(Thai) Annual Report 2005 - United Overseas Bank

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The Thai Economy in 2005 and the Outlook for 2006 The Thai economy continued on its growth path in 2005, albeit on a slower pace compared to 2004. The 2005 Gross Domestic Product (GDP) of 4.7% was 1.4% points lower than the GDP of 6.1% achieved in 2004. Persistent high oil prices throughout the year, the impact of the December 2004 tsunami on tourism and services sectors, the severe drought affecting several regional agricultural sectors, a rising interest rate environment and a general slowdown in global demand that dampened Thailand’s exports all contributed to the slower growth rate. The Thai economy showed strong resilience in recording a 4.7% growth in the face of less favorable economic conditions. Global oil prices surged up more than 50% in 2005 and the high oil prices was one of the primary causes in the slowdown of economic growth in oil importing countries, including Thailand and her main trading partners such as the United States, Japan and the European Union. The higher oil price was estimated to have reduced Thailand’s growth rate by almost 1 percent. Domestic price levels for goods and services increased in 2005. Inflation rate went up by 4.5% on average for the year compared to 2.7% in 2004. The lifting of the Government’s diesel price stabilization program resulted in diesel prices increasing by more than 50% in 2005 and was cited as one of the main factors for increased prices of products and services. Thailand’s exports grew around 16% in 2005 compared to 21% in 2004. This was a result of the slower pace of economic growth in Thailand’s key trading partners such as ASEAN, United States, Japan and European Union. On the other hand, imports grew at a faster pace of 26%. Consequently, Thailand’s net trade balance was a negative US$7.6 billion in 2005, and led to a current account deficit of about US$3.2 billion for the year. Despite this deficit, Thailand’s overall international reserves remained healthy at US$52.1 billion. Barring unexpected events, we expect Thailand to continue grow at a healthy rate of about 4.5% to 5.5% in 2006. This growth will be driven mainly by exports and investments. Exports are projected to grow by about 10%-15% with key markets continuing to be ASEAN, United States, European Union and Japan. New markets such as the Middle East, India and South America are expected to grow and contribute more significantly in the coming years. The strength of the THB will continue to be a key factor in export growth and we expect the THB to remain at around the THB 39-40 per US$1 level. Investments are also projected to increase in 2006, spurred by the initial phase of the planned mega-projects by the Government. Furthermore, with the capacity utilization levels of some industries having surpassed 80%, there will also be investments required to increase and improve capabilities. The first half of 2005 also saw numerous efforts by the government and non-governmental organizations in re-building both the infrastructure and economic activities in the Andaman region that was hit by the tsunami on 24 December 2004. The 2005 third quarter’s economic data released by the Bank of Thailand indicated that these areas had showed good signs of recovery. Overall bank lending grew by more than 6% in 2005 and growth is expected to continue with investment expenditures in 2006. Deposit levels which grew by about 7% in 2005 is also expected to stay on a growth path. 10 United Overseas Bank (Thai) Public Company Limited
Trends in the Thai Banking Environment 2005 saw the start of the actual consolidation among financial institutions under the Financial Sector Master Plan (FSMP) as envisioned by the Government. The UOB Group fully supports this FSMP and successfully integrated and merged its two banking subsidiaries in Thailand, the UOB Radanasin Bank PCL and Bank of Asia PCL, on 28 November 2005. The merged bank was renamed United Overseas Bank (Thai) PCL. New banking licenses were also issued under the FSMP to upgrade finance companies and credit fonciers to banks. Most of these new banks at this point in time are retail banks that focuses on personal financial services such as housing and mortgage loans, credit cards, personal loans and hire-purchase loans. Unsurprisingly, the retail consumer loan is also one of the fastest growing and most lucrative segments in the banking industry. This resulted in increased choices for retail customers and keener competition for banking products & services, deposits, as well as higher demand for experienced banking staff. Competition for certain segments of the retail customers was also from non-bank financial institutions, especially in the credit card, unsecured personal loan and hire-purchase of consumer goods. In 2005, Bank of Thailand introduced measures to cap interest rates chargeable by these non-bank financial institutions. Overall demand for credit in the banking industry grew at a rate of about 6% in 2005 and the momentum is expected to continue, albeit at a slower pace, in 2006 amid a rising interest rate environment. As often experienced in a rising interest rate environment, there should be increased cautiousness in commercial monetary business decisions. Infrastructure project financing, investments and housing loans are expected to drive the demand for credit in 2006. On the other hand, deposits are expected to continue to grow steadily at about 7%-8%. Thai interest rates moved up significantly and quickly in the last quarter of 2005, with the benchmark BOT 14-day repo rate increasing by 100 basis points from 3.25% in September 2005 to 4.25% as at end February 2006. This increase narrowed the difference between the Thai interest rate and the US Federal Fund Reserve rate to 0.25%. Correspondingly, all banks in the banking industry raised their lending and deposit rates. Thai interest rates are widely expected to peak in mid 2006. All in all, the Thai banking environment is expected to be stable, with growth opportunities in line with expected overall economic growth of the country. United Overseas Bank (Thai) Public Company Limited 11
Page 3 and 4: United Overseas Bank (Thai) Public
Page 5 and 6: Financial Highlights (consolidated
Page 7: two banks were realized. Excluding
Page 14 and 15: Management Discussion and Analysis
Page 20 and 21: Report of Independent Auditor To Th
Page 22 and 23: BALANCE SHEETS (Continued) AS AT DE
Page 24 and 25: BALANCE SHEETS (Continued) AS AT DE
Page 26 and 27: STATEMENTS OF EARNINGS (Continued)
Page 28 and 29: STATEMENTS OF CHANGES IN SHAREHOLDE
Page 30 and 31: STATEMENTS OF CASH FLOWS (Continued
Page 32 and 33: Notes to Financial Statements 31 De
Page 34 and 35: Details of the assets, liabilities
Page 36 and 37: Condensed Statements of Earnings (P
Page 38 and 39: 4. SIGNIFICANT ACCOUNTING POLICIES
Page 40 and 41: Fair values of securities are calcu
Page 42 and 43: Outstanding forward foreign exchang
Page 44 and 45: The Bank has a gratuities scheme wh
Page 46 and 47: (Unit : Million Baht) THE BANK ONLY
Page 48 and 49: (Unit : Million Baht) CONSOLIDATED
Page 50 and 51: 8.2 Classified by the remaining per
Page 52 and 53: 8.3 Revaluation surplus on investme
Page 54 and 55: CONSOLIDATED As at 31 December 2004
Page 56 and 57: Advance CCC Services Co., Ltd. regi
Page 58 and 59: 9. LOANS AND ACCRUED INTEREST RECEI
Page 60 and 61: 9.4 Classified by types of business
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In June 2003, the Bank was subjecte
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9.8 Troubled debt restructuring Dur
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the first portion of profits, not e
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As at 31 December 2005 and 2004, th
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(Unit : Million Baht) THE BANK ONLY
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15. CLASSIFIED ASSETS (Unit : Milli
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19. BORROWINGS As at 31 December 20
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20. OTHER LIABILITIES (Unit : Milli
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25. COMMITMENTS AND CONTINGENCIES L
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25.3 Other commitments The Bank has
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THE BANK ONLY As at 31 December 200
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32. FINANCIAL POSITIONS AND RESULTS
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Results of operations for the years
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Accounting Policies Details of sign
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Remaining periods to earlier of rep
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Remaining periods to earlier of rep
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Liquidity Risk Liquidity risk is th
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Estimated Fair Value of Financial I
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(Unit : Million Baht) CONSOLIDATED
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Fair value of off-balance sheet fin
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Other Information 5. Piyalai Holdin
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Other Information Name Period Exper
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Other Information Name Education Pe
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Other Information 3.2 Management’
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Risk Factors and Risk Management to
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Report of the Audit Committee The A
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Corporate Governance UOB Thai, a su
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Corporate Governance 11. Mr. Lee Ts
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Management Structure The committee
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Management Structure Financial Rest
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Management Structure The committee
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Branch Networks HEAD OFFICE Sathon
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Branch Networks Nong Khaem 77/207 M
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Branch Networks Siam Square (Sub Br
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Branch Networks Thanon Pracha-U-Thi
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Branch Networks Sam Chuk 225/2 Mu 2
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Branch Networks Thanon Highway-Chia
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Referred Persons Auditor Miss Ratan
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Company Information Credit Ratings
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(Thai) Annual Report 2005 - United Overseas Bank

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