Guest Posted July 27, 2004 Report Share Posted July 27, 2004 Krung Thai's Weakness Raises Doubt About Nation's Recovery By SHAWN W. CRISPIN Staff Reporter of THE WALL STREET JOURNAL July 26, 2004 BANGKOK, Thailand -- Krung Thai Bank, which has provided much of the financial firepower for Prime Minister Thaksin Shinawatra's drive to boost economic growth, jolted the market last week by reporting that nonperforming loans rose by more than $1 billion during the quarter ended June 30. Now, analysts and fund managers are wondering whether there might be other unpleasant surprises ahead. The revelation by state-run Krung Thai Bank, Thailand's second-largest commercial bank behind Bangkok Bank, is raising hard new questions about the strength of the country's economic recovery and threatens to damp investor sentiment in Thai shares in general. In reporting its latest results last Wednesday, Krung Thai said nonperforming loans accounted for 12.3% of total loans at the end of the second quarter, from 7.8% three months earlier. During the quarter, NPLs -- loosely defined by the Bank of Thailand as substandard, doubtful or "doubtful of loss" -- rose to about 125 billion baht, or $3 billion, from 80 billion baht. Krung Thai's NPLs have climbed about 70% since the beginning of this year. Krung Thai's quarter-to-quarter profits also fell nearly 70%, a poor performance considering that during the three months ended June 30 gross domestic product rose about 6.5% from the same period of 2003. Investors have shown their displeasure with Krung Thai's results. Since the Wednesday announcement, shares have fallen about 15%, closing at 9.50 baht on Friday. Krung Thai's announcement on NPLs is raising new concern about the level of transparency at Thailand's state-run financial institutions, and it could spark reassessments of the country's economic outlook. GDP expanded 6.7% in 2003, and many foreign brokerage firms forecast that economic growth this year will top 7%. But there have been questions about the quality of that fast growth. Central-bank governor Pridiyathorn Devakula frequently has signaled his concern about possible bubbles in the property sector, particularly in connection with the rush to build new condominium units in Bangkok's Sukhumvit district. Krung Thai's latest results have underscored those concerns, some analysts say. "Investors are linking the central-bank governor's comments and the recent Krung Thai news together," says Therapong Vachirapong, a banking analyst at Phatra Securities in Bangkok. "Many see this as one clear sign of a slowdown in economic recovery and stock performance." It's still unclear what went wrong at Krung Thai. When they met Bangkok-based banking analysts Thursday to discuss the results, Krung Thai executives highlighted that the bank booked an extraordinary loss of 1.74 billion baht during the quarter in expenses and lost income. They also attributed the jump in bad loans to the adoption of new accounting standards that led to the reclassification of many restructured loans from performing to nonperforming status. Some Bangkok-based banking analysts are skeptical about Krung Thai's explanation for the sudden deterioration on its balance sheet. "A $1 billion problem doesn't just happen in a day, month or quarter," says Andrew Stotz, head of research at ING Financial Markets in Bangkok. "It happens over a long period of time. We would have appreciated more clarity." Mr. Stotz also complains there was a lack of transparency surrounding the abrupt departure of Krung Thai President Viroj Nualkhair, who left his post just two weeks before the Wednesday announcement. The office of the bank president didn't return calls Friday about Mr. Viroj's departure. What is clear is that Krung Thai's recent performance represents a significant reversal of fortunes. The Thai government had restored Krung Thai to financial health by purging nearly 600 billion baht of dud loans from its balance sheet after the 1997 financial crisis, parking most of them for rehabilitation at state-run asset-management companies. State intervention cleared the way for new commercial lending at a time when most private Thai banks were holding on to their capital as provisions against nonperforming loans they had left over from the crisis. Beginning in 2002, Mr. Thaksin gave managers of Krung Thai and other state-run banks aggressive lending targets to meet, and many credits have been extended in support of his government's populist spending programs. Krung Thai expanded its loan portfolio by more than 30% in both 2002 and 2003 -- notable growth at a time when more-conservative private banks were making few new loans. Last year, Krung Thai accounted for 70% of all new lending in the Thai financial system. Its aggressive strategy has been in line with the government's stated aim to promote fast growth through more domestic-oriented economic activity. At the same time, Krung Thai managers have highlighted to foreign banking analysts that they made a series of improvements to the bank's risk-management processes following the profligacy that predated the financial crisis. According to a 1999 estimate compiled by PricewaterhouseCoopers, Krung Thai's nonperforming loans touched 84% of its total stock of credits at the height of the crisis. In recent years, Krung Thai shares have been attractive for foreign investors looking to get exposure to Thailand's buoyant domestic-demand-led economic recovery. Major foreign brokerage houses, including UBS, ING Financial Markets and Credit Suisse First Boston, all had a "buy" recommendation on the bank before its announcement last week. Many have since downgraded their recommendations on the stock to "neutral" or "sell." "There was no sign or signal this could happen," says Daniel Tabbush, a banking analyst at CLSA in Bangkok, referring to the sudden buildup of Krung Thai's bad debt. "But the pool of risk assets at Krung Thai that could go bad is really, really high." CLSA has switched its recommendation to "sell" from "underperform." Krung Thai managers have said they have no plans to raise new capital to set aside as provisions against the unexpected rise in NPLs. According to Phatra Securities, Krung Thai's provisioning coverage -- a measure of the percentage of total NPLs that can be covered by cash set aside as provisions -- has dropped to 47%, compared with the industry average of 70%. Some banking analysts in Bangkok believe the downturn at Krung Thai could undermine investor confidence in the broad banking sector, even though most private Thai banks have only recently resumed lending. "It's started with Krung Thai," says Mr. Therapong of Phatra Securities. "The question going forward is: Will this spread to other Thai banks?" Link to comment Share on other sites More sharing options...
.. Posted July 27, 2004 Report Share Posted July 27, 2004 Gadfly1 said:"There was no sign or signal this could happen," says Daniel Tabbush, a banking analyst at CLSA in Bangkok, referring to the sudden buildup of Krung Thai's bad debt. "But the pool of risk assets at Krung Thai that could go bad is really, really high." CLSA has switched its recommendation to "sell" from "underperform." It kills me that experts are so baffled as to why this is happening. Especially those who live here. Just open your eyes and pay attention. I mean, I am an idiot tech guy with no financial background whatsoever and I have been saying for months to be careful with investments here and that the good economy is facade. Maybe I should be a financial planner LOL! Cheers, SD Link to comment Share on other sites More sharing options...
gummigut Posted July 27, 2004 Report Share Posted July 27, 2004 Yah, this off balance sheet financing has really been getting my goat. Wondering when some of it would come to light. The rating agencies have been pissing me off giving positive outlooks to the Country. Sure factory utilization is quite nice right now (if what they say is true) but what % of GDP is made up of increased domestic consumption and how much of that is being borrowed from the future? Something to think about is that I'd bet most of the debt being created is domestic and may very well (if not must be) shouldered by the people (gov't) at one point or another. What happens to the country if the gov't decides to print money as a way out. My guess is a lot of pissed off people! lol <<burp>> Link to comment Share on other sites More sharing options...
Lord Toad Posted July 27, 2004 Report Share Posted July 27, 2004 Nobody should be surprised: but why is this in the Wall Street Journal and not The Bangkok Post or the Nation??? Link to comment Share on other sites More sharing options...
gummigut Posted July 28, 2004 Report Share Posted July 28, 2004 This article was in the Nation. Crispin is a reporter for the Wall Street Journal and was just giving due credit. Him and Amy ???? write some of the best articles. <<burp>> Link to comment Share on other sites More sharing options...
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