Fitch IBCA Ratings - Press Releases - Thailand Banking Sector Comment: Bangkok Bank, Thai Farmers Bank Under Severe Pressure

Thailand Banking Sector Comment: Bangkok Bank, Thai Farmers Bank Under Severe Pressure But Still Better Placed To Weather The Crisis

Fitch IBCA-London/Brisbane-30 September 1998: In its latest comment on the Thai banking sector, Fitch IBCA, the international rating agency, has updated its "loss absorption capacity" analysis for the Thai banks, using the audited figures for the first half of 1998.

The agency's "loss absorption capacity" methodology has proved to be a powerful predictor of future bank problems. Its December 1997 analysis, which was based on the third quarter numbers, pointed to capital deficiencies in First Bangkok City Bank, Siam City Bank and Bangkok Metropolitan Bank. These were all "intervened", or nationalised by the Ministry of Finance, the following month.

The results of the current analysis are summarised, below. The 'Best Case Scenario' gives a measure of each bank's capacity to absorb new losses, based on relatively optimistic assumptions. The 'Medium Level Scenario' calculates the banks' loss absorption capacity using bleaker, but probably more realistic, assumptions. Loss absorption capacity is defined as: (equity) + (provisions) - (estimate of expected loan losses in the current portfolio)

In the first "best case" scenario, Fitch IBCA has assumed the banks need to provide for 30% of current and potential future NPLs, and that the NPL level ranges from 30% (for better banks) to 50% of loans. In the second "medium level" scenario, it has assumed that the provisioning requirement increases to 40% of NPLs, and that NPLs range from 40-60%.

The agency concludes that Bangkok Bank and Thai Farmers Bank are under severe pressure, but still relatively better placed to weather the financial crisis, not least because of their success in raising new equity earlier in the year. State-owned Krung Thai Bank, which is in the progress of absorbing two nationalised banks as part of the Thai government's financial sector restructuring plan, will also be in a better position with a substantial equity injection planned by the State.

Fitch IBCA's analysis highlights weaknesses in the next three largest banks: Siam Commercial Bank, Bank of Ayudhya, and Thai Military Bank. In the "best case" scenario, these banks are under-capitalised but in the "medium level" scenario they are clearly capital deficient. They have attempted several times during the last year to raise capital, but despite their best efforts, have not yet been able to complete their recapitalisation plans. It is estimated that these banks will, at a minimum, need to raise capital of approximately THB 55 bln, THB 40 bln, and THB 25 bln, respectively, to restore their capital levels.

Of the smaller banks, Bank of Asia and Thai Danu Bank, are better placed with the support of their foreign parents, ABN Amro and Development Bank of Singapore, respectively. While their loss absorption capacity is still clearly not strong, it is adequate for the time being, and Fitch IBCA expects their respective parents to provide further capital support. Nakornthon Bank's capital position is weak and it will need to finalise a deal with a foreign or local partner soon.

Thai Banks' "loss absorption capacity" (equity + reserves - estimated loan losses)

Best Case and Medium Level Scenarios: (% loans)

Bangkok Bank: Best Case 11.5; Medium Level 4.5;

Krung Thai Bank: Best Case 6.6; Medium Level -0.4;

Thai Farmers Bank: Best Case 11.4; Medium Level 4.4;

Siam Commercial Bank: Best Case 2.8; Medium Level -4.2;

Bank of Ayudhya: Best Case 1.8; Medium Level -5.2;

Thai Military Bank: Best Case 2.6; Medium Level -4.4;

First Bangkok City Bank: Best Case 4.6; Medium Level -4.4;

Siam City Bank: Best Case 1.5; Medium Level -7.5;

Bangkok Metropolitan Bank: Best Case 5.1; Medium Level -3.9;

Bangkok Bank of Commerce: Best Case 4.9; Medium Level -4.1;

Bank of Asia: Best Case 5.9; Medium Level -1.2;

Thai Danu Bank: Best Case 7.8; Medium Level 0.8;

Nakornthon Bank: Best Case 4.3; Medium Level -2.7;

Union Bank of Bangkok: Best Case 6.8; Medium Level -2.2;

Laem Thong Bank: Best Case 4.5; Medium Level -2.5.

Contact: Andrew Smith; Vincent Milton, Brisbane Tel: +61 7 3222 8618/8615

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