Fitch says Thai banks need to increase funds

Fitch says Thai banks need to increase funds

Orathai Sriring, Reuters, Bangkok

International credit rating agency Fitch said on Thursday it was unlikely to make major changes to ratings for Thai banks over the next year due to their relatively weak financial position.

Fitch Ratings (Thailand) Managing Director Vincent Milton told Reuters Thai banks still needed to raise billions of dollars in fresh funds to bolster their capital and said it would take some time for them to restore their profitability.

"The banks are still weakly capitalized and the provisioning and loan loss reserves are still inadequate," Milton said in an interview. "There is unlikely to be any major change in ratings for the Thai banks over the next year."

Milton said Thai commercial banks needed to raise about 150 billion baht (US$3.41 billion), based on its base case loan loss rate assumptions.

He said further capital raising was required, particularly by weaker banks such as Bank of Ayudhya and Thai Military Bank and to a lesser extent Bank of Asia and Siam Commercial Bank.

However, Milton said there had been considerable progress by some of the stronger banks in addressing their weaknesses and restoring their financial strength since the devastating Asian financial crisis which started in Thailand in 1997.

"We expect a gradual improvement in profitability for the stronger Thai banks to occur over the next two or three years, but longer for weaker banks," he said.

"But for the rest of the sector we expect their performances will still be constrained by certain provisioning and also by the weakness in the economy and low loan growth," he said.

Milton said the stronger Thai banks were Bangkok Bank, Thai Farmers Bank and DBS Thai Danu Bank.

"Nonetheless, the outlook of most of the Thai banks remains quite weak because of the magnitude of the debt overhang," he said.

Thai banks have been grappling with huge bad debts since the 1997 Asian crisis, triggered by the collapse of the Thai baht.

Thai banks' non-performing loans -- loans with no revenues for at least three months -- stood at 10.50 percent of lending at the end of 2001, compared with a 47 percent peak in mid-1999.

But these figures exclude tens of billions of dollars of impaired or under-performing loans written off by the banks or put in separate accounts for management.

Milton said until there was a restoration of bank earnings, any major change to ratings on the Thai banks was unlikely.

Fitch has a long-term "BB plus" rating for the top four Thai banks -- Bangkok Bank, state-run Krung Thai bank, Thai Farmers Bank and Siam Commercial Bank -- with a stable outlook.

The Thai banking sector stock index had lost 0.2 percent by the midday break on Thursday, while the overall Thai stock market was up 0.01 percent.

On the positive side, Milton said lower Thai interest rates and a shift in monetary policy by the Bank of Thailand were positive for the banks.

The Bank of Thailand surprised markets last month by cutting its key 14-day repurchase rate by 25 basis point to 2.00 percent.