TMB Bank PCL : Management Discussion and Analysis Quarter 4 Ending 31 Dec 2016 (Unaudited)

Management Discussion and Analysis

For the 4th quarter and the year ended 31 December 2016

(Unaudited financial statements)

TMB Bank Public Company Limited

3000 Phahon Yothin Road

Chom Pon, Chatuchak, Bangkok 10900

Website: www.tmbbank.com

Management Discussion and Analysis

Executive summary: Economic review & outlook

Thai economy in 4Q16: Thai economy continued to gradually recover in the fourth quarter. The main driver was public spending especially accelerating disbursement of investment budget, which consisted mostly of small projects that could be disbursed quickly. On the contrary, tourism sector slowed down specifically from drop in Chinese tourist arrivals due to clamp-down on Chinese 'zero-dollar' tour operations. However, exports began to positively drive the economy due to increase in export value of oil- related products induced by acceleration in global crude oil price together with growth of global demand for some products such as electrical appliances and electronics. This also led to improvement in industrial sector. Private consumption, though supported by government transfer of aid money to low-income earners, year-end shopping tax break scheme, and improvement in farm income, was still low. Private investment remained contracted and was concentrated in some sectors such as alternative energy and service sector. All in all, as some economic drivers were not operated at normal capacity, Thai economy is anticipated to expand at the rate near that in the third quarter, resulting in overall economic growth of 3.3% in 2016 increasing from 2.8% in 2015.

Financial market & banking industry: The policy rate was held at 1.50% as the current level of the policy rate was appropriate for economic recovery. However, there were risks from economic and monetary policy implementation uncertainty of major industrial countries. Thai baht was averaged at 35.4 baht per dollar, depreciated from the previous quarter due to concerns about the adverse effect of U.S. trade policy on emerging countries' exports. At the end of November 2016, total loans from 19 domestic commercial banks grew 2.5% compared to the same period last year (YoY) and grew by 1.6% from the end of last year (YTD). Deceleration in loan growth stemmed from a slowdown in business loan especially in manufacturing industry, reflecting fragile private investment. Additionally, retail loan growth remained calmed after the end of government real estate stimulus. Deposits slightly expanded at 1.7% (YoY) and 0.2% (YTD). This was mainly from an increase in savings deposit, while fixed deposit declined at a decreasing rate as a result of continually low interest rate.

Economic outlook for 2017: Thai economy is expected to continue to keep its moderate growth momentum. The main drivers will be public spending and infrastructure investment. Moreover, better outlook of other components are also anticipated in 2017. Gradual improvement of private consumption is expected due to an increase in farmers' income and lower level of debt after the expiry of the five-year ownership period of the first-time car buyer scheme. Private investment, though remains low and concentrated in some businesses, is expected to recover due to support from Public-Private Partnership (PPP). Tourism also has an upward trend reinforced by continually growth of European and

U.S. tourist arrivals, while contraction of Chinese tourist arrivals is expected to unwind. Moreover, export growth is expected to turn positive for the first time in 4 years, though remain low owing to fragile global economic recovery and uncertainty from U.S. trade policy. In sum, as growth engines remain robust, though not operating at their normal capacity, economic growth in 2017 is projected to be at 3.5%.

Research by TMB Analytics

tmbanalytics@tmbbank.com

Discussion of operating performance

Core operating performance remained on positive momentum

12M16 PPOP rose 10.2%

to 18,667 million

12M16 net profit was THB8,226 million with ROE of 10.2%

Despite challenging business environment, TMB maintained its positive momentum in earning capability, reflected by a continued growth of pre-provision operating profit (PPOP).

In 4Q16, TMB posted PPOP of THB4,834 million, up 19.0% from the same period last year. Well-managed funding cost led to higher NIM of 3.33%. NII hence grew by 6.2% YoY to THB6,391 million. Non-NII was THB2,994 million, up 10.1% YoY, boosted by a 7.2% growth in net fees and service income. With revenue growth and a 1.2% decrease in non-interest expense, cost to income ratio in 4Q16 improved to 48.0% from 53.0% in 4Q15.

For 12-month period, TMB reported THB18,667 million of PPOP, a 10.2% growth from previous year. NIM rose 15bps to 3.17% and NII increased 6.6% YoY to THB24,761 million. Non-NII was THB10,462 million, up 2.3% YoY. Net fees and service income grew by 2.2% YoY to THB7,997 million as a growth in retail fee was weighted down by reduction of loan-related fees. With efficiency improvement, non-interest expense grew only 0.7%. Cost to income ratio, therefore, improved to 46.9%, from 49.2% in 2015.

TMB has been prudent and proactive in NPL management in order to limit future downside risks. With that direction, the Bank set aside a high level of provision to accommodate extra NPL write-off, of which needs 100% provision regardless of collateral value, and at the same time, ensured strong coverage ratio. In 4Q16, the Bank set aside THB2,234 million of provision and reported net profit of THB2,138 million. For the 12M16, provision expense amounted to THB8,649 million, up from THB5,479 million in 12M15. As a result, net profit declined by 11.9% to THB8,226 million with an ROE of 10.2%. Details of operating performance and financial position are as follows.

(Unit: THB Million)

4Q16

3Q16

%QoQ

4Q15

%YoY

12M16

12M15

%YoY

Interest income

8,777

8,795

-0.2%

9,369

-6.3%

35,631

36,430

-2.2%

Interest expenses

2,386

2,527

-5.6%

3,353

-28.8%

10,870

13,210

-17.7%

Net interest income

6,391

6,268

2.0%

6,015

6.2%

24,761

23,220

6.6%

Fees and service income

2,810

2,580

8.9%

2,536

10.8%

10,168

9,712

4.7%

Fees and service expense

605

545

10.9%

479

26.3%

2,171

1,891

14.8%

Net fees and service income

2,205

2,034

8.4%

2,057

7.2%

7,997

7,821

2.2%

Total other operating income

739

662

11.6%

616

19.9%

2,465

2,409

2.3%

Non-interest income

2,944

2,696

9.2%

2,673

10.1%

10,462

10,230

2.3%

Total operating income

9,335

8,965

4.1%

8,689

7.4%

35,223

33,450

5.3%

Non-interest expenses

4,515

4,124

9.5%

4,572

-1.2%

16,589

16,467

0.7%

Impairment loss on loans and debt securities

2,234

2,541

-12.1%

923

142.0%

8,649

5,479

57.9%

Profit before income tax expense

2,586

2,300

12.4%

3,194

-19.0%

9,984

11,504

-13.2%

Income tax expense

441

451

-2.1%

570

-22.6%

1,740

2,153

-19.2%

Profit for the period

2,145

1,850

16.0%

2,624

-18.3%

8,244

9,351

-11.8%

Profit to non-controlling interest of subsidiaries

6

4

48.9%

3

86.7%

18

18

-0.7%

Profit to equity holders of the Bank

2,138

1,845

15.9%

2,621

-18.4%

8,226

9,333

-11.9%

Other comprehensive income (loss)

-61

-105

N/A

-27

N/A

1,596

37

4182.5%

Total comprehensive income

2,084

1,745

19.4%

2,597

-19.8%

9,841

9,389

4.8%

Basic earnings per share (Baht per share)

0.049

0.042

16.2%

0.060

-18.4%

0.188

0.213

-11.9%