1. SMEs Financing amid the Financial Crisis The Case of Thailand KASIKORNBANK PLC. 10 June 2009

2. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

3. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

4. Thailand Economic Overview Global economic crisis would have significant impact on Thailand export sector. Private consumption and investment are also affected by political turmoil in the past few years. Thus, Thai economy in 2009 is expected to be subtracted by 3.5%, the first time since 1998. However, we expect that Thai economy could gradually recover in the latter of 2009, and will fully recover in 2010.

5. There are about 2.4 million SMEs in number. SMEs GDP of 3.21 trillion Baht accounts for 43.2% of national GDP In 2009, SMEs GDP is likely to be deducted by 1.4% due to declining in export as a result of global crisis. Employment of SMEs is more than 3 times higher than that of Large Enterprises Thailand’s GDP Structure Thailand’s SME GDP Growth 2009F2010F20082007 2006 as of 2008 Source: OSMEP SME Market in Thailand LEs 23% SMEs 77% Thailand’s Private Sector Employment Proportion LEs 51.8% SMEs 43.2% Others 5.1%

6. 2 groups of SMEs market: Micro & Small Business and Medium Business Remark: SMEs Definition from OSMEP (Office of Small and Medium Enterprises Promotion) Manufacturing >50 - 200 >1.45 - 5.80M Trading - Retailing >25 - 50 >1.45 - 2.90M Trading - Wholesaling >15 - 30 >0.87 - 1.74M Service >50 - 200 >1.45 - 5.80M # of Employee Fixed Assets (USD) Manufacturing <= 50 <= 1.45M Trading - Retailing <= 25 <= 1.45M Trading - Wholesaling <= 15 <= 0.87M Service <= 50 <= 1.45M # of Employee Fixed Assets (USD) Micro & SmallMedium SME Definition in Thailand

7. SMEs loan accounts for 44% of the total loan portfolio of KBANK, with the total amount of 335,938 million Baht. The No. 1 SMEs market share in Thailand of 25% serving over 250,000 SMEs. SME biz div. generates 15,408 million Baht in term of net total income for KBank in 2008, the highest profit among 7 customer segments. KBank Loan Breakdown Retail 19% Large Corporate 37% SME 44% Medium Size 65% Small & Micro Size 35% as of Apr 09 KBank SME Overview by No.

8. GDP Structure by Economic Activities Data Source: White paper 2007 from OSMEP Trading is one of the most important activities for SMEs with contribution at 30% National GDP StructureSME GDP Structure Similar to national GDP structure, manufacturing, services and trading are the most important economic activities for SMEs While manufacturing sector is expected to shrink around 7% in 2009 Trading sector is projected to record positive growth in 2009

9. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

10. International Trade in Thailand Thai economy is heavily international trade-dependent (SME & LE) International Trade Dependency (% of GDP) ExportsImportsTotal Trade 200459.758.5118.2 200562.667.0129.6 200663.0 126.0 200762.457.3119.8 200864.365.3129.6 Total Ex-Import as a percentage of GDP has continually risen to 129.6% in 2008. Trade value has risen in 2008 (16%) although Thailand’s GDP growth rate dropped (to 2.5%) as a result of the global economic slowdown %Growth Rate 16.0% 2.6%

11. Contribution of SME in International Trade Data Source: White paper 2007 and Survey Report; MOC ‘s Trade Statistics. F: * OSMEP, as of Mar 2009; ** KResearch Forecasts 30% of international trade value has been generated by SMEs, 88.1 bn USD in 2007 Trade Growth2006200720082009F SME Export Growth 16.5% 20.9%9.0%*-11.4%* SME Import Growth 9.4% 0.2%n.a. Nat. Export Growth 16.9% 18.6%15.6%-20 to -17%** Nat. Import Growth 9.0% 8.7%27.7%-23 to -19%** SME export growth had increased steadily during 2006 to 2007 SME import growth cooled substantially, in line with national imports value 2007 (Billion) USD% SME Exports45.915.6 SME Imports42.214.4 SME Trade Volume88.130.0 National Exports152.551.9 National Imports141.348.1 National Trade Volume293.8100.0 Almost 30% of national trade value has been generated by SMEs

12. Impacts to International Traders Lower trust among business partners as evidenced by the means of payment, i.e. high advance payment and open account. Low bargaining power and lack of guarantee support from intermediary Method of Payment ImporterExporter Large Enterprise SMEs Large Enterprise SMEs LC (Letter of Credit) 23%29%17%23% BC (Bill for Collection) 4%5% 7% Advance Payment 10%40%38%10% Open Account 63%26%40%60% Compared to Large Enterprise, SMEs importers are less competitive and it’s getting worse due to recent recession Also, SMEs exporters have low bargaining power due to lack of trust among trade partners Data Source: KBANK SME Trade Vol. as of Apr. 2009

13. Key Concerns from Global Economic Crisis Export Declining Inventory Management Thai major partners, such as US, EU, and Japan, have severe impacts from global economic crisis. Therefore, declining trend in export is expected. Volatility of commodity prices from speculators will increase risk of inventory loss and difficulty in production and stock management. Commodity Price Commodity prices, fallen due to global economic crisis, will affect Thailand farm income, especially rice, palm, and corn. Liquidity Shortage Global financial crisis deteriorates business cash flow. Thus, the access to source of fund for business will be tougher, especially for SME businesses. Global Economic Crisis

14. Key Concerns from Global Economic Crisis Export Declining Inventory Management Thai major partners, such as US, EU, and Japan, have severe impacts from global economic crisis. Therefore, declining trend in export is expected. Volatility of commodity prices from speculators will increase risk of inventory loss and difficulty in production and stock management. Commodity Price Commodity prices, fallen due to global economic crisis, will affect Thailand farm income, especially rice, palm, and corn. Liquidity Shortage Global financial crisis deteriorates business cash flow. Thus, the access to source of fund for business will be tougher, especially for SME businesses. Global Economic Crisis

15. Export Declining The top 3 most export dependent is likely to be severely affected by the current economic downturn particularly exacerbated by their major trade partners’ recession economy, i.e. US and EU *Definition of Export Dependable: Having high export portion compared to total sales revenue ** SME/ LE Textile Gems & Jewelry Agro-Industry Most Affected Industries

16. Key Concerns from Global Economic Crisis Export Declining Inventory Management Thai major partners, such as US, EU, and Japan, have severe impacts from global economic crisis. Therefore, declining trend in export is expected. Volatility of commodity prices from speculators will increase risk of inventory loss and difficulty in production and stock management. Commodity Price Commodity prices, fallen due to global economic crisis, will affect Thailand farm income, especially rice, palm, and corn. Liquidity Shortage Global financial crisis deteriorates business cash flow. Thus, the access to source of fund for business will be tougher, especially for SME businesses. Global Economic Crisis

17. Commodity Price Zinc and Gold Prices Livestock Price Steel Price Key commodity prices have plunged dramatically due to lower demand as a result of global economic crisis Q1 2008Q3 2008 RiceUSD 1,080USD 660-500 TapiocaTHB 2.50 / Kg.THB 1.45 / Kg. Smoked Sheet RubberTHB 90 / Kg.THB 55-58 / Kg. PalmTHB 6.0 / Kg.THB 2.8 / Kg. Palm OilTHB 36 / LiterTHB 17 / Liter CornTHB 10-12 / Kg.THB 4.8-5.0 / Kg. Agriculture Prices Fell More Than 21% This will likely affect farm incomes and profitability of the related industries. Remark: FX 1 USD = 31.5 THB

18. Key Concerns from Global Economic Crisis Export Declining Inventory Management Thai major partners, such as US, EU, and Japan, have severe impacts from global economic crisis. Therefore, declining trend in export is expected. Volatility of commodity prices from speculators will increase risk of inventory loss and difficulty in production and stock management. Commodity Price Commodity prices, fallen due to global economic crisis, will affect Thailand farm income, especially rice, palm, and corn. Liquidity Shortage Global financial crisis deteriorates business cash flow. Thus, the access to source of fund for business will be tougher, especially for SME businesses. Global Economic Crisis

19. Loss from Carrying Inventory Change in Inventory Index (Q-o-Q) High risk for industries which have high percentage of inventory / sales Volatility of commodity prices will increase risk of loss from carrying inventory and difficulties in production and stock management Most Affected Industries Real Estate Textile Gems and Jewelry Hardware Construction Materials Industrial Agriculture Food & Beverage Pulp & Paper / Printing * SME/ LE Food & Beverage Rubber Products & Plastic Metal Products Transportation Equipments Pulp and Paper Non-Metal Products Artificial Metal Products

20. Key Concerns from Global Economic Crisis Export Declining Inventory Management Thai major partners, such as US, EU, and Japan, have severe impacts from global economic crisis. Therefore, declining trend in export is expected. Volatility of commodity prices from speculators will increase risk of inventory loss and difficulty in production and stock management. Commodity Price Commodity prices, fallen due to global economic crisis, will affect Thailand farm income, especially rice, palm, and corn. Liquidity Shortage Global financial crisis deteriorates business cash flow. Thus, the access to source of fund for business will be tougher, especially for SME businesses. Global Economic Crisis

21. Liquidity Shortage Problem High D/E ratio but low current ratio industries would be affected Most affected industries from Liquidity Shortage DE ratioCurrent ratioImpact Communication1.910.88High Real Estate1.381.05High Industrial Agriculture1.290.98High Commerce1.270.99High Agriculture1.210.83High Furniture & Wood1.160.94High Financial Institute1.150.84High Automotive and Parts1.161.20Moderate Hotels and Restaurants1.120.52Moderate Plastic1.110.97Moderate Transportation1.100.73Moderate Hardware1.091.19Moderate Textile1.011.04Moderate

22. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

23. SME Customer Research (Financial Need) % % 10 years 7 days 20 % more 1% lower Reasons cause bank switching Additional condition with lower interest or fee Reasons if interest or fee were not lower % % % % Longer tenor, Faster Approval and Less Collateral are key needs ( excl. price, credit risk )

24. Common biz organizational needs for SME Concerns by Business Stage Organizational structure: Involves systematic division of tasks and duties. Accounting: centered around systematic handling of financial data and inventory management HR Management: centered around systematic handling of employees: recruitment, training, performance evaluation and motivation Growth: Business concerns related to capabilities & resources planning to support higher growth Mature: Maintaining current condition of business while seeking other growth opportunities Decline: Preventing further decline & seeking alternative choices of business line expansion SME Customer Research (Non-Financial Need)

25. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

26. Customer Needs and Concerns & Financial Solution Sufficient funds for investment and working capital under 4 important factors: No or less collateral, Fast Approval, Long term repayment and higher credit limit Credit with no collateral (K-Klean Credit) SLA: fast approval within 3 days and drawdown within 10 days Long term loan (K-SME Extend) High LTV Product Programs (K-Max) Factoring / Trade finance product Crisis More credit need while less collateral under the crisis High LTV Product ( K-Max 150%) Accept investment paper as Collateral, BE Require no/less collateral (K-Trade Plus, K-Privilege Trade Solution, K-Klean) Customer NeedsKBank Solution Lower trust among business partners in terms of payment method / term Business Insurance Trade Credit Insurance Guarantee Company Accepted Business partner’s risk information and risk protection tools Business rating / credit risk rating Business As Usual

27. Financial support SMEs K-Klean Credit No collateral required K-Machine Credit Machinery pledged as collateral

28. Financial support SMEs K-Max 150% LTV K-Cheque to Cash Cheque Discount

29. Financial support SMEs K-P/O & Invoice Financing K-SME Extend 10 year credit term

30. Customer Communication Speedy Long More % % 10 years 7 days 20 % more 1% lower Reasons cause bank switching

31. Customer Needs and Concerns & Non-Financial Solution Business As Usual Traditional non-financial needs such as Organization management, Accounting, HR, Business knowledge for efficient business management Training series under K-SME Care Education Program Crisis New market understanding and penetration strategy Provide special marketing knowledge, Creative and Innovation via advice workshop under K-SME Care Online Business Matching Customer NeedsKBank Solution Business knowledge for more effective and efficient business management Provide knowledge via seminar and advisory workshop under K-SME Care Need Physical premises for discussing business solutions with relevant experts and networking during the economy recessions Established K-SME Care Knowledge Center to support SMEs sustainable growth

32. K Smart SME 3 rd issue, Jul 08 K Smart SME For SME Micro customers K Smart SME 2 nd issue, Feb 08

33. K SME Inspried 4 th -6 th issue: Launch Dec 07, Mar 08 and Jun 08 K SME Inspired For SME Small & Medium customers

34. Econ Analysis K SME Analysis Hit the Point Financial Tips Marketing Strategy New Product K SME Care Management HR Supply Chain Management Accounting K SME Inspired For SME Small & Medium customers Table of Contents Society Get Idea Technology Feng shui Exercise Health Care Calendar Cuisine Travel Privileges Business Lifestyle

35. K SME Credit & K SME Handbook

36. K SME Care “Teach a man to fish, You feed him for a lifetime”

37. Objective Nurture the Thai SMEs to achieve sustainable growth in their businesses by providing extensive forms of both financial & non-financial support and not realizing economic returns from such investments. Strategy C apital Provide Equity Financing by Setting up Venture Capital Fund (Khao Kla) for SMEs A dvice Provide business consultancy in various topics such as Branding, Lean Management to Thai entrepreneurs who seek to enhance their business productivity level through well-recognized SME development institutions such as OSMED, ISMED, FTPI R esearch Provide economic and market updates named K-SME Analysis which are tailored made specifically for SMEs and published in SME magazine, newspapers & websites E ducation Provide a series of value-added training programs to Thai entrepreneurs to help them develop professional management skill by developing 10-week Management Course for Sustainable Growth in collaboration with leading universities nationwide Target Audience Thai SMEs regardless of their size, industry and main bank status Develop cooperative efforts with highly credible and reputable organizations & institutions to carry out corporate social responsibility campaign for SMEs in an innovative and differentiated format Non-Financial support SMEs

38. C apital Provide Equity Financing by Setting up Venture Capital Fund (Khao Kla) for SMEs A dvice Provide business consultancy in various topic such as Branding, Lean Management to Thai entrepreneurs who seek to enhance their business productivity level through well-recognized SME development institutions such as OSMED, ISMED, FTPI R esearch Provide economic and market updates named K-SME Analysis which are tailored made specifically for SMEs and published in SME magazine, newspapers & website E ducation Provide a series of value-added training program to Thai entrepreneurs to help them develop professional management skill by developing 10-week Management Course for Sustainable Growth in collaboration with leading universities nationwide K SME Care

39. K-SME Venture Capital under Khao Kla and new VCs. Customer engagement via Advertorial KBank KAsset VC fund with Others SME K-SME venture Capital (KVC) SME Khao Kla Venture Capital Management Investment Return KBank, KAsset support Khao Kla and KVC in funding and business operation e.g. IT, compliance and HR advise Kha Kla structure fund for supporting SMEs (asset <200 MB and employment <200 people) Non-Financial support SMEs

40. C apital Provide Equity Financing by Setting up Venture Capital Fund (Khao Kla) for SMEs A dvice Provide business consultancy in various topic such as Branding, Lean Management to Thai entrepreneurs who seek to enhance their business productivity level through well- recognized SME development institutions such as OSMED, ISMED, FTPI R esearch Provide economic and market updates named K-SME Analysis which are tailored made specifically for SMEs and published in SME magazine, newspapers & website E ducation Provide a series of value-added training program to Thai entrepreneurs to help them develop professional management skill by developing 10-week Management Course for Sustainable Growth in collaboration with leading universities nationwide K SME Care

41. Logistics and Supply Chain Management  Amplification of 2007’s KIAsia Logistic/SCM project  Detailed SCM/Logistics content via Workshop/Exhibition/Consulting Clinic Business Competitive Diagnosis  In-depth consulting workshop for manufacturing and service industry to lead SMEs how to choose the right strategy for the sustainable growth by using BCD Loyalty Program for existing customers Accounting Workshop  Accounting workshop which simulates a practical tutorial to help SMEs better understand how to better manage their cashflow through accounting S/W package Business Tax Saving  Consulting workshop to help business owners understand how to leverage tax knowledge to ease their business operations Non-Financial support SMEs

42. To strengthen brand positioning Brand Academy  Brand Positioning workshop via lecture/Case Study/ Showcase & 1-1 Consulting  Topics of brand Academy are - Inspiration and basic Knowledge - Brand Building Strategy such as Logo development - Brand positioning - Brand consultant workshop Non-Financial support SMEs during the crisis Brand Success Story Before After Customer needs during the crisis K SME Care Solution

43. To survive from recession Business Advice  “Improving business operation during the crisis” Seminar for Printing SMEs Lean Distribution Management  Lean distribution channel is one of the most important factors for business survival during the economic downturn. This workshop will help SMEs understand how to lean their unnecessary channel. Non-Financial support SMEs during the crisis Customer needs during the crisis K SME Care Solution

44. To find opportunity for new market penetration Online Marketing – A New tool for digital era  Special Marketing workshop to support SMEs to understand the role of the online marketing channel in the digital era Design Innovation  Creativity & Innovation concept which will help SMEs understand and successfully launch their innovative products in commercial trade InterBiz Week  SMEs will understand how to penetrate new market focusing on packaging, trade matching including international business trip Customer needs during the crisis K SME Care Solution Non-Financial support SMEs during the crisis

45. To improve operational efficiency Non-Financial support SMEs during the crisis Shindan Project SMEs, with the help of Shindan – Shi (Analyst), will be able to understand their business problems and find solutions, based on the 5 principles namely General management, Human resource management, Accounting and taxation, Sales and marketing and Supply chain and Logistics. Customer needs during the crisis K SME Care Solution

46. C apital Provide Equity Financing by Setting up Venture Capital Fund (Khao Kla) for SMEs A dvice Provide business consultancy in various topic such as Branding, Lean Management to Thai entrepreneurs who seek to enhance their business productivity level through well-recognized SME development institutions such as OSMED, ISMED, FTPI R esearch Provide economic and market updates named K-SME Analysis which are tailored made specifically for SMEs and published in SME magazine, newspapers & website E ducation Provide a series of value-added training program to Thai entrepreneurs to help them develop professional management skill by developing 10-week Management Course for Sustainable Growth in collaboration with leading universities nationwide K SME Care

47. K-SME Analysis articles  Provide the useful information and insights to help SMEs analyze economic and business situation through published articles posted via different channels such as www.ksmecare.com, Newspapers, Me Magazine, K SME Inspired The Solutions of Financial Management Pocket Book  A practical financial management guide book that combine real business case studies and lessons learned of how to plan the financial management effectively Non-Financial support SMEs

48. C apital Provide Equity Financing by Setting up Venture Capital Fund (Khao Kla) for SMEs A dvice Provide business consultancy in various topic such as Branding, Lean Management to Thai entrepreneurs who seek to enhance their business productivity level through well-recognized SME development institutions such as OSMED, ISMED, FTPI R esearch Provide economic and market updates named K-SME Analysis which are tailored made specifically for SMEs and published in SME magazine, newspapers & website E ducation Provide a series of value-added training program to Thai entrepreneurs to help them develop professional management skill by developing 10-week Management Course for Sustainable Growth in collaboration with leading universities nationwide K SME Care

49. Strategy for Differentiation Smart SMEs / Thinking Innovation Integrated Marketing Communication Branding for SMEs 360 Degree Case Study Business Simulation Game AnalysisComment  Blue ocean concept is still one of the most popular vote but need more practical cases  Real case study from innovative businessperson is preferable.  Update new marketing concept is helpful but sometimes guest speakers should be more specific on particular business as some concept is too broad.  Top rating of all batch. Clear concept and business case for practice in real world  Good opportunity to learn business in various dimensions  The good practice of making critical business decisions thorough sophisticated business game Non-Financial support SMEs Since 2007 K SME Care has educated more than 4,000 customers, and below are voices of customers.

50. Knowledge CenterBusiness Advisor Business Network - Training/Special Seminar - Experience from successful person - 1-1 advisory service from experienced consultants - In-depth workshop - More connections/ business network from SMEs - Online Business matching Non-Financial support SMEs during the crisis

51. Contents  Thai SMEs at a Glance  Thailand Macroeconomic  SMEs Definition  Contribution of SMEs  SMEs and International Trade  SMEs Understanding  The key to enhance SME growth from KBank  Financial Innovation & Solution  Non-Financial Support SMEs  Points for Further Consideration

52. Three Key Players to Solve the Problem Different Roles and Actions needed Mitigate Impacts from Global Economic Crisis Bank International Intermediary State Agency Supporting Solution and Initiative Customer Need and Concern Business As Usual Recession Economy Financial and Non-financial innovation Measure and Policy: Encourage governments and relevant parties to encourage cross boundary capital flow and international trading Measure and Policy: Introduce measures to help SMEs and international trading sector i.e. provide export guarantee, credit subsidy program and extra sources of fund

53. Points for Further Consideration Specific agency and fund for SMEs should be established The specific agency for SME finance and trade facilitation may be established to act as international intermediary among the International Financial Institutions (IFIs), the Multilateral Development Banks (MDBs) and export credit agencies (ECAs) Under ASEAN plus 3 and plus 6 schemes, the group may consider the formation of regional SME fund to function in SME’s sustainable development More closer cooperation and assistance will be expected from IFIs and MDBs and ECAs in developed countries to the export credit organizations in developing countries in order to promote effective credit guarantee mechanisms.

55. 1. Conversion Rate (Trial / Aware) 2. Retention Rate (Regular / Trial) KEY RATIO ANALYSIS Brand Leverage of Winning Brands looks at brand relationships in a naturally hierarchical order to identify strengths & weaknesses, from generating awareness to inducing ownership and finally to emotive commitment conversion. Marketing attention can be focused at different stages to strengthen brand building. Brand Leverage

56. Base : All respondents (N=675) Ref : Q66/T66A1, Q71A/T71A1, Q63A-Q63D/T63A- T63D, Q9A/T9A01, Q9B/T9B02, T9C/T9C03, Q63F/T63A06 Bank ABank BBank CBank DBank E The Winning Brand We achieve the highest customer emotive commitment, THE LOYALTY. KBank

57. Thailand SMEs Market Thai SME Market Share 2008 KBank is number 1 in Thailand SMEs market with 25% market share Financial Product & Service Non-Financial Supports (K-SME Care Project)  Product Program  E-learning Program  International Trade Seminar  Credit Information Rating Service  Knowledge Center  Business Seminar / Workshop  Business Competitiveness Diagnosis  Business Research & Articles

58. The Asian Banker Award Excellence in SME Banking By The Asian Banker 2006 and 2007