BOT Notification on Reserve Requirement

18 December 2007

Summary of a New BOT Notification
on Reserve Requirement

A. Background

On 18 December 2006, the Bank of Thailand (“BOT”) issued a new notification on reserve requirement on short-term capital inflow in order to weaken the Thai Baht (“THB”) and to limit currency exchange speculation.

In light of the severe stock market condition and strong criticism by domestic and international financial communities due to the said measure, the BOT subsequently issued various relaxation rules to ease the reserve requirement.

B. General Principle

Key operational details of the reserve requirement are as follows:

The reserve requirement applies to transactions over US$20,000 or equivalent.

Financial institutions are required to withhold 30% of foreign currencies exchanged against THB with certain exemptions.

Financial institutions would be required to remit the required reserves in foreign currencies to the BOT on the 7th day of the subsequent month.

Reserved funds must be kept in Thailand for a period of one year. After that the BOT will return the funds back to the relevant financial institution for reimbursement back to the customers without interest.

Customers that wish to repatriate their funds sooner than the one-year minimum period will be refunded only two-thirds of the amount withheld as a reserve requirement.

The rule on reserve requirement also applies to inward foreign currencies, which after being converted into THB, will be deposited into a non-resident Baht account.

C. Exempted Transactions

Foreign currencies for direct investment, government loans, and investment in immovable assets.

Foreign currency loans signed prior to 19 December 2006.

Sale of foreign currency in performance of the foreign exchange contract made with authorized juristic persons prior to 19 December 2006.

Inter-bank transactions from foreign currency into Baht between authorized juristic persons for their own businesses.

Foreign currencies sold or exchanged by:

Thai embassies, Thai consulates, or Thai government agencies located outside Thailand;

Foreign embassies, consulates, specialized agencies of the United Nations, and international organizations stationed in Thailand.

Rollover of swap transactions hedging against exchange rate risk with the same authorized juristic persons.

Investment in equities in Thailand Futures Exchange (TFEX) and Agricultural Futures Exchange of Thailand (AFET) in accordance with the rules and practices regarding the Unremunerated Reserve Requirement (URR).

Foreign currency loans or foreign currencies obtained from the issuance of debt instruments in accordance with the rules and practices regarding URR.

Foreign currencies for the purchase of non-performing loans through debt restructuring under order of the court or other government authorities, or for payments of guarantee obligations under order of the court or other government authorities.

10.

Traveler’s cheques and foreign banknotes.

11.

Foreign currencies for investment in debt securities and investment units in accordance with the rules and practices regarding the URR, non-resident Baht accounts and reports (no. 2).

12.

Foreign currencies which a resident purchases or exchanges with the authorized juristic person to deposit into a foreign currency account.

D. Impact of the Reserve Requirement

The reserve requirement will result in a higher cost of funds for any foreign investors wishing to extend loan or invest in Thailand.

A foreign investor will need to remit 30% higher than the amount required for settlement of an underlying transaction; and

The 30% reserve amount will be kept at the BOT without interest before it can be reimbursed.

E. Relaxation

At present, the BOT considers it necessary to keep the reserve measure in place for the time being in order to maintain the stability of the Thai economy. However, to lessen the burden on the business sector, BOT further relaxes the measure, as well as regulations on capital outflows, as follows:

Relaxation of the measure on foreign currency borrowings by Thai corporations and on non-residents' investment in property funds as follows:

1.1

Foreign currency borrowings, in an amount not exceeding US$1,000,000, as specified in the relevant agreement or contract, and having a maturity of at least 1 year, by Thai juristic persons are exempted from both the URR and the fully hedged requirement.

1.2

Thai juristic persons wishing to borrow in foreign currency and having future foreign currency proceeds from international trade or services covering the repayment of that borrowing (i.e. having a natural hedge) can submit the request to the BOT for exemption of the URR and the fully hedged requirement.

1.3

Investments in newly issued units of existing property funds by unit holders, whose names appear on the unit holder registration as of the book closing date, are exempted from both the URR and fully hedged requirement.

Additional relaxation of regulations on foreign currency deposit and transfer to allow Thai businesses greater flexibility and efficiency in managing their foreign currencies as follows:

2.1

Raising the maximum limit of Thai residents' foreign currency deposits, and allowing Thai residents to deposit foreign currencies originated abroad without proof of evidence of future foreign exchange obligations. Details of changes in the regulations are as follows:

Foreign currency account with funds originating from abroad:

No limit placed on the outstanding balance, and no requirement to prove future foreign exchange obligations;

Foreign currency account with funds originating from domestic sources:

For deposits without future foreign exchange obligations, the total outstanding balances are limited to US$100,000 for an individual or US$300,000 for a juristic person;

For deposits with future foreign exchange obligations, the total outstanding balances are limited to US$1,000,000 for an individual and US$100,000,000 for a juristic person. Should Thai residents wish to deposit in excess of the specified balance, only the amount not exceeding the foreign exchange obligations within the next 12 months can be deposited.

2.2

Raising the limit and expand the scope for investment and lending abroad for Thai companies to include subsidiaries and affiliated companies abroad with no direct shareholding but under the same parent company, as follows:

A parent company in Thailand can transfer funds for the purpose of direct investment in, or lending to, subsidiary and affiliated companies abroad in an aggregate amount not exceeding US$100,000,000 per year;

A subsidiary company in Thailand can transfer funds for the purpose of direct investment in, or lending to, the parent company abroad, subsidiary and affiliated companies of the parent company abroad in an aggregate amount not exceeding US$100,000,000 per year;

Companies registered with the Stock Exchange of Thailand can transfer funds for investments according to a. and b. with no limit and can lend according to a. and b. in an amount, in each case, up to US$100,000,000 per year.

2.3

Increase the limit for purchase of properties abroad from US$1,000,000 to US$5,000,000.

The relaxation of the measure according to 1 shall take effect on 18 December 2007. The relaxation of regulations on the deposit and transfer of foreign currency according to 2 shall take effect following the issuance of the relevant Ministerial Regulations.

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