Notification of the Bank of Thailand No. FPG. 22/2552 Re: Real Estate Awaiting Sale. 1. Rationale

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1 Unofficial Translation This translation is for the convenience of those unfamiliar with the Thai language Please refer to Thai text for the official version 1. Rationale Notification of the Bank of Thailand No. FPG. 22/2552 Re: Real Estate Awaiting Sale To support its business operations, financial institution may need to possess real estate properties in cases where borrowers cannot repay debts under contractual obligations, whether such properties are obtained from debt repayment, loan guarantee or properties mortgaged to the financial institution are sold in compliance with injunction issued by a court or an executing officer. Due to the fact that such properties are not a financial asset and have poor liquidity and the reason that such property possession does not constitute financial institution s core business, the Financial Institution Act thus limits holding period of properties obtained from debt repayment by stipulating that financial institutions must dispose of such properties within five years from the date such properties were possessed by financial institution, except where stated otherwise by the Bank of Thailand due to some necessity. This Notification was amended due to impacts from current economic conditions which impede loan approval and financial restructuring of financial institutions and such amendment also benefits financial institutions over a long term by encouraging financial institutions to reduce real estate awaiting sale to a suitable level vis-à-vis financial institution s capital requirements. Moreover, capital provisioning ratio was also revised to take into account losses from disposal of real estate awaiting sale in a more sensible and prudent manner and stipulated holding period was also extended to take into account the ease and difficulty in selling such properties. In this regard, sale of real estate awaiting sale originally used by financial institution as a site for its business operation or employees and workers but is not presently used in accordance with such objectives shall comply with the guidelines which are similarly applied to possession of real estate awaiting sale obtained from debt repayment so that the guidelines of both cases follow the same approach. To ensure that the guidelines under this Notification have continuity from the original notification that requires capital provisioning in Year 1 and 2 after the holding period lapses, it is therefore stipulated that this Notification

2 2 be effective retroactively from 1 January Furthermore, to provide financial institutions with some time to make adjustments in accordance with the guidelines under this Notification, this Notification thereby stipulates that financial institutions are not required to count holding period and set aside provision for possession of real estate awaiting sale in Statutory power By virtue of Section 80(2)(Kor) and 80(2)(Khor) of the Financial Institution Act B.E which is the law that has some provisions pertaining to restriction of individual rights and liberties, whereas Section 29, complemented by Section 31, 33, 36, 39, 41 and 43 of the Constitution of the Kingdom of Thailand grants such rights and liberties by virtue of statutory provisions, the Bank of Thailand thereby issues disposal and capital provisioning approach guidelines for possession of real estate awaiting sale of financial institutions obtained from debt repayment and properties originally used as a site for its business operation and employees and workers. 3. Scope of application This Notification shall apply to financial institutions defined under the law governing all financial institutions. 4. Repealed notification and circular BOT Notification No. FPG. 32/2551 Re: Real Estate Awaiting Sale Obtained from Debt Repayment, dated 3 August Contents 5.1 Definition Real estate awaiting sale refers to immovable property acquired by financial institution from debt repayment and immovable property originally used as a site for business operation and employees and workers of financial institution Capital requirement refers to total capital pursuant to BOT notifications concerning elements of capital requirement and capital requirement guideline for locally registered commercial bank, foreign bank branch, finance company or credit foncier, whatever the case may be Parent company refers to a parent company as defined under the Financial Institution Act B.E

3 3 5.2 Guideline for disposal of real estate awaiting sale Financial institutions shall adhere to the guideline for disposal of real estate awaiting sale as follows: debt repayment Date of possession or disposal of property obtained from (1) Generally, financial institution refers to registration date of title transfer as the date when the real estate was acquired or sold. (2) Where financial institution purchases real estate mortgaged to that financial institution for sale in accordance with injunction of a court or an executing officer, the financial institution shall refer to the disposal date of such property as the possession date. (3) Where financial institution holds possession title of property through asset and debt transfer from other financial institution in accordance with the authority s policy that aims at solving problems of that financial institution. The counting of holding period of such property shall begin from registration date of title transfer undertaken by the financial institution. before 1 January Classification of real estate awaiting sale (1) Property obtained from debt repayment (1.1) Property obtained by financial institution (1.2) Property obtained by financial institution during 1 January December 2004 (1.3) Property obtained by financial institution during 1 January December 2006, particularly those obtained from debt restructuring for borrowers classified as sub-standard, doubtful and loss before 1 January 2005 and also including borrowers classified as doubtful asset which have not provisioned up to 100 percent and written off but have not been reverted into the account. (1.4) Property obtained by financial institution since 1 January 2005 and not classified as the cases stated in (1.3). (1.5) Property being prosecuted and trialed in a court or there is a dispute settlement lodged for arbitrator s scrutiny or a charge is filed with authorities to request for prosecution or property having problems with incomplete or inaccurate survey or property having problems with title document or remaining portion of property from transfer as a public property or appropriation or property having

4 4 derogation of property rights or binding obligations which financial institution have clear evidence to prove that such property is being dealt by concerned authorities and it has exerted its best efforts to expedite the proceeding. (2) Property originally used as a site for business operation or employees and workers of financial institution in accordance with the Bank of Thailand's notification concerning guidelines on purchase or possession of property for use as a site for business operation or employees and workers of financial institution. (2.1) Property moved or suspended by financial institution or opening or closure of branch office cancelled or usage as a site for employees and workers has been discontinued prior to 1 January (2.2) Property moved or suspended by financial institution or opening or closure of branch office cancelled or usage as a site for employees and workers has been discontinued since 1 January Disposal of property (1) Financial institution shall completely dispose of properties described in (1) and (2.1) by 31 December (2) Financial institution shall completely dispose of properties described in (1.2) and (1.3) within ten years of their possession dates. (3) Financial institution shall completely dispose of properties described in (1.4) and (1.5) within five years of their possession dates or the date when undertakings in various cases have been completed, whatever the case may be. (4) Financial institution shall completely dispose of properties described in (2) within five years from the cancellation date of relocation to new branch office or permanent branch office, the cancellation date of branch closure or the date when approved period of branch opening lapses, closure date of branch office or the date when usage of the site for employees or workers is discontinued, whatever the case may be Relaxation of holding period If financial institution could not completely dispose of real estate awaiting sale within the stipulated period set out in 5.2.3, the Bank of Thailand shall consider permitting financial institution to hold such real estate for another five years after the stipulated period lapses on a case-by-case basis.

5 5 (1) Financial institution that has a ratio of real estate awaiting sale possessed beyond the stipulated period set out in 5.2.3, whatever the case may be, not exceeding 10 percent of its capital requirement. However, such ratio must be calculated from data of real estate awaiting sale and capital requirement as of the last day of the previous year by using the following calculation methods: (1.1) Value of real estate awaiting sale applied in the calculation must be value derived from appraised value or book value of such real estate awaiting sale, whichever value is lower. (1.2) In the calculation of such ratio, value of real estate awaiting sale must include real estate awaiting sale possessed by asset management company, whose parent company is that financial institution, beyond the stipulated period pursuant to BOT Notification Concerning Stipulation of Non- Performing Assets and Guidelines to Which Asset Management Company Must Adhere. (2) For financial institution that has real estate awaiting sale to capital requirement ratio exceeding the stipulation under (1), the Bank of Thailand shall relax holding period of real estate awaiting sale on case-by-case basis, whereby the financial institution can set aside a provision for such real estate on the last day of accounting period in each period in accordance with the following rates: (2.1) 0 percent of the value derived from appraised value or book value of real estate, whichever is lower, within the first year of the holding period for capital provisioning. (2.2) 20 percent of the value derived from appraised value or book value of real estate, whichever is lower, within the second year of the holding period for capital provisioning. (2.3) 40 percent of the value derived from appraised value or book value of real estate, whichever is lower, within the third year of the holding period for capital provisioning. (2.4) 55 percent of the value derived from appraised value or book value of real estate, whichever is lower, within the fourth year of the holding period for capital provisioning.

6 6 (2.5) 70 percent of the value derived from appraised value or book value of real estate, whichever is lower, within the fifth year of the holding period for capital provisioning. However, counting of holding period for capital provisioning for real estate awaiting sale possessed beyond the stipulated period stated in begins when financial institution cannot maintain the ratio of real estate awaiting sale possessed beyond the stipulated period set out in to capital requirement set out in (1). (3) In case where the provision amount calculated by financial institution stated in (2) is less than the provision set aside by financial institution pursuant to BOT Notification No. FPG. 32/2551 Re: Real Estate Awaiting Sale Obtained from Debt Repayment, dated 3 August or BOT Notification FPG. 44/2551 Re: Guidelines on Purchase or Possession of Real Estate Used as a Site for Business Operation or Employees and Workers of Commercial Bank, dated 3 August 2008, financial institution shall be prohibited from transferring excess provision for revenue recognition and required to maintain such provision in the account. Nevertheless, financial institution can use such provision for capital provisioning pursuant to this Notification. (4) After extended holding period of real estate awaiting sale stated above lapses, if financial institution cannot dispose of such real estate awaiting sale, the Bank of Thailand shall impose a penalty or pursue any other legal proceeding. In such a case, financial institution shall not be required to set aside a provision set out in (2) again. (5) Possession of real estate awaiting sale in 2009 shall not include holding period set out in and again and capital provisioning set out in (2) for the possession of real estate awaiting sale in 2009 shall not be required. Financial institution shall be required to begin calculating real estate awaiting sale to capital requirement ratio by using data from possession of real estate awaiting sale and capital requirement as of the last day of the year 2009 as a basis for required capital provisioning set out in in the year Financial institution shall prepare and store documents concerning how the aforesaid real estate awaiting sale was obtained and documents concerning disposal and capital provisioning data for inspection by the Bank of Thailand upon request. Moreover, where reasonable grounds arise, the Bank of Thailand may order suspension or revocation of permission to relax holding period of real estate awaiting sale at any time.

7 7 6. Effective date This Notification shall come into force from 1 January 2009 onwards Announced on 11 th December 2009 (Mrs. Tarisa Watanagase) Governor Bank of Thailand

8 Unofficial Translation This translation is for the convenience of those unfamiliar with the Thai language Please refer to Thai text for the official version Notification of the Bank of Thailand No. FPG. 23/2552 Re: Guidelines on Purchase or Possession of Real Estate Used as a Site for Business Operation or Employees or Workers of Financial Institutions 1. Rationale The fact that financial institutions possess real estate properties which are no longer used as a business operation site constitutes use of funds which is inconsistent with their business operation objectives may also create risks which may affect their standings. Hence, financial institutions are prohibited from purchasing or possessing real estate, except the case where a site is used for business operation or as lodgings of or welfare for employees and workers of the financial institution as deemed appropriate, provided that permission has been given by the Bank of Thailand. The issuance of this Notification hereby nullifies only parts of the original guideline pertaining to disposal of real estate originally used as a site for business operation or employees and workers of commercial bank. Accordingly, all financial institutions shall adhere to the amended guideline on disposal of real estate awaiting sale pursuant to BOT Notification Concerning Real Estate Awaiting Sale and its amendment. Furthermore, this Notification also incorporates guidelines on purchase or possession of real estate used as a site for business operation or employees and workers of commercial bank, finance company and credit foncier while the essences of these guidelines remain unchanged. BOT Notification No (4 September 2017)-check Page 1 of 5

9 2. Statutory power By virtue of Section 13 and 80(2)(Kor) of the Financial Institution Act B.E (2008) which is the law that carries some provisions pertaining to restriction of individual rights and liberties, whereas Section 29, complemented by Section 31, 33, 36, 39, 41 and 43 of the Constitution of the Kingdom of Thailand grants such rights and liberties by virtue of statutory provisions, the Bank of Thailand thereby issues provisions concerning guidelines on purchase or possession of real estate used as a site for business operation and employees and workers of financial institutions so that financial institutions shall adhere to the essence of this Notification. 3. Scope of application This Notification shall apply to financial institutions defined under the law governing all financial institutions. 4. Repealed notification and circular 4.1 BOT Notification No. SorNorSor. 44/2551 Re: Guidelines on Purchase or Possession of Real Estate Used as a Site for Business Operation or Employees or Workers of Commercial Banks, dated 3 August BOT Notification No. SorNorSor. 45/2551 Re: Guidelines on Purchase or Possession of Real Estate Used as a Site for Business Operation or Employees or Workers of Finance Companies and Credit Fonciers, dated 3 August Contents 5.1 Guideline for commercial bank The guideline that applies to purchase or possession of real estate used as a site for business operation or provision of lodgings of or welfare for employees or workers of commercial banks is detailed below: (1) When purchasing or possessing real estate used as head office, staff training center or lodgings, bank shall submit an approval request to the Bank of Thailand beforehand. BOT Notification No (4 September 2017)-check Page 2 of 5

10 (2) Permit bank to purchase or possess real estate used as a site for business operation aside from the stipulation under (1), provided that the bank prescribes purchasing policy and procedure for uses according to the above objectives and the bank s committee approves the policy which stipulates review criteria and procedure pertaining to size and price of purchased or possessed real estate. In addition, the bank must also have a clear policy on purchase or possession of real estate from its related parties. Nevertheless, in case where the Bank of Thailand discerns that bank purchases or possesses real estate inappropriately or for speculative purposes, the Bank of Thailand may prescribe any extra conditions to which the bank must adhere. 5.2 Guideline for finance company and credit foncier The guideline that permits finance company to purchase or possess real estate used as a business operation site is detailed below: (1) Only real estate purchased or possessed for uses as a site of credit office or branch office located in an approved zone. (2) Total area of land plot that finance company will purchase or possess as a site of credit office or branch office as well as lodgings of employees and workers must not exceed 400 square wah per office. Working space of a newly constructed building or purchased real estate or rented floor space in building or condominium must not exceed 500 square meters per office and office space must be clearly separated from other businesses. (3) Amount of investment in purchase of real estate or construction of a new building or purchase of floor space in a building or condominium as well as lodgings for employees does not exceed 20 million baht per office. Finance company shall notify the Bank of Thailand along with submission of relevant documentary evidence within 15 days from the execution date of such buy-sell contract or rental contract. As for purchase or possession of real estate not prescribed in the guideline set out in (1), (2) and (3), finance company shall file approval request with the Bank of Thailand beforehand on case-by-case basis. BOT Notification No (4 September 2017)-check Page 3 of 5

11 5.2.2 As of office expansion of finance company and credit foncier that meets the following criteria: (1) Renting office space for expansion in the same building or adjoining area located within 200 meter-radius of head office building; (2) Renting working space not exposed to general public; (3) Renting space used as storage or parking lot while holding title of possession, Finance company and credit foncier shall send approval request letter to the Bank of Thailand along with rationales and pertinent information. If the Bank of Thailand does not issue a letter to within ten days from the date when the Bank of Thailand received the approval request letter from the finance company and credit foncier, it shall be deemed the Bank of Thailand permits such company to enter into a rental contract of this site. After the company has executed the contract, it is required to submit documentary evidence to the Bank of Thailand for acknowledgement within ten days of the execution date of such contract. 5.3 Guideline for all financial institutions Regarding guidelines and conditions on purchase of real estate originally used as a site for business operation or employees and workers of financial institutions, where presently such real estate is no longer used according to such objectives due to relocation, suspension or cancellation of opening or closure of branch office or discontinued utilization of a site for employees and workers of financial institution, financial institution shall comply with BOT Notification Re: Real Estate Awaiting Sale and its amendment In case financial institution rents a site used as storage of documents or computer data storage media or used as parking lot while not holding possession, it can undertake such action without having to file a request for approval. If storage service of a third party is used to store documents and computer data media, financial institution shall comply with BOT Notification Concerning Guideline on Outsourcing in Business Operation of Financial Institutions and its amendment If financial institution desires to take any action pertaining to purchase or possession of real estate used as a site for its business operation or employees and workers which differs from the above guideline, it shall seek approval from the Bank of Thailand beforehand. In such case, the Bank of BOT Notification No (4 September 2017)-check Page 4 of 5

12 Thailand may prescribe additional guideline or conditions on case-by-case basis where necessary. 6. Effective date This Notification shall come into force from 1 January 2009 onwards. Announced on the 11 th day of December 2009 Mrs. Tarisa Watanagase Governor Bank of Thailand Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved. BOT Notification No (4 September 2017)-check Page 5 of 5