Investors to lose Bt3.4bn, staff warn

October 5, 2000

STAFF representatives of the Siam City Bank (SCIB) have warned that holders of some Bt3.491 billion of its outstanding unsecured debentures will lose all their money if the government closes it down.

In a bid to justify their call to keep the ailing nationalised bank going, they met Prime Minister Chuan Leekpai at Government House yesterday before testifying before the House subcommittee on fiscal, monetary and financial institutions.

The group was led by Phongsak Hanthongsithiphong, a bank vice-president.

About 4,000 jobs at SCIB are at risk of being permanently lost if the bank is closed down.

The Chuan government's indecisiveness over the SCIB debacle has further undermined confidence in the banking industry. Financial sources said the Financial Institution Development Fund (FIDF), which owns almost 100 per cent in the bank, had made it clear that it would not guarantee the sub-debt of SCIB if it was effectively shut down.

The financial markets already have the jitters over a news report that Italian-Thai Development Corporation is to default on its interest payment of Bt200 million, due next Tuesday, on its Bt3.3-billion debentures.

SCIB unsecured debentures have been issued for more than Bt4 billion in various tranches at a face value of Bt1,000 per unit. Small investors have heavily subscribed to the bonds, because they offer higher returns than bank deposits.

With the uncertainty surrounding the status of the bank, which was nationalised in January 1998, the bonds are traded at around Bt400 on the secondary bond market.

Financial sources said the bank had bought back some of its bonds to reduce its debt but it was questionable whether it would have the resources to honour the outstanding bonds if it was closed down.

The Finance Ministry and the FIDF have been at odds over how to deal with the ailing SCIB, which has been bleeding Bt10 billion a month in deposits and losing money in its business operation by about Bt300 million a month.

Obviously the damage at SCIB is beyond repair, with good assets at about Bt80 billion and bad assets at Bt200 billion to Bt300 billion.

The situation has been made worse by its failure to attract a buyer. Citibank was one bidder, but its buy-out proposal was rejected by the banking authorities because the US banking group is only interested in acquiring the bank's good assets.

At its wits' end, the FIDF has proposed to the Finance Ministry that SCIB's good assets be transferred to BankThai, another state-controlled bank, but Finance Minister Tarrin Nimmanahaeminda has reportedly been hesitant over this move, fearing that it may impose a further burden on BankThai.

Moreover the FIDF would like to transfer some of SCIB's staff to BankThai, but Phirasilp Supapholsiri, the president of BankThai, feels that he has more than enough staff. "But if pressed, I would be willing to go along with the order," he reportedly said.

Another big question is how SCIB is to manage its bad debts. If the bank is to set up its own asset-management corporation, this unit, specifically mandated to deal with the distressed assets, might take on some of the staff.

But financial sources said the FIDF felt the SCIB's staff might not be an ideal choice to work on the distressed assets since they were responsible for creating the bad debts in the first place. It believes professional outsiders should be called in.

When the government closed down Bangkok Bank of Commerce in late 1997, its employees burned Tarrin in effigy. The government does not want to see this happen again.

Financial sources said it was likely that the Chuan government would delay acting on the SCIB débâcle, leaving the problems for the next government.

BY THANONG KHANTHONG