Thai banks’ loan jitters: ITD woes prompt provision provisions

Two major Thai banks, Siam Commercial Bank (SCB) and Krungthai Bank (KTB), have set aside provisions for possible loan losses related to Italian-Thai Development Plc (ITD), one of the nation’s foremost contractors. Provisions have been determined using a forward-looking expected credit loss (ECL) framework, according to Arthid Nanthawithaya, chief executive of SCB X, SCB’s holding company.

Despite economic uncertainties and potential unforeseen situations, SCB has not classified ITD as a non-performing loan (NPL), Arthid said.

“SCB’s strong risk management approach ensures readiness to manage the loan quality of the customer according to the evolving situation. The customer is still classified as a normal loan, eliminating the need for additional provisions.”

Arthid added that SCB has created a significant loan loss reserve to safeguard against such contingencies. SCB X is targeting a credit cost range of 160 to 180 basis points for 2024.

Several leading Thai banks have extended credit lines totalling 24 billion baht (US$660 million) to ITD. This includes Bangkok Bank (BBL), KTB, Kasikornbank (KBank), and SCB. BBL accounted for 8 billion baht (US$220 million) of this total, with half being unsecured.

KTB contributed 4 billion baht (US$110 million), split equally between secured and unsecured loans, while KBank and SCB each offered 6 billion baht (US$165 million), with unsecured amounts standing at 3 and 1 billion baht (US$82 million and US$27 million), respectively.

Simultaneously, KTB has allocated a 100% loan loss provision for ITD, according to KTB president Payong Srivanich. FSS International Investment Advisory Securities (FSSIA) reports that KTB has classified ITD as a stage 2 loan and reserved 100% for potential losses. FSSIA anticipates KTB’s asset quality to remain manageable, with the NPL ratio expected to remain at 3.85% in the first quarter of this year, reported Bangkok Post.

Meanwhile, FSSIA has raised concerns about BBL’s corporate loan issues, particularly involving ITD and its associated supply chain. However, these are deemed manageable as creditor banks have agreed to inject additional liquidity and BBL would require debtors to liquidate part of their valuable assets. FSSIA predicts BBL’s NPL ratio to increase to 3.26% in the first quarter of 2024, up from 2.7% in the previous quarter.