Standard and Poor’s doubtful about bank recoveries

BANGKOK (AFP) – Thai banks need a further injection of 863.5 billion baht (23.3 billion dollars) to restore solvency, global ratings agency Standard and Poor’s said in a report issued today. The report was critical of the high levels of bad loans as well as capital quality, and expressed doubts whether restructuring efforts are sustainable. “Thailand’s banking sector still requires 863.5 billion baht to restore solvency, absorb losses on problem loans and recapitalise to a level appropriate for its high risk profile,” it said. “The magnitude of the capital requirement will necessitate a dilution of current ownership structures, greater foreign investment, or increased use of the government’s recapitalisation scheme.” In August the central bank signed an agreement with the British bank Standard Chartered for the sale of 75 percent in Thailand’s 12th biggest bank, Nakornthon Bank. This month, Singapore’s United Overseas Bank signed a deal for a 75-percent stake in the small Radanasin Bank. And British giant HSBC Holdings is reported to be in the running to buy a majority stake in Bangkok Metropolitan Bank Plc, the country’s eighth largest in terms of assets. At end-June, the central Bank of Thailand estimated the sector’s non-performing loans (NPLs) at 2.65 trillion baht, or 47.47 percent of total loans, down from 2.73 trillion baht a month earlier. But a Standard and Poor’s official said that while reported NPLs were expected to decline as a result of aggressive restructuring efforts, “it is not clear if such restructuring has been commercially based and sustainable.” The report concluded that, “Recapitalisation is clearly the key sensitivity, but asset quality is extremely weak; capital values are overstated; provisions are deficient; and corporate governance and risk-management systems are below international best practice.”