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Bangkok Bank's man with a mission

October 9, 2000

Chartsiri Sophonapanich is navigating Bangkok Bank through a treacherous banking crisis. Will he succeed? Thanong Khanthong reports.

OVER the past five years, Chartsiri Sophonapanich has maintained a weight of about 80 kilograms, which suits his rather huge frame and height of 1.78 metres. He eats well, and he doesn't look like a man who has sleepless nights. In a couple of months, his wife, Ninthira, will bear him his fifth child. By all accounts, he should be a very happy man.

Yet underlying his apparent composure there lurks the burden of saving Bangkok Bank (BBL) and keeping it independent while other Thai banks fall victim to government intervention or takeovers by foreign banks in the wake of Thailand's worst economic catastrophe.

Chartsiri says he intends to keep the bank independent and private. So far it has not asked for direct assistance from the government or tapped official money from the August 14th Banking Restructuring Programme to help it recapitalise.

"Yes, we are determined to keep the bank going and emerge as a stronger institution over the next three to five years," Chartsiri says.

This goal is as important for his family name as it is for the bank. As the third-generation heir to Bangkok Bank, Chartsiri is obliged to carry the torch for the Sophonapanich family. His late grandfather, Chin, founded the bank after World War II. His father, Chatri, who is now chairman of the bank, took it over and turned it into Southeast Asia's largest commercial bank. He inherited the bank in the early 1990s, during which time BBL was making a staggering Bt40 billion in pre-tax profits a year.

But a financial bubble, stemming from the financial authorities' flawed management policy from the early 1990s until mid-1997, was responsible for fuelling BBL's growth and profits. BBL and other Thai banks also committed the financial sin of imprudent lending. The widespread weaknesses in the Thai banking system aggravated the financial crisis.

By nature, bubbles always burst. And when the Thai bubble burst in 1997, Bangkok Bank was hit the hardest because it was the largest commercial bank, with the highest lending exposure to the Thai economy. With assets of more than Bt1 trillion, equal to a fifth of the country's GDP, it had a market share of about 25 per cent of the banking system. Its non-performing loans (NPLs) peaked at more than 40 per cent of total loans.

Since the crisis, Chartsiri, known as a hardworking man, has been trying to pick up the pieces. His dual task now is to restructure bad debts and to reorganise the institution so that it emerges as a stronger bank, ready to take on its foreign and domestic rivals. And this job is pretty tough, given the depth of the financial crisis and the fragile economic environment.

The Thai banking system is recording accumulated losses of about Bt300 billion, of which Bt100 billion alone is claimed by BBL. It will take years before the banks rid themselves of this huge burden. They will not be paying any tax to the government over the coming years.

In the first half of this year, BBL posted a net loss of Bt22 billion due largely to a loan-loss provisioning. In the same period, the bank also wrote off Bt184 billion, or 50 per cent of its total NPLs. This huge write-off took a direct hit at the bank's shareholder equity, meaning that shareholders are bearing the brunt of the losses. After these heavy losses, Chartsiri expects that BBL will not be writing off any sizeable amount in the second half of this year.

At the same time, Chartsiri has been recruiting top professionals to help him deal with debt restructuring with the bank's clients. There are quite a few people holding PhDs working for the bank, focusing on restructuring the debts. The process is tough and time-consuming. Chartsiri says what has been accomplished so far has mostly been financial restructuring, which means banks will have to bear the burden of haircuts or debt forgiveness, and adds that there has not been enough genuine corporate debt restructuring.

If the Thai economy is going to move ahead, corporate debt restructuring must proceed in earnest. "We're ready to convert debt into equity. But the clients must show that they are committed to restructuring or else improve their business potential," he adds.

BBL's non-performing loans as of the end of August were reported at 22.47 per cent of total lending, or Bt167.39 billion. Its lending stood at Bt730.34 billion, against Bt998.01 billion in deposits. This suggests that the bank is still awash with excess liquidity.

As the country's largest bank, it is understandable that it is a target of official scrutiny. Bangkok Bank has been engaged in a tussle with the Finance Ministry. Finance Minister Tarrin Nimmanahaeminda has on several occasions expressed his disappointment with BBL's progress in restoring its balance sheets and its reluctance to start lending again to help the economy recover. To the finance minister, the bank is more interested in its own survival.

But Chartisri says the bank has no problem extending credit, nor does it have any problem with its capital base after fulfilling the 100 per cent loan-loss provision requirement. The present capital base can carry the bank through this year and next, but that does not mean the bank will look for an opportunity for recapitalisation.

Through its nationwide network and its in-depth knowledge of the economy, Chartsiri says the bank will continue to play a role in financing the expansion of the domestic economy.

BBL is often compared to Thai Farmers Bank. At times, it seems BBL is always a step behind the third-largest bank. Chartsiri admits that BBL may be moving more slowly than Thai Farmers Bank due to the fact it is about one and a half times larger. Since 1996, BBL has cut its staff by 6,500 from its peak of 26,500. The bank is also moving to modernise its branch network, which should bring down its costs and improve productivity.

"Next year is still a year of rehabilitation for the bank," Chartsiri says.



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