 1 (Revised 2009) Presentation of Financial StatementsTAS 2 (Revised 2009) InventoriesTAS 7 (Revised 2009) Statement of Cash FlowsTAS 8 (Revised 2009) Accounting Policies, Changes in Accounting Estimates

and ErrorsTAS 10 (Revised 2009) Events after the Reporting PeriodTAS 11 (Revised 2009) Construction ContractsTAS 16 (Revised 2009) Property, Plant and EquipmentTAS 17 (Revised 2009) LeasesTAS 18 (Revised 2009) RevenueTAS 19 Employee BenefitsTAS 23 (Revised 2009) Borrowing CostsTAS 24 (Revised 2009) Related Party DisclosuresTAS 26 Accounting and Reporting by Retirement Benefit PlansTAS 27 (Revised 2009) Consolidated and Separate Financial StatementsTAS 28 (Revised 2009) Investments in AssociatesTAS 29 Financial Reporting in Hyperinflationary EconomiesTAS 31 (Revised 2009) Interests in Joint VenturesTAS 33 (Revised 2009) Earnings per ShareTAS 34 (Revised 2009) Interim Financial Reporting


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2.2 New accounting standards, new financial reporting standards, new interpretationand amendments to accounting standards (Cont’d)

b) New accounting standards, new financial reporting standards, newinterpretation and amendments to accounting standards (Cont’d)

Effective for the periods beginning on or after 1 January 2011 (Cont’d)TAS 36 (Revised 2009) Impairment of AssetsTAS 37 (Revised 2009) Provisions, Contingent Liabilities and Contingent AssetsTAS 38 (Revised 2009) Intangible AssetsTAS 40 (Revised 2009) Investment PropertyTFRS 2 Share-based PaymentTFRS 3 (Revised 2009) Business CombinationsTFRS 5 (Revised 2009) Non-current Assets Held for Sale and Discontinued

OperationsTFRS 6 Exploration for and Evaluation of Mineral ResourcesTFRIC 15 Agreements for the Construction of Real Estate

Effective for the periods beginning on or after 1 January 2013TAS 12 Income taxesTAS 20 (Revised 2009) Accounting for Government Grants and Disclosure of

Government AssistanceTAS 21 (Revised 2009) The Effects of Changes in Foreign Exchange Rates

The Bank’s management has determined that the new accounting standards, newfinancial reporting standards, new interpretation and amendments to accountingstandards will not significantly impact the financial statements being presentedexcept for TAS 12 and 19 which management is currently assessing the impactof applying these standards.

TAS 12 deals with taxes on income, comprising current tax and deferred tax.Current tax assets and liabilities are measured at the amount expected to be paidto or recovered from the taxation authorities, using tax rates and tax law thathave been enacted or substantively enacted by the end of the reporting period.Deferred taxes are measured by based on the temporary difference between thetax base of an asset or liability and its carrying amount in the financialstatements and using the tax rates that are expected to apply to the period whenthe asset is realised or the liability is settled, based on tax rates and tax law thathave been enacted or substantively enacted by the end of the reporting period.The Bank will apply this standard from 1 January 2013 retrospectively with anexpected to incur of deferred tax account and changes in retained earnings andincome tax expense.


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2.2 New accounting standards, new financial reporting standards, new interpretationand amendments to accounting standards (Cont’d)

b) New accounting standards, new financial reporting standards, newinterpretation and amendments to accounting standards (Cont’d)

TAS 19 deal with accounting for employee benefit. The standard classifiesemployee benefit into 4 categories: a) short-term employee benefits b) post-employment benefits (including defined contribution plan and defined benefitplan) c) other long-term employee benefits and d) termination benefits. Thestandard requires the entity to measure the defined benefit plan and other long-termemployee benefits by using the Projected Unit Credit method (PUC). An entitycan choose to recognise any actuarial gain or loss for defined benefit plan eitherin other comprehensive income or profit and loss. Actuarial gain or loss forother long-term employee benefit shall recognise in profit and loss. The Bankwill apply this standard from 1 January 2011.

2.3 Foreign currency translation

Items included in the financial statements are measured using Thai Baht.

Transactions during the year in foreign currencies are translated to Thai Baht at theforeign exchange rates ruling at the dates of the transactions and monetary assets andliabilities denominated in foreign currencies at the balance sheet date are translatedto Thai Baht at the foreign exchange rates of the Bank of Thailand ruling at that date.Foreign exchange differences arising on translation are recognised in the statementof income.

Non-monetary assets and liabilities measured at cost in foreign currencies aretranslated to Thai Baht using the foreign exchange rates ruling at the dates of thetransactions.

2.4 Cash and cash equivalents

Cash and cash equivalents represent cash on hand and cash items in process of thecollection.


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2.5 Investments

Investments in debt securities

Investments intended to be held for an indefinite period of time, which may be sold inresponse to liquidity needs or change in interest rates, are classified as available-for-sale.

Marketable debt securities are classified as available-for-sale investment and arestated in the balance sheet at fair value. Unrealised gain and losses arising fromchanges in the fair value of investments classified as available-for-sale are recognisedin Head office and other branches of the same juristic person’s equity. Theexceptions are impairment losses and foreign exchange gains or losses, which arerecognised in the statement of income. The Bank recognised interest income in thestatement of income using effective interest rate.

For Government securities and state enterprise securities which guaranteed by theGovernment classified as available-for-sale, their fair value are calculated based onthe Thai Bond Market Association Yield Curve as at balance sheet date except fordebt securities of the Bank of Thailand that their fair value are calculated based onthe Bank of Thailand Yield Curve as at balance sheet date.

A test for impairment is carried out when there is a factor indicating that aninvestment might be impaired. If the carrying value of the investment is higher thanits recoverable amount, impairment loss is charged to the statement of income.

Disposal of investments

On disposal of an investment, the difference between the net disposal proceeds andthe carrying amount together with the associated cumulative gain or loss that wasreported in Head office and other branches of the same juristic person’s equity ischarged or credited to the statement of income.

When disposing of part of the Bank’s holdings of a particular investment, the carryingamount of the disposed part is determined using the weighted average method.

2.6 Loans and accrued interest

Loans and overdrafts are presented using the principal amount outstanding at end ofyear and accrued interest.


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2.7 Allowance for doubtful accounts

The Bank provides allowance for doubtful accounts based on the criteria determined bythe Bank of Thailand. In addition, for non-performing loans the Bank provides specificallowance for doubtful accounts based on related factors such as financial ability torepay, historical collection experience, collateral value and expected loss rate.

With reference to the Bank of Thailand’s notification, dated 3 August 2008 relatingto the amended criteria for allowances for doubtful accounts, the Bank has classifiedits loan portfolios into six categories, primarily based on the days past due. For loans,classified as pass and special-mention, the calculation of allowances for doubtfulaccounts is based on the regulatory minimum percentage requirement, taking intoconsideration the collateral value, where the collateral type and date of the latestappraisal are qualifying factors. For loans classified as substandard, doubtful anddoubtful of loss, the allowances on these accounts will be set at 100 percent for thedifference between the outstanding book value of the debt and the present value offuture cash flows expected to be received or the expected proceeds from the disposalof collateral in accordance with the Bank of Thailand’s criteria.

Allowance for doubtful accounts established during the year is charged as an expensein each accounting year.

Bad debts written off are recorded as charges to the allowance for doubtful accounts.

2.8 Troubled debt restructuring

Foreclosed assets, transferred from troubled debt restructuring, are recorded at thefair value of the assets not exceeding the legal claim for the debt including interestreceivable. The difference between the assets transferred and the outstanding balanceof loans is recognised as loss in the statement of income.

Where restructuring a loan involves modification of its terms, the present value of theexpected future cash collections is calculated by using discount rates equivalent tothe market rates of interest at the time of restructuring. The difference between thepresent value of the future cash flows expected to be received and the outstandingbalances of investment in loans is recorded in the revaluation allowance for debtrestructuring. This revaluation allowance for debt restructuring is amortised to thestatement of income according to the amounts received over the remaining period ofthe debt-restructuring contracts.

Restructured loans are classified as normal when the restructured loans agreementhave been completed and when there is appropriate evidence that the restructuredcondition can be met.

Loss on restructuring is recognised in the statement of income when incurred.


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2.9 Intangible assets - Computer software

Acquired computer software licenses are capitalised on the basis of the cost incurredto acquire and bring to use the specific software. Their cost are amortised over theirestimated useful lives (three to ten years).

2.10 Leasehold

Leasehold is capitalised and amortised using the straight line method over their usefullives, generally over 20 years.

2.11 Premises and equipment

Premises and equipment are stated at initial cost less accumulated depreciation.

Depreciation is calculated on a straight-line basis to write off the cost of each asset,except for land which is considered to have an indefinite life, to its residual valueover the estimated useful life as follows:

Buildings and leasehold improvements 20 yearsComputer equipment 3 - 5 yearsFurniture and office equipment 5 yearsVehicles 5 years

Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down immediately to its recoverable amount.

Repairs and maintenance are charged to the income statement during the financialperiod in which they are incurred. The cost of major renovations is included in thecarrying amount of the asset when it is probable that future economic benefits inexcess of the originally assessed standard of performance of the existing asset willflow to the Bank. Major renovations are depreciated over the remaining useful life ofthe related asset.

Gains and losses on disposals are determined by comparing proceeds with carryingamount and are included in operating profit.


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2.12 Impairment

The carrying amounts of the Bank’s assets are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If any such indicationexists, the assets’ recoverable amounts are estimated.

An impairment loss is recognised for the amount by which the carrying amount of anasset or its cash-generating unit exceeds its recoverable amount. The impairment lossis recognised in the statement of income unless it reverses a previous revaluationcredited to Head office and other branches of the same juristic person’s equity, inwhich case it is charged to Head office and other branches of the same juristicperson’s equity.

Calculation of recoverable amount

The recoverable amount of the assets is the higher of the assets’ net selling price andvalue in use. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. For anasset that does not generate cash inflows largely independent of those from otherassets, the recoverable amount is determined for the cash-generating unit to whichthe asset belongs.

Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount. An impairment loss is reversed only to the extentthat the asset’s carrying amount does not exceed the carrying amount that would havebeen determined, net of depreciation or amortisation, if no impairment loss had beenrecognised.

2.13 Liabilities - bearing interest

Liabilities which bear interest are recognised initially at the fair value of proceedsreceived, net of transaction costs incurred and are subsequently stated at amortisedcost using the effective yield method; any difference between proceeds (net oftransaction costs) and the redemption value is recognised in the statement of incomeover the period of the borrowings.


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2.14 Leases - where the Bank is a lessee

Leases not transferring a significant portion of the risks and rewards of ownership tothe lessee are classified as operating leases. Payments made under operating leases(net of any incentives received from the lessor) are charged to the statement ofincome on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, anypayment required to be made to the lessor by way of penalty is recognised as anexpense in the period in which termination takes place.

2.15 Provident fund

The Bank has established a contributory provident fund for its employees.Membership to the funds is on a voluntary basis. Contributions are made monthly bythe employees at rate 3% of their basic salaries and by the Bank at rates ranging from3% to 5% of the employees’ basic salaries. Contributions to the provident fund arecharged to the statement of income in the year to which they relate. The providentfund is registered with the Ministry of Finance as a juristic entity and is managed bya licensed Fund Manager.

2.16 Provisions

Provisions are recognised in the balance sheet when the Bank has a present legal orconstructive obligation as a result of a past event, and it is probable that an outflow ofresources will be required to settle the obligation and a reliable estimate of theamount can be made. Where the Bank expects a provision to be reimbursed, thereimbursement is recognised as a separate asset but only when it is virtually certainafter provision has been settled.

2.17 Revenue recognition

Interest income is recognised on a time proportion basis, taking account of the principaloutstanding and the effective rate over the period to maturity, when it is determined thatsuch income will accrue except for interest on loans classified as overdue in excess ofthree months where regardless of whether the loans are covered by collateral, the cashbasis is then adopted and interest accrued in arrears for 3 months is reversed againstinterest income to comply with the Bank of Thailand guideline.

Discount received on purchase of bill of exchange are recognised on a straight-linebasis over the period to maturity.

Other income is recognised on an accrual basis.


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2.18 Expense recognition

Interest expense on deposits and borrowings is recognised on an accrual basis.

Other expense is recognised on an accrual basis.

2.19 Derivatives

Derivatives for trading purpose are recognised at fair values and net amount reportedin the balance sheet as assets or liabilities by the same counterparty and contractshave the same maturity date. Changes in fair values are posted to the statement ofincome. Derivatives financial instruments for hedging purpose are recorded at thecontract price. Premiums and discounts on contracts designated as a hedge arerecognised on an accrual basis and posted to the statement of income over the life ofthe hedged transactions.

3 Critical accounting estimates, assumptions and judgements

Estimates, assumptions and judgments are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to bereasonable under the circumstances.

Impairment of loans

The Bank maintains an allowance for doubtful accounts to reflect impairment of loansrelating to estimated losses resulting from the inability of customers to make requiredpayments. The allowance for doubtful accounts is significantly impacted by the Bank’sassessments of future cash flows which based on historical collection experience, collateralvalue and known and identified instances default.

Fair value of financial derivative instruments

In determining the fair value of financial derivative instruments, the management has madejudgment in valuing derivative instruments by using widely accepted valuation techniquesand guidelines. The input parameter to the models used is taken from observable markets.

Property, equipment and intangible assets

Management determines and reviews the estimated useful lives and residual values for theBank’s equipment and intangible assets and revises if they are different from previouslyestimated, or where write off or write down technically obsolete or assets that have beenabandoned or sold.


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4 Capital risk management

The Bank’s objectives when managing capital are to safeguard the Bank’s ability tocontinue as a going concern in order to provide returns for head office and benefits forother stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

5 Interbank and money market items (assets)

2010 2009

At call Term Total At call Term TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

DomesticThe Bank of Thailand and

Financial InstitutionsDevelopment Fund 48,843 940,000 988,843 63,966 730,000 793,966

Commercial banks 4,743 - 4,743 736 - 736

Total 53,586 940,000 993,586 64,702 730,000 794,702Add Accrued interest receivables 1 77 78 1 44 45

Total domestic 53,587 940,077 993,664 64,703 730,044 794,747

ForeignUS Dollar 7,911 - 7,911 8,409 - 8,409Other currencies 9,894 - 9,894 6,740 - 6,740

Total 17,805 - 17,805 15,149 - 15,149Add Accrued interest receivables 1 - 1 - - -

Total foreign 17,806 - 17,806 15,149 - 15,149

Total domestic and foreign 71,393 940,077 1,011,470 79,852 730,044 809,896

6 Investments2010 2009

Cost value/ Cost value/amortised amortisedcost value Fair value cost value Fair value

Baht’000 Baht’000 Baht’000 Baht’000

Current investmentsAvailable-for-sale investments

Government and stateenterprise securities 578,767 580,842 659,986 664,554

Add Allowance for revaluation 2,075 - 4,568 -

Total current investments, net 580,842 580,842 664,554 664,554

Long-term investmentsAvailable-for-sale investments

Government and stateenterprise securities 1,587,268 1,652,788 1,686,943 1,745,135

Add Allowance for revaluation 65,520 - 58,192 -

Total long-term investments, net 1,652,788 1,652,788 1,745,135 1,745,135

Total investments, net 2,233,630 2,233,630 2,409,689 2,409,689


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6 Investments (Cont’d)

As at 31 December 2010 and 2009, a maturity analysis for debt instruments resulted asfollows;

2010 2009Maturity Maturity

Within Over 1-5 over Within Over 1-5 over1 year years 5 years Total 1 year years 5 years Total

Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Available-for-sale investmentsGovernment and state

enterprise securities 578,767 1,587,268 - 2,166,035 659,986 1,208,858 478,085 2,346,929Add Allowance for

revaluation 2,075 65,520 - 67,595 4,568 55,452 2,740 62,760

Total debt instruments, net 580,842 1,652,788 - 2,233,630 664,554 1,264,310 480,825 2,409,689

Unrealised gain (loss) from change in fair value of available-for-sale investments charged tohead office and other branches of the same juristic person’s equity during the year are asfollows:

2010 2009Baht’000 Baht’000

Balance - beginning of year 62,760 160,605

Change in fair value of investment during the year 4,834 (97,845)

Balance - end of year 67,594 62,760

7 Loans and accrued interest receivables

Loans and accrued interest receivables as at 31 December 2010 and 2009 are as follows:

7.1 Classified by type of loans2010 2009

Baht’000 Baht’000

Overdrafts 6,622 6,811

Loans 3,204,920 3,929,994

Bills 31,150 122,501

Total 3,242,692 4,059,306

Add Accrued interest receivables 4,265 3,150

Less Allowance for doubtful accounts (32,427) (40,593)

Total 3,214,530 4,021,863


21

7 Loans and accrued interest receivables (Cont’d)

7.2 Classified by maturity of contracts2010 2009


Within 1 year 881,796 429,675

Over 1 year 2,365,161 3,632,781

Total 3,246,957 4,062,456

7.3 Classified by currencies and residency of borrowers

2010 2009

Domestic Foreign Total Domestic Foreign TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Baht 598,605 - 598,605 104,804 - 104,804US Dollar 124,907 1,116,859 1,241,766 168,744 2,163,284 2,332,028Other currencies - 1,406,586 1,406,586 63,404 1,562,220 1,625,624

Total 723,512 2,523,445 3,246,957 336,952 3,725,504 4,062,456

7.4 Classified by type of business and account status

2010

Special DoubtfulPass mention Substandard of loss Total

Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Manufacturing andcommerce 621,085 - - - 621,085

Property developmentand construction 1,166,597 - - - 1,166,597

Infrastructure and services 1,454,671 - - - 1,454,671Housing loans 4,604 - - - 4,604

Total 3,246,957 - - - 3,246,957

2009



Manufacturing andcommerce 41,993 - - - 41,993

Property developmentand construction 1,295,887 - - - 1,295,887

Infrastructure and services 2,718,685 - - - 2,718,685Housing loans 5,891 - - - 5,891

Total 4,062,456 - - - 4,062,456


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7 Loans and accrued interest receivables (Cont’d)

7.5 Classified by account status2010

Allowance for doubtful accounts

Outstanding debtto be computed

Loans and for allowance Minimum % Totalaccrued interest for doubtful required allowance

receivables accounts according to recordedBaht’000 Baht’000 BOT guidelines Baht’000

Pass 3,246,957 3,242,692 1 32,427

Total 3,246,957 3,242,692 32,427

2009

Allowance for doubtful accounts

Outstanding debtto be computed

Loans and for allowance Minimum % Totalaccrued interest for doubtful required allowance

receivables accounts according to recordedBaht’000 Baht’000 BOT guidelines Baht’000

Pass 4,062,456 4,059,306 1 40,593

Total 4,062,456 4,059,306 40,593

In the case that allowance provided in accordance with IAS 39 is less than theallowance that the Bank set for each class of classified assets, % used for calculatingthe allowance means the allowance rate for classified assets.

As at 31 December 2010, the Bank does not have non-performing loans according to theBank of Thailand’s notification (2009: Nil).

8 Allowance for doubtful accounts

2010



Balance at beginning of year 40,593 - - - 40,593Addition (decrease) (8,166) - - - (8,166)

Balance at end of year 32,427 - - - 32,427

2009



Balance at beginning of year 47,291 4,000 14,614 86,660 152,565Addition (decrease) (6,698) (4,000) (14,614) (86,660) (111,972)

Balance at end of year 40,593 - - - 40,593


23

9 Bad debt and doubtful accounts

2010 2009Baht’000 Baht’000

Loans - General customers (note 8) (8,166) (111,972)

- Other branches of the same juristic person andother financial institutions 561 412

Total (7,605) (111,560)

10 Intangible assets

ComputersoftwareBaht’000

At 1 January 2009Cost 7,729

Less Accumulated amortisation (2,360)

Net book amount 5,369

For the year ended 31 December 2009Opening net book amount 5,369

Additions -

Amortisation charge (830)

Closing net book amount 4,539

At 31 December 2009Cost 7,729




Additions -

Amortisation charge (831)






24

11 Leasehold

Baht’000

At 1 January 2009Cost 210,194




Amortisation charge (10,510)






Amortisation charge (10,509)






25

12 Premises and equipmentBuilding

and Furnitureleasehold Computer and office

Land improvements equipment equipment Vehicles TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

At 1 January 2009Cost 2,036 86,934 8,706 16,879 12,460 127,015Less Accumulated

depreciation - (51,481) (8,545) (16,030) (4,860) (80,916)

Net book amount 2,036 35,453 161 849 7,600 46,099

For the year ended31 December 2009

Opening net book amount 2,036 35,453 161 849 7,600 46,099Additions - 74 241 245 - 560Disposals, net - (1,657) - (1) - (1,658)

Depreciation charge - (4,212) (177) (291) (2,221) (6,901)

Closing net book amount 2,036 29,658 225 802 5,379 38,100

At 31 December 2009Cost 2,036 82,408 8,947 16,721 12,460 122,572Less Accumulated

depreciation - (52,750) (8,722) (15,919) (7,081) (84,472)

Net book amount 2,036 29,658 225 802 5,379 38,100

For the year ended31 December 2010

Opening net book amount 2,036 29,658 225 802 5,379 38,100Additions - - 1,219 1,169 - 2,388Disposals, net - - - - - -

Depreciation charge - (4,165) (194) (307) (1,914) (6,580)

Closing net book amount 2,036 25,493 1,250 1,664 3,465 33,908

At 31 December 2010Cost 2,036 82,408 10,166 17,890 12,460 124,960Less Accumulated

depreciation - (56,915) (8,916) (16,226) (8,995) (91,052)

Net book amount 2,036 25,493 1,250 1,664 3,465 33,908

13 Other assets2010 2009


Accrued interest income from investment 10,322 19,827

Unrealised gain on revaluation of derivatives 8,733 2,179

Others 3,577 2,917

Total 22,632 24,923


26

14 Deposits

14.1 Classified by type of deposits

2010 2009Baht’000 Baht’000

Demand 51,368 24,226

Saving 1,724,132 1,038,960

Term- Less than 6 months 92,106 107,809

- 6 months but less than 1 year 238,629 246,812

Total 2,106,235 1,417,807

14.2 Classified by maturity of contracts

2010 2009Baht’000 Baht’000

Within 1 year 2,106,235 1,417,807

14.3 Classified by currencies and residency of depositors

2010 2009

Domestic Foreign Total Domestic Foreign TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Baht 1,622,271 281,938 1,904,209 978,184 172,387 1,150,571US Dollar 19,548 172,278 191,826 19,317 247,919 267,236

Other currencies 4,050 6,150 10,200

Total 1,645,869 460,366 2,106,235 997,501 420,306 1,417,807

15 Interbank and money market items (liabilities)

2010 2009

At call Term Total At call Term TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Foreign itemsUS Dollar - - - - 500,532 500,532

Total - - - - 500,532 500,532


27

16 Other liabilities2010 2009


Accrued expenses 28,288 21,583

Deferred fees income 8,272 4,154

Withholding tax payable 1,396 1,035

Special business tax payable 1,887 1,721

Income tax payable 12,369 8,694

Unrealised loss on revaluation of derivatives 12,756 1,036

Other 7,510 7,521

Total 72,478 45,744

17 Assets maintained by law

Assets maintained in Thailand under Section 32 of the Financial Institution Act B.E. 2551are as follows:

2010 2009


Leasehold 70,000 80,000

Immovable properties 7,772 8,772

Thai Government bonds 1,178,323 697,414

Bonds issued by Government Housing Bank 352,667 556,434

Bonds issued State Owned Enterprises 511,562 773,339

Total 2,120,324 2,115,959

The fund remitted to Thailand for maintenance of assets under Section 32 of the FinancialInstitution Act, B.E. 2551 has been made in the form of capital loan of US$ 65,866,529(equally Baht 2,037.09 million); of which the capital loans of US$ 47,866,529 are chargedby the Head office at the rate of 1- month LIBOR. Interest expense for the year ended 2010was totaling Baht 4.17 million (2009: Baht 5.90 million). The Bank has total capital fundto risk assets ratio at the rate of 25.47% (2009: 28.56%).

The Bank will disclose capital maintenance information as at 31 December 2010 inaccordance with the Notification of the Bank of Thailand Re: Public Disclosure of CapitalMaintenance Information for Commercial Banks on its website at www.boc.cn/mangu/,within April 2011.

18 Assets under commitment

As at 31 December 2010, Government bonds amounting to Baht 120.91 million (2009:Baht 100.78 million) are used as collateral for borrowing from the Bank of Thailand andfor securities sold under repurchase agreements.


28

19 Financial instruments

Financial risk management policies

The Bank is exposed to normal business risks from changes in market interest rates, currencyexchange rates and from non-performance of contractual obligations by counterparties.

Credit risk

Credit risk refers to the risk that a counterparty or a borrower may default on its contractualobligations and agreements. Such default may be caused by the counterparty’s inability topay due to their financial position, or to their intention not to meet the contractualagreements, resulting in a loss to the Bank.

The credit risk management system is characterised by centralised credit management, theseparation of credit review from the origination of loans. The Credit Department areresponsible for making a preliminary examination and preparing credit proposal report, theDue Diligence Investigation Group shall conduct analysis and investigation on such report,the Credit Risk Management Committee conduct credit evaluation by review the submittedreports and then make a collective recommendation to General Management to makes thefinal decisions. For non-performing loans, the Bank has closely and continuously monitored,resolved and restructured to retain maximum benefits to the Bank.

Market risk

Market risk is the risk that changes in interest rates and foreign exchange rates, will havean effect on the Bank’s funding costs, investment position, and foreign currency position,resulting in a loss to the Bank.

The portfolio effect of holding different instruments across a variety of business activitiesand asset classes helps to diversify the market risk the Bank is exposed to and reduces thepotential losses from market risk.

The Bank’s ability to measure and monitor potential losses that could arise from adversechanges in market conditions is key to managing market risks. Quantitative and qualitativemeasures are an integral and crucial part in the Bank’s assessment of market risks.

Foreign exchange risk

Foreign exchange risk is a risk that occurs from the change in exchange rates which mayaffect the value of the Bank’s financial instruments or may cause volatility in the Bank’searnings or fluctuations in the value of the Bank’s assets and liabilities. The Bank engagesin foreign exchange related transactions, which may create foreign exchange risk.However, the Bank believes that such risk is low, as most foreign currency transactions arecompleted with customers’ underlying transactions. The Bank’s policy is to minimiseforeign exchange risk by closing foreign exchange position on a daily basis.


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19 Financial instruments (Cont’d)

Foreign exchange risk (Cont’d)

The Bank’s foreign currency position as at 31 December 2010 and 2009 is as follows

2010

Hong KongUS Dollar Dollar Others TotalBaht’000 Baht’000 Baht’000 Baht’000

AssetsCash 4,138 - 425 4,563Interbank and money market items, net 7,911 1,700 8,195 17,806Loans and accrued interest receivables, net 1,229,368 1,392,522 - 2,621,890

Total assets 1,241,417 1,394,222 8,620 2,644,259

LiabilitiesDeposits 191,826 - 10,200 202,026Liability payable on demand 105,289 - 46 105,335Accrued interest payables 84 - 2 86Other liabilities 6 1,953 - 1,959

Total liabilities 297,205 1,953 10,248 309,406

Foreign currency position on balance sheetitems, net 944,212 1,392,269 (1,628) 2,334,853

2009

Hong KongUS Dollar Dollar Others TotalBaht’000 Baht’000 Baht’000 Baht’000

AssetsCash 1,931 - 63 1,994Interbank and money market items, net 8,409 6,739 1 15,149Loans and accrued interest receivables, net 2,308,736 1,546,601 62,770 3,918,107

Total assets 2,319,076 1,553,340 62,834 3,935,250

LiabilitiesDeposits 267,236 - - 267,236Interbank and money market items 500,532 - - 500,532Liability payable on demand 151,245 - 2,508 153,753Accrued interest payables 398 - - 398Other liabilities 7 3,267 - 3,274

Total liabilities 919,418 3,267 2,508 925,193

Foreign currency position on balance sheetitems, net 1,399,658 1,550,073 60,326 3,010,057


30


Interest rate risk

Interest rate risk refers to the risk that arises from the change in interest rates which mayaffect the value of the Bank’s financial instruments or may cause volatility in the Bank’searnings or fluctuation in the value of the Bank’s financial assets and liabilities both in thecurrent reporting period, and in future years. Interest rate risk also arises from thestructure and characteristics of the Bank’s assets, liabilities and Head office and otherbranches of the same juristic person.

Most of the Bank’s credit and other source of fund are based on the Bank's floating interestrates (LIBOR). As a result, the interest rate risk faced by the Bank is generally low.However, the Bank actively manages such risk by adjusting the assets and liabilitiesstructure that will maximise the return under the acceptable risk level, and best fit currentmarket conditions and trends.

The Bank has loans (including to loans to financial institutions), as at 31 December 2010and 2009, as follows:

2010 2009


Floating interest rate 3,242,692 4,789,306

The Bank has the following interest-bearing financial assets and liabilities. The averagebalances of which are calculated by using balances of the financial assets and liabilities ofeach month. The average interest and dividend rates per annum for each of the yearsended 31 December 2010 and 2009 are as follows:

2010 2009

Average AverageAveage rate per Average rate per

balance Interest annum balance Interest annum. Baht’000 Baht’000 % Baht’000 Baht’000 %

Interest-bearing Financial assetsCash and interbank and money

market items 714,929 8,984 1.26 622,714 8,883 1.43Investments 2,174,074 85,299 3.92 2,257,929 102,070 4.52Loans 3,764,229 47,937 1.27 4,541,157 83,688 1.84

Total 6,653,232 142,220 2.14 7,421,800 194,641 2.62

Interest-bearing Financialliabilities

Deposits 1,638,071 2,208 0.13 1,596,661 5,496 0.34Interbank and money market items

and accounts with Head Officeand other branches of the sameperson juristic 3,137,949 26,286 0.84 3,949,104 33,989 0.86

Total 4,776,020 28,494 0.60 5,545,765 39,485 0.71


31


Interest rate risk (Cont’d)

Financial assets and liabilities, classified by maturity of interest repricing, as at 31 December2010 and 2009, are as follows:

2010Immediate Not over 3 months Non-interest

repricing 3 months - 1 year bearing TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000

Financial assetsCash - - - 11,705 11,705Interbank and money market items, net 16,044 940,000 - 55,426 1,011,470Investments - 613,261 1,141,688 478,681 2,233,630Loans 6,622 3,219,489 16,581 - 3,242,692Accrued interest receivables - - - 4,265 4,265Accrued income receivables - - - 10,322 10,322

Total financial assets 22,666 4,772,750 1,158,269 560,399 6,514,084

Financial liabilitiesDeposits 1,720,391 172,595 158,140 55,109 2,106,235Liabilities payable on demand - - - 105,892 105,892Accrued interest payables - - - 675 675

Total financial liabilities 1,720,391 172,595 158,140 161,676 2,212,802

Net position (1,697,725) 4,600,155 1,000,129 398,723 4,301,282

2009Immediate Not over 3 months Non-interest

repricing 3 months - 1 year bearing TotalBaht’000 Baht’000 Baht’000 Baht’000 Baht’000

Financial assetsCash - - - 10,357 10,357Interbank and money market items, net 9,078 730,000 - 70,818 809,896Investments - 1,173,309 1,236,380 - 2,409,689Loans 6,811 3,929,485 123,010 - 4,059,306Accrued interest receivables - - - 3,150 3,150Accrued income receivables - - - 19,827 19,827

Total financial assets 15,889 5,832,794 1,359,390 104,152 7,312,225

Financial liabilitiesDeposits 1,038,960 159,241 195,380 24,226 1,417,807Interbank and money market items - 500,532 - - 500,532Liabilities payable on demand - - - 155,847 155,847Accrued interest payables - - - 1,053 1,053

Total financial liabilities 1,038,960 659,773 195,380 181,126 2,075,239

Net position (1,023,071) 5,173,021 1,164,010 (76,974) 5,236,986


32


Liquidity risk

Liquidity risk is the risk that the Bank may not be able to meet its obligations as they falldue, become of inability to realise its assets or to cover funding requirements at anappropriate price which results in a loss to the Bank.

The Bank manages its liquidity position under the Bank of Thailand’s liquidity reserve andother applicable regulations. The Treasury Department is accountable for managingliquidity position by providing short-term and long-term funding sources as well asinvesting in highly liquid assets in both Thai Baht and foreign currencies. The Bank alsoensures that its liquidity position is suitable and sufficient for the current and foreseeablemarket conditions.

A maturity analysis for financial assets and liabilities as at 31 December 2010 and 2009are as follows:

2010

Not over 3 months Over Over NoAt call 3 months - 1 year 1 - 5 years 5 years Maturity Total

Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Financial assetsCash - - - - - 11,705 11,705Interbank and money

market items 71,393 940,077 - - - - 1,011,470Investments - 478,682 102,160 1,652,788 - - 2,233,630Loans 6,622 612,350 260,656 1,872,486 490,578 - 3,242,692Accrued interest receivables - 4,229 36 - - - 4,265Accrued income receivables - 6,461 3,861 - - - 10,322

Total financial assets 78,015 2,041,799 366,713 3,525,274 490,578 11,705 6,514,084

Financial liabilitiesDeposits 1,775,500 172,595 158,140 - - - 2,106,235Liabilities payable on demand 105,892 - - - - - 105,892Accrued interest payables - 439 236 - - - 675

Total financial liabilities 1,881,392 173,034 158,376 - - - 2,212,802

Liquidity, net (1,803,377) 1,868,765 208,337 3,525,274 490,578 11,705 4,301,282


33


Liquidity risk (Cont’d)

2009

Not over 3 months Over Over NoAt call 3 months - 1 year 1 - 5 years 5 years Maturity Total

Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Financial assetsCash - - - - - 10,357 10,357Interbank and money

market items 79,851 730,045 - - - - 809,896Investments - 471,599 192,955 1,264,310 480,825 - 2,409,689Loans 6,811 35,154 387,666 3,021,915 607,760 - 4,059,306Accrued interest receivables - 3,068 82 - - - 3,150

Accrued income receivables - 14,839 4,988 - - - 19,827

Total financial assets 86,662 1,254,705 585,691 4,286,225 1,088,585 10,357 7,312,225

Financial liabilitiesDeposits 1,063,186 159,241 195,380 - - - 1,417,807Interbank and money

market items - 500,532 - - - - 500,532Liabilities payable on demand 155,847 - - - - - 155,847

Accrued interest payables - 754 299 - - - 1,053

Total financial liabilities 1,219,033 660,527 195,679 - - - 2,075,239

Liquidity, net (1,132,371) 594,178 390,012 4,286,225 1,088,585 10,357 5,236,986

Derivatives

The Bank enters into derivative transactions for the main reason to hedge of the Bank’sexposure to financial risks, which are activities to reduce or eliminate exchange rate and/orinterest rate risk related to the Banks’ financial assets, liabilities, contingent accounts orexpected transactions in the future and liquidity management.

The derivatives which the bank enters into are forward exchange contracts.

The Bank controls credit risk by using procedures similar to those used when grantinggeneral loans.


34

20 Fair values of financial assets and liabilities

The estimated fair value of significant financial assets and liabilities as on 31 December2010 and 2009 are as follows:

2010 2009

Book value Fair value Book value Fair valueBaht’000 Baht’000 Baht’000 Baht’000

Financial assetsInterbank and money market items 1,011,470 1,011,470 809,896 809,896Investments in securities 2,233,630 2,233,630 2,409,689 2,409,689Loan and accrued interest receivable, net 3,214,530 3,214,530 4,021,863 4,021,863Unrealised gain on revaluation of derivative

financial instruments 8,733 8,733 2,179 2,179

Financial liabilitiesDeposits 2,106,235 2,106,235 1,417,807 1,417,807

Interbank and money market items - - 500,532 500,532Demand liabilities 105,892 105,892 155,847 155,847Unrealised loss on revaluation of derivative

financial instruments 12,756 12,756 1,036 1,036

The following methods and assumptions are used in estimating fair value of financialassets and liabilities:

Fair value of interbank and money market items, deposits and demand liabilities areapproximate to the carrying value because they are highly liquid.

Fair values of investment in securities are calculated as described in Note 6.

Loans and accrued interest receivable are based on the carrying amount net of allowancefor doubtful accounts.

The fair value of derivative financial instruments have been valued at their current marketvalues, which are obtained from quoted market prices or other widely used calculationmethods.


35

21 Contingencies and commitments

1. Contingencies and commitments as at 31 December 2010 and 2009 are classified asfollows:

2010 2009

Foreign ForeignBaht currency Total Baht currency Total

Baht’000 Baht’000 Baht’000 Baht’000 Baht’000 Baht’000

Letters of credit - 21,237 21,237 - 86,006 86,006

Other contingenciesOther guarantees 5,020,897 3,779,331 8,800,228 3,094,500 1,549,513 4,644,013Exchange rate agreements

- Purchase contracts 1,113,014 936,213 2,049,227 500,925 441,853 942,778- Sale contracts 928,443 1,124,643 2,053,086 441,058 500,532 941,590

Unused credit line of

overdrafts 50,378 - 50,378 50,189 - 50,189

7,112,732 5,840,187 12,952,919 4,086,672 2,491,898 6,578,570

Total 7,112,732 5,861,424 12,974,156 4,086,672 2,577,904 6,664,576

2. The Bank has entered into service agreements for office facilities, with 20-year term,commencing from April 1998 to March 2018. As at 31 December 2010, the Bank hasa commitment to pay monthly service fee amounting to Baht 258,700 (2009: Baht258,700). The Bank has a commitment to pay the future expenses at totalling Baht22.51 million (2009: Baht 25.61 million).

22 Related party transactions and balances

Enterprises and individuals that directly, or indirectly through one or more intermediaries,control, or are controlled by, or are under common control with, the Bank, includingholding companies, subsidiaries and fellow subsidiaries are related parties of the Bank.Associates and individuals owning, directly or indirectly, an interest in the voting power ofthe Bank that gives them significant influence over the enterprise, key managementpersonnel, including directors and officers of the Bank and close members of the family ofthese individuals and companies associated with these individuals also constitute relatedparties.

In considering each possible related party relationship, attention is directed to thesubstance of the relationship, and not merely the legal form.

Significant related party transactions were transacted with fellow branches, subsidiaries,associates and the Head office of Bank of China as follows:


36

22 Related party transactions and balances (Cont’d)

Transactions for the years ended 31 December 2010 and 2009 with related parties aresummarised as follows:

2010 2009Baht’000 Baht’000

Interest income 728 1,296

Interest expense 30,453 39,882

Premises and equipment expenses 2,505 3,143

Balances as at 31 December 2010 and 2009 with related parties are as follows:

2010 2009Baht’000 Baht’000

Accounts with Head Office and other branchesof the same juristic person

Loans, net 294,505 258,131

Allowance for doubtful accounts 2,563 2,002

Borrowings 2,458,615 3,227,238

Accrued interest receivables (15) (8)

Accrued interest payable 1,677 916

Interbank and money market itemsLoans 17,805 15,150

Borrowings - 500,532

Accrued interest (receivable) payable (1) 292

Accrued expenses 1,953 3,119

Transactions between the Bank and related parties were priced at and contained similarconditions with the Bank’s general customers and conformed to normal banking practice.

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