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Recapitalisation threatens hold of families on Thai banks

 

An impending massive recapitalisation in the banking sector will force even the biggest local banks to open their doors to foreign partners to hold more than 50 per cent of all shares, investment analysts said.

A majority foreign ownership in the local banks means that the big-time families, who used to benefit the most or have the loudest voice in the Thai economy, will be ceding their control over the banks. A series of measures introduced recently by the Bank of Thailand, with guidance from the International Monetary Fund, will be forcing the local banks to raise massive capital if they are to satisfy the regulatory requirements on provisions for loan losses, capital adequacy ratio and reclassification of the non-performing assets.

Worse still, the Land Department is planning to readjust downward by 45 per cent the reference rate for the appraisal value of land in Bangkok, the neighbouring provinces and the other major provinces. Banks normally collect land as collateral, and if the collateral value is revised downward by 45 per cent, they will be under growing pressure to set aside provisions and recapitalise.

A brokerage house has suggested that the 12 local banks under its study will need to set aside an additional Bt406 billion in fresh provisions and, on top of it, recapitalise by another Bt503 billion if they are to meet the tougher regulatory requirements. The new IMF-advocated banking standards require the local banks to stop accruing interest as income of loans that miss payment for three months, set aside general reserves at one per cent equal to their total deposits, increase provisions for substandard debts from 15 per cent to 25 per cent, and reduce provisions for doubtful debts from 100 per cent to 50 per cent.

The 12 local banks under study comprise Bangkok Bank, Krung Thai Bank, Thai Farmers Bank, Siam Commercial Bank, Bank of Ayudhya, Thai Military Bank, First Bangkok City Bank, Siam City Bank, Bangkok Metropolitan Bank, Bank of Asia, Thai Danu Bank and Nakornthon Bank. The study assumes that BBL would see its non-performing loans peak at 27 per cent, against 34 per cent for KTB, 27 per cent for TFB, 28 per cent for SCB, 27 per cent for BAY, 32 per cent for TMB, 48 per cent for FBCB, 42 per cent for SCIB, 55 per cent for BMB, 32 per cent for BOA, 29 per cent for TDB and 32 per cent for NTB.

''The new round of banking recapitalisation will see purchasing power mostly in the hands of foreign investors,'' said the investment analyst of the brokerage house, which conducted the study. ''There will be little support from the local investors because they have been losing money in the stock market. Most of the businesses are also facing a liquidity crunch and shouldering heavy interest burdens.

''With demand concentrated among a small group, foreign investors will emerge with a strong bargaining power in their negotiations to buy up the stocks during the capital increase. They will have an opportunity to buy the banks at a value much below the present market prices.''

Dominique Maire, an economist at Union Bank of Switzerland, expected that the banking sector will need at least US$5 billion to recapitalise if they are to satisfy the minimum regulatory requirements of provisions of eight per cent of total loans and shareholders' funds of eight per cent of risk assets.

''You are talking about US$5 billion in new money for recapitalisation, which is not small in this market,'' he said. He added that it would be tough time for the family shareholders to go through as they are likely to lose control in the banks they have held for more than two generations.

The Tejaphaibul family has already lost control in Bangkok Metropolitan Bank when banking regulators recently stepped in with a nationalisation plan. In a similar process, liquor tycoon Charoen Sirivadhanabhakdi also saw his 35 per cent stake in First Bangkok City Bank being wiped out. The Mahadamrongkul family also ceded control in SCIB. In an isolated fradulent case, the Jalichandra family earlier lost Bangkok Bank of Commerce.

The Chansrichawla family has been forced to bring in new partners and to write down Laem Thong Bank's capital, in the process seeing the family's stake being reduced to 15 per cent. The Tuchinda family has already brought Development Bank of Singapore in to control more than 51 per cent in Thai Danu Bank. The Lamsam family has indicated that it would not participate in a capital increase by Bt10 billion.

A radical transformation in the Thai banking industry is underway, moves that were not expected a year ago. Neil Saker, head of regional economic research of SocGen-Crosby, told a seminar yesterday that the most crucial tasks ahead for Thailand involve its tackling of foreign debts and cleaning up the banking sector.

''There will be no room for weak banks,'' he said. The government, he added, may need to take control of some more banks if they fail to recapitalise or bring in foreign partners to fulfil the tougher regulatory requirements.

BY THANONG KHANTHONG and SASITHORN ONGDEE

 

 

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