Risks

1)  Market Risk and Competition risk of the Stock Exchange

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,
OTC derivative, structured products and futures business.

2) Market Risk and Competition risk of Futures Business

The Thailand Futures Exchange has announced that the market will launch
on 28 April 2006 the SET50 Index Futures as the first product. The
Company has been selected as one of the twenty companies that qualify to
be a member of the Futures Exchange and the Clearing House. The Company
believes that it will be ready to provide futures brokerage services to
the public when the market opens. As trading derivatives involve risks
from the fluctuation of the prices, the Company has established strict
procedures for controlling the risks in futures trading, which includes
requiring the individual clients to place sufficient collateral before
trading in futures.

In order to compete with other firms, the Company has consulted with KGI
FUTURES TAIWAN regarding its strategy and believes that it will be able
to provide satisfactory services to customers.

3)  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 2005, the Company had securities business receivables from
customer’ accounts totaling Baht 937million and from credit balance
totaling Baht 1,094million.

4)  Interest rate risk

As of 31 December 2005, the Company had no borrowing from financial
institutions. However, the Company invested in fixed income instruments,
the value of which is sensitive to interest rate movement.

5)  Foreign exchange risk

As of 31 December 2005, the Company has investments in subsidiary
companies in foreign currency under equity method of USD 69 million
(equivalent to Baht 2,907 million). However, the Company has obtained
Thai Baht loans from those subsidiaries totaling approximately Baht
2,045 million and the fund, which an overseas subsidiary invested into,
has entered into a forward exchange contract to hedge investment in
securities of USD 15 million with a strike price of Baht 41.86 per 1 US
dollar.

6)  Liquidity risk

The Company has sufficient liquidity. As of 31 December 2005, cash and
cash equivalents were Baht741million, and the long term deposits at
financial institutions were Baht3million; the Company’s net capital
ratio (NCR) was 265.14%.

7)  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 2005, the Company’s net investment in debt and equity
securities was Baht2,240million (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.

8)  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.

9)  Risk from expanding branch network

As of 31 December 2005, the Company operated a total of 19 branches
nationwide. The Company opened two new branches, Ayutthaya branch and
RamaII branch, during the year. The opening of new branch involves risk,
primarily by increasing the company’s fixed and variable costs. However,
the Company had a thorough review process before establishing new
branches. A feasibility analysis was first conducted, in which the
population, economic position and prospects, and number of competitors
operating in such areas were considered. A profit-loss projection was
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.

10) 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.

11) Risk from having a major shareholder

As of 31 March 2005, the KGI Group owned approximately 34.98% 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.

12) 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 2005, there were no shares held in the Thai Trust Fund and investors had bought 88,589,236 NVDRs shares only (equivalent to 4.45% of paid-up capital). (See details of Thai Trust Fund and NVDRs in no. 8 Capital structure)

13) Risk related to Derivatives products

Having taken into consideration various risks involved in derivatives,
the Company has approved the Equity Derivatives 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 Derivatives 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.