Risks

1)  Market Risk and Competition risk

The trading volume of the stock market and the Company’s market share,
have a direct impact on KGI’s revenue. Factors that cause market price
and volume volatility include political situation, economic outlook, and
investor sentiment (both domestic and international). In addition, the
securities business is highly competitive. If the Company is not able to
maintain a high quality of service compared with other brokers, it may
lose market share. In this regard, the Company has implemented a policy
of increasing marketing officers’ ability to provide good
recommendations and increase value-added services to clients. In
addition, the Company has carried out a policy of diversifying its
business by developing new products such as stock borrowing and lending
and derivative and structured Products.

2)  Credit balance risk and Default risk

The Company has set up a Risk Management Committee. Its role includes
reviewing and approving the Company’s policy on risk management in
respect of credit balance accounts, the policy on credit line approval,
guidelines for valuing and managing collateral, policy and strategy in
managing risk. Therefore, the Company believes that it can minimize
credit balance risk and default risk from cash accounts. As of 31
December 2004, the Company had securities business receivables from
customer’s accounts totaling Baht 716million and from credit balance
totaling Baht 1,431million.

3)  Interest rate risk

As of 31 December 2004, the Company had a short-term borrowing from
financial institution totaling Baht300million at fixed rate. In
addition, the Company invests in fixed income instruments, the value of
which is sensitive to interest rate movement.

4)  Foreign exchange risk

As of 31 December 2004, the Company has investments in subsidiary
companies in foreign currency with an original cost of USD 59 million.
However, the Company has obtained Thai Baht loans from those
subsidiaries totaling approximately Baht 2,068 million, and an overseas
subsidiary company entered into a forward exchange contract with an
overseas related company to hedge investment in securities of USD 17
million at Baht 40.60 per 1 US dollar.

5)  Liquidity risk

The Company has sufficient liquidity. As of 31 December 2004, cash and
cash equivalents were Baht775million, and the long term deposits at
financial institutions were Baht32million; the Company’s net capital
ratio (NCR) was 223.93%.

6)  Securities investment risk and return risk

The Company has formed a Risk Management Committee which is responsible
for setting guidelines and policies on asset allocation, approving
portfolio limits and setting risk control policies.

As of 31 December 2004, the Company’s net investment in debt and equity
securities was Baht2,166million (61% in net short term investments, 39%
in net long term investment). The Company has implemented stringent and
prudent risk management controls to lessen the risk of loss due to
market volatility.

7)  Risk from investment in subsidiaries and associated companies

This type of risk may arise if the subsidiaries and associated companies
incur losses. The investments are accounted for under the equity method.

8)  Risk from expanding branch network

As of 31 December 2004, the Company operated a total of 17 branches
nationwide. The Company opened a new branch (Pak Chong Branch) and
closed 1 branch (Ratchada branch) during the year. The opening of new
branch involves risk, primarily by increasing the company’s fixed and
variable costs. However, the Company has a thorough review process
before establishing new branches. A feasibility analysis is first
conducted, in which the population, economic position and prospects, and
number of competitors operating in such areas are considered. A
profit-loss projection is made together with a study on the impact of
the establishment of the new branch on the maintenance of net capital
adequacy of the Company.

9)  Risk from operating underwriting and financial advisory businesses

In operating an investment banking business, including an underwriting
business, there is a risk of losses from unsubscribed securities that
must be transferred to the Company’s portfolio. Inappropriate size or
pricing of issues, unexpected fluctuations of the stock market, interest
rates or foreign exchange rates can cause the investors not to subscribe
for such securities. To reduce such risk, the Company studies and
analyzes information regarding the issuer and the interest of clients or
investors. In the financial advisory business, the Company will study
preliminary client information and conduct appropriate due diligence
before accepting any clients.

10) Risk from having a major shareholder

As of 13 May 2004, the KGI Group owned approximately 34.7% of the
Company. KGI Group as a major shareholder may exercise greater influence
over the Company’s management and business policies. However, if the KGI
Group wishes to hold more than 50%of the Company, it still needs to seek
approval from relevant government agencies.

11) Risk from establishing a Thai Trust Fund and having a Non-Voting
Depository Receipts (NVDRs)

Since the investors in the Thai Trust Fund and NVDRs holders have no voting rights, this effectively leads to a decrease in the number of voting shares. As a result, major shareholders may have an increased level of control over the company. However, as of 31 December 2004, there were no shares held in the Thai Trust Fund and investors had bought 47,657,497 NVDRs shares only (equivalent to 2.39% of paid-up capital). (See details of Thai Trust Fund and NVDRs in no 8 Capital structure)

12) Risk related to Derivatives products

Having taken into consideration various risks involved in derivatives,
the Company has approved the Equity Derivative Department and Fixed
Income Department to sell derivative products to customers. The Risk
Management Committee has to first approve the document called “Product
Program” before the Equity Derivative Department and Fixed Income
Department can issue derivatives to customers. The Product Program
mainly focuses on (1) characteristics of securities, services, and
target customers; (2) risk policies such as acceptable level of loss and
other risk policies depending on attributes of securities and services
offered to customers; and (3) internal operational procedures including
internal control.

The Risk Management Department monitors the Company’s exposure on a
daily basis to ensure compliance with the approved risk policies.

The Company is therefore confident that it has put in place a system for
limiting risks associated with derivatives to an acceptable minimal
level.