Bank Of Asia Near End Of Long Journey

[george]

Bank of Asia near end of long journey

BANGKOK: -- Another episode in the financial-landscape restructuring saga is unfolding, with Bank of Asia set to be erased from the banking scene by the end of the year.

The looming last chapter of the bank’s 66-year story sends a stark message - only the strongest and most dynamic institutions will survive in this cut-throat environment.

Established in 1939 as the Bank of Asia for Industry and Commerce by former prime minister Pridi Bhanomyong, the bank supported the expanding trading activities of the Euachukiarti family – one of its founders.

Over the year the commercial bank’s business grew along with the economy. Along the way, huge quarrels broke out among its major shareholders – the Euachukiartis and the Phatraprasits – who fought hard to win majority control during a near-decade-long feud.

The winner of the battle became irrelevant when, like other banks, Bank of Asia found itself on the verge of collapsing under the weight of colossal non-performing loans (NPLs) due to the 1997 meltdown. As its limited ownership could not help, the bank had to embrace a new shareholder. That was when Dutch bank ABN Amro stepped in, snapping up a stake of over 75 per cent in the local bank in 1998.

After the crisis, it was no longer strange to see local banks under foreign control. Other banks also underwent big changes by initiating capital write-downs to cope with their huge NPL burden.

This marked a significant milestone in the competitive evolution of banking capital. Many banks stumbled, including Siam City Bank, which was controlled by the Mahadamrongkul family, the Siriwadhanabhakdi family’s First Bangkok City Bank, the Tejapaibul family’s Bangkok Metropolitan Bank and Nakornthon Bank of the Wanglee clan.

All experienced periods of weakness before the 1997 crisis and were nationalised after the crisis subsided.

In short, ABN Amro’s emergence, through a capital investment of Bt7.3 billion, marked a narrow escape for Bank of Asia.

The huge increases in NPLs at all banks was the result of most companies suffering from the stringent monetary and fiscal measures imposed by the Chuan administration. Few firms were viable enough to borrow and banks could not expand at the rate they enjoyed before the crisis. As interest income fell short of covering the rising costs from NPLs, more capital-raising exercises were held in the subsequent years.

Bank of Asia was no exception. Despite the Bt7.3-billion injection from ABN Amro, it had to seek Bt23 billion more between 1999 and 2002.

As of March 2003, ABN Amro held 80.7 per cent of the bank. But because the investment took a longer-than-expected period to recoup, coupled with the bank’s decision to refocus on its branch operations in Bangkok, ABN Amro decided to pull out.

In May last year, Singapore’s United Overseas Bank took over Bank of Asia through a US$554-million (Bt22.7 billion) acquisition. Under UOB’s control, Bank of Asia is in the process of being merged with UOB’s Bangkok arm, UOB Radanasin Bank, to create United Overseas Bank (Thai).

After the merger is completed – probably next month – UOB (Thai) is expected to morph into the proverbial phoenix rising from the ashes.

Whether that actually materialises does not depend solely on the new shareholder’s strength, but also rests with the banking environment. Several bankers have bemoaned the faltering economy, following the tsunami disaster that drove away hordes of potential tourists, the daily violence in the South, as well as record-breaking fuel prices.

Since the global economy is also expected to suffer from high oil prices, it is unclear if Thailand will manage to achieve its ambitious export target for the year. The economic slowdown means more changes lie ahead for the banking industry, with many players recently revising down their lending targets.

In this environment, UOB (Thai) will need to flex all its muscles to stay healthy. In an industry dominated by several large players, it will be interesting to see where UOB (Thai), which will become the country’s ninth-biggest bank, will be next year.

--The Nation 2005-09-09

[Khutan]

A few other banks went under then as well, but it will be sad to see the Bank of Asia be swallowed into something else.