Dodgy Loans

[Darlek]

Investors Worried and Angry Over Thai Bank's Risky Loans

By WAYNE ARNOLD

Published: August 25, 2004

INGAPORE, Aug. 24 - The morning before Krung Thai Bank reported its first-half earnings last month, Thailand's stock exchange singled out the government-controlled bank as a model of disclosure and shareholders' rights.

Then the bank, Thailand's second largest, dropped a bombshell that sent its stock tumbling by more than a third. Krung Thai disclosed that the central bank had compelled it to reclassify more than $1 billion of loans as nonperforming - despite the fact that they were still being paid. A total of 12 percent of its loans, up from 8 percent, would be considered nonperforming.

The central bank governor later singled out Krung Thai for lax lending standards, saying that it had financed several major projects of such dubious quality that the owners would probably not be able to repay the money.

"They aggressively pursued loans without thinking a whole lot about what they were doing," said Andrew Stotz, head of research at Macquarie Securities in Bangkok.

The shift in classification laid bare an underlying concern: that government pressure for Krung Thai and other state-controlled financial institutions to increase lending may have resulted in less stringent credit controls at Krung Thai, leaving the financial system more vulnerable to a wave of defaults should the economy slow suddenly.

Earlier this month, the central bank governor, Pridiyathorn Devakula, held a news conference to reaffirm Krung Thai's health and denied that the bank would have to raise capital.

The news shocked investors who last October paid the government $740 million for a 27 percent stake in the bank as part of a partial privatization. But some analysts are also concerned about the fiscal policies of Thailand's tycoon prime minister, Thaksin Shinawatra.

Many experts say Krung Thai's revelation is fresh evidence that "Thaksinomics," a blend of policies that has helped rev up Thailand's economy to a 7 percent annual growth rate, depends too much on pushing government-owned financial institutions like Krung Thai to finance domestic spending. Pushed by Mr. Thaksin's government, Krung Thai has been lending so much money so fast that it now accounts for 17 percent of all commercial bank lending in Thailand, up from 12 percent in 2001.

The troubles at Krung Thai are adding to a host of misfortunes and government miscalculations - like Mr. Thaksin's aborted attempt to use government money to buy an English soccer team, efforts of a union to block the privatization of the state electric utility, accusations of human rights abuses and cronyism, a Muslim insurrection in the country's south and a new outbreak of bird flu - that have emboldened Mr. Thaksin's critics as he approaches a deadline for elections early next year.

Krung Thai executives did not return phone calls seeking comment, but in statements to the stock exchange, the bank said it remained sound and had already made provisions against the newly bad loans.

Analysts agree that the bank is sound. However deep the dismay over Krung Thai's loan portfolio, the bank is by no means on the verge of collapse, they say. On the contrary, it has set aside plenty of cash and ultimately enjoys the backing of the government, as Fitch Ratings pointed out earlier this month when it reaffirmed its rating on the bank. Analysts at Fitch and elsewhere point to the disclosures at Krung Thai as an encouraging move by the central bank to make it harder for corporate deadbeats to avoid paying old loans by taking out new ones. Krung Thai's bad-debt ratio also remains better than the 13 percent national average.

Still, the same analysts say that the fact that the central bank considers $1 billion of Krung Thai loans risky enough to be considered nonperforming even while they were still being repaid could be a harbinger of bad loans in the future, as rising global interest rates and a slowing economy put pressure on corporate borrowers.

"It indicates there are problems," said Vincent Milton, managing director of Fitch Ratings in Bangkok. "You're likely to see continuing underperformance in terms of profitability and asset quality."

Central bank officials declined comment on what spurred so dramatic a reclassification.

[Indo-Siam]

Looks like a duck.......... Check

Walks like a duck......... Check

Quacks like a duck....... Check

So, Somchai, what d'ya think??????

S: I think it must be a water buffalo.

Remember - Denial is a river in Northern Africa.

Te audire no possum. Musa sapientum fixa est in aure

Cheers!

Indo