Local banks mostly safe from sub-prime troubles

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Bangkok Post

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BANKING

 

Local banks mostly safe from sub-prime troubles

PARISTA YUTHAMANOP

 

The global credit crisis will only marginally affect local banks, which should perform better this year thanks to promising lending growth and lower provisioning demands, according to James McCormack, senior director and head of Asia sovereign ratings for Fitch Ratings. Bank credit is expected to grow 8% this year in line with a recovery in domestic demand. The capital base for Thai banks has also strengthened through a series of recapitalisations in 2007.

 

 

''Most Thai banks have small exposure to [the global credit market]. They tend to rely more on domestic market. The strengthening of their domestic franchise will also allow for a limited impact from the flight of liquidity overseas,'' Mr McCormack said.

 

 

Three local banks _ Krung Thai Bank, Bangkok Bank, and Bank of Ayudhaya _ are expected to post first-quarter unrealised investment losses from their holdings of offshore collateralised debt obligations (CDOs)

 

 

But the overall impact on Thai banks of the collapse of the US sub-prime mortgage market would be limited, as total CDO exposure was less than 6% of equity.

 

 

''KTB and BBL have been conservative in marking-to-market their CDOs at 40% exposure in 2007. Meanwhile, BAY has marked-to-market by 20%, so it will be more vulnerable,'' Mr McCormack said.

 

 

BBL, the country's largest bank in assets, will benefit the most from higher domestic demand. Siam Commercial Bank, the third-largest, should also post slight gains in for the first quarter thanks to mortgage growth and consolidation with its subsidiaries.

 

 

Kasikornbank, meanwhile, reported the highest margin in 2007 and should see continued improvement in loan growth this year, particularly to small- and medium-sized firms.

 

 

KBank yesterday opened the earnings season by reporting a 14% year-on-year gain in first-quarter profit on higher loans and net interest income. Net profit rose to 4.44 billion baht, or 1.85 baht a share, from 3.88 billion (1.62 baht a share) in the same period last year.

 

 

KBank said its net interest and dividend income rose to 10.2 billion baht in the quarter, from 8.82 billion a year earlier. The bank's net non-performing loans amounted to 20.9 billion baht, or 2.4% of total lending.

 

 

Fitch said that TMB Bank could also return to profit this year following a recapitalisation and the entry of ING Bank as a strategic partner in 2007. As well, BAY's partnership with GE should help improve its margins this year.

 

 

''BBL, KBank and SCB should continue to report solid earnings, while BAY and KTB should also show a marked improvement. TMB, after reporting substantial losses from provisioning in 2006 and 2007, should also return to profitability,'' Mr McCormack said.

 

 

''We are positive on Thai banks. Credit ratings are stable with the possibility for upgrades.''

 

 

 

 

Mr McCormack said that inflation and political uncertainties remained risks for the Thai economy. Fitch currently maintains a growth forecast of 4.8% for 2008, on par with last year.