KBank's Strategic Acquisition in Muang Thai Group Holding

K KASIKORNTHAI Regulations Update Capital (Basel III) ธนาคารกสิกรไทย 开泰银行 KASIKORNBANK Pillar2: BOT revised Pillar2 regulation to enhance risk management and capital adequacy assessment as well as emphasize ESG risk management. The revision become effective from 1 Jan 2022 onwards ■BCBS finalized new requirements on risk weighted asset (RWA) calculations including credit risk, operational risk, and CVA risk. The main objectives of the revision are to reduce variability in RWA across banks and jurisdictions and to balance simplicity and risk sensitivity of capital requirements Guidelines for supervision of financial groups of commercial banks related to digital asset business ■Remove the investment ceiling (3% of the capital of Thai banks) for FinTech business, as commercial banks have more experience investing in FinTech business, and regulators have guidelines to manage risks ■Allow subsidiaries of Thai banks to invest in companies related to Digital Assets (DA) business not greater than 3% of their capital, limiting new risks; DA companies with good governance, supervision of risks, and protection of customers are exempted from this investment ceiling ■Capital treatment: full deduction of DA holding exposure to CET1 Financial Sector Master Plan III (FSMP III) 22 Mar 2016: Cabinet approved FSMP III (2016-2020), with aims to establish strategic framework for continuous financial sector development and ensure challenges arising from the changing environment will be effectively managed Overall: FSMP III comprises four main initiatives: 1) Promote electronic financial and payment services as well as enhance efficiency of Thai financial system; 2) Support regional trade and investment linkages; 3) Promote financial access; and 4) Develop relevant infrastructure ■1Q17: BOT adopted the 'regulatory sandbox' which allowed regulatory flexibilities to be granted to financial institutions and FinTech companies to experiment with FinTech businesses with plans to grant a new license for P2P lending players or digital personal loan operators As of August-2022, BOT granted licenses for 9 digital personal loan operators ➤Impacts on Thai banks: Move toward further liberalization and digitalization, along with enhanced competition from FinTech and non-bank companies ➤Impacts on KBank: Ability to maintain competitiveness over both existing and new players, helped by an effective customer-centric strategy and preparation for a changing environment Thai and International Financial Reporting Standards (TFRSS / IFRSS) ■Year 2022 onwards: Timeframe was specified by Thailand Federation of Accounting Professions (TFAC); TFRS 9 (Financial Instruments) has been effective since 2020 with the amendment for IBOR reform during 2020-2022. TFRS 17 (Insurance Contracts) will be effective in 2025 ➤ Expected impacts on Thai banks: New benchmark rate of IBOR reform is treated as repriced rate in TFRS9 EIR calculation, hedge accounting and valuation. Existing hedge strategies can be continued with day1 impact in PL or OCI depending on classification. TFRS 17 will delay revenue recognition over coverage period; previous revenue in retained earning will be reclassified to liability on transition. ➤ Expected impacts on KBank: For TFRS 9, impacts from IBOR reform are limited while TFRS 17 impact is still under investigation. Note: D-SIBS = Domestic Systemically Important Banks CVA Credit Valuation Adjustment, Source: The Bank of Thailand and KResearch บริการทุกระดับประทับใจ 127 ธนาคารกสิกรไทย 开泰银行 KASIKORNBANK K KASIKORNTHAI Basel III: BOT Minimum Capital Requirement Transitional Arrangement for Capital Requirement All dates are as of 1 January Conservation Buffer* D-SIBS Buffer** 2016 2017 2018 2019 2020 2021 2022 2023 2024 0.625% 1.25% 1.875% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% CET1: Min. Common Equity Tier 1 Ratio (after conservation buffer and D-SIBS buffer) 5.125% (4.5%+0.625%) 5.75% 6.375% 7.5% 8.0% 8.0% 8.0% 8.0% 8.0% (4.5%+1.25%) (4.5% +1.875%) (4.5% +2.5% +0.5%) (4.5% +2.5% +1%) (4.5%+2.5% +1%) (4.5% +2.5% +1%) (4.5%+2.5% +1%) (4.5%+2.5% +1%) Tier 1: Min. Tier 1 Ratio (after conservation buffer and D-SIBS buffer) 6.625% (6.0%+0.625%) 7.25% (6.0%+1.25%) 9.0% CAR: Min. Total Capital Ratio (after conservation buffer and D-SIBS buffer) 9.125% (8.5%+0.625%) 9.75% (8.5%+1.25%) 10.375% (8.5%+1.875%) 11.5% (8.5%+2.5% +0.5%) 12.0% (8.5% +2.5% +1%) 12.0% (8.5% +2.5% +1%) 7.875% (6.0%+1.875%) (6.0% +2.5% +0.5%) 9.5% (6.0% +2.5% +1%) 9.5% (6.0%+2.5% +1%) 9.5% (6.0%+2.5% +1%) 12.0% (8.5%+2.5% +1%) 9.5% (6.0% +2.5% +1%) 12.0% (8.5%+2.5% +1%) 9.5% (6.0%+2.5% +1%) 12.0% (8.5%+2.5% +1%) Countercyclical Buffer 0.0-2.5% 0.0-2.5% (Subject to the BOT consideration)*** Leverage Ratio Parallel run period (Tier 1/Exposure) ≥ 3% Tentative effective date Liquidity Coverage Ratio (LCR)**** (Liquid Assets/Net Cash Outflows within 30 days) ≥100% LCR ≥ 60% LCR ≥ 70% LCR ≥ 80% LCR ≥ 90% LCR ≥ 100% LCR ≥ 100% LCR ≥ 100% LCR ≥ 100% LCR ≥ 100% Net Stable Funding Ratio (NSFR) (Available Stable Funding / Required Stable Funding) ≥100% Note: NSFR≥ 100% NSFR ≥ 100% NSFR ≥ 100% NSFR≥ 100% NSFR ≥ 100% NSFR ≥ 100% NSFR ≥ 100% * Conservation Buffer is to ensure adequate capital to absorb losses during periods of financial and economic stress. ** D-SIBS (Domestic Systemically Important Banks) Buffer is to limit negative impact associated with the distress or failure of banks on domestic financial system and economy. *** In periods of excess aggregate credit growth, BOT may require banks to set a Countercyclical Buffer up to 2.5% to achieve the broader macro-prudential goal of protecting the banking sector. **** KBank's Average Liquidity Coverage Ratio (LCR) are 164%, 166% and 174% as of December 2022, June 2022, and December 2021, respectively; more details can be found on Basel III - Pillar 3 Disclosures Report Remark: Banks with a capital ratio less than the required regulatory buffers will face various degrees of constraint on earning distribution Source: The Bank of Thailand บริการทุกระดับประทับใจ 128

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