While
battling problem loans, bureaucratic local banks have been
forced to sharpen their act by the entry of lean foreign
players
Getting some of the money back
The Bank of Thailand succeeded in
selling two nationalised banks in 1999, helping recoup some of
the losses incurred by taxpayers for the financial crisis.
In September, UK-based Standard Chartered completed its acquisition
of a 75% stake in Nakornthon Bank for 12.38 billion baht.
Some 35-billion-baht worth of distressed assets will be managed
under a loss-sharing scheme with the Financial Institutions Developed
Fund.
The fund will carry 85% of future losses on certain loans for
five years, with Standard Chartered responsible for the rest.
If the bad loans can be rehabilitated, the fund will take 15%
of the profits, and Standard Chartered 85%.
Under a yield maintenance programme, the central bank will also
compensate Standard Chartered for lost revenues on the bad loans.
Chuan and Tarrin are panned during Loy Krathong celebrations
The Financial Institutions Development Fund plans to eventually
reduce its 24.99% stake in the renamed Standard Chartered Nakornthon
and sell shares to the public.
Nakornthon, the country's second-oldest Thai bank, operates 67
branches nationwide and was taken over by regulators earlier in
the year after previous merger talks with Standard Chartered collapsed.
In November, the central bank finalised the sale of a 75% stake
in Radanasin Bank to Singapore's United Overseas Bank for 15.089
billion baht.
Nearly 45 billion baht in ailing assets would be transferred
to Radanasin Asset Management Co, a firm managed by UOB but wholly
owned by the Financial Institutions Development Fund.
Assets would be sold by Radanasin to the management firm for
promissory notes guaranteed by the fund.
Under the profit-sharing scheme, 95% of the profits from the
rehabilitation of assets will go to the development fund, and
the rest to UOB.
Losses
will be borne 85% by the fund and 15% by UOB, which will also
receive a management fee equal to 0.1% of the gross book value
of the bad loans.
Radanasin was set up by the government in 1997 as a 'bidder of
last resort'' for asset auctions by the Financial Sector Restructuring
Authority.
In August 1998, regulators ordered Radanasin to take over the
defunct Laem Thong Bank. The new UOB Radanasin Bank operates 67
branches in Thailand.
Regulators said final returns from the bank sales will eventually
increase as bad loans are rehabilitated and remaining state-held
shares divested.
In both
the Nakornthon and Radanasin deals, regulators maintained a 'golden
veto'' over any major operational changes, such as raising new
capital, delisting from the market or a change in the board.
The central bank is expected to sell a majority stake in Bangkok
Metropolitan Bank and Siam City Bank to foreign investors by the
first quarter of 2000.
Institutions which have submitted bids for the two remaining
banks include HSBC, Newbridge Capital and the Carlyle Group.
Krung Thai at the centre of a firestorm
The Krung Thai Bank scandal dominated financial headlines throughout
the second half of the year.
The leak in August of an auditors' confidential report to a Senate
investigative committee touched off a political firestorm.
PriceWaterhouseCoopers, hired by former KTB chairman Mechai Viravaidya
to survey the bank's loan portfolio, alleged widespread lending
weaknesses resulting in non-performing loans as high as 84% of
total loans.
Krung Thai management cried foul, saying the auditors failed
to consult executives in the course of the 'high-level review'',
based on 140 major borrowers of the bank.
Both the Bank of Thailand and the Auditor-General's Office claimed
that KTB's audited reports, showing bad loans of 59% at the end
of June, were accurate.
Nevertheless, the opposition said Tarrin Nimmanahaeminda, finance
minister, was leading a cover-up of the bank's problems to protect
the role played by his brother Sirin, who was KTB president for
seven years up to January.
On
August 24, the Finance Ministry ordered the entire KTB board,
including Mr Mechai, sacked. Sivavongse Changkasiri, former industry
permanent secretary, was appointed new board chairman in mid-November.
Mr Tarrin also named Kamchorn Sathirakul, a former central bank
governor, to head a five-person investigative committee to investigate
allegations raised by the PricewaterhouseCoopers report.
The Kamchorn committee eventually cleared former executives of
wrongdoing, saying in early October that credit procedures at
KTB were in line with industry standards.
Still, debate about KTB's status refused to subside, helped on
by steady flow of leaks on politically-connected lending and confidential
client documents made to the media.
Opposition politicians claimed the Kamchorn findings were a whitewash,
and singled out Mr Tarrin for his handling of the Krung Thai scandal
in a censure debate in mid-December.
Distractions aside, KTB executives continued to work to reorganise
the massive bank, launching an early retirement programme in November
which resulted in some 2,700 jobs shed.
An asset management company funded by the government and expected
to be finalised in early 2000 will help take over bad loans and
clean up Krung Thai's loan portfolio.
Ongoing debt restructuring and modest new loan growth also helped
the bank to reduce its non-performing loan levels to 51% of total
loans by the end of the third quarter.
Losses
will be borne 85% by the fund and 15% by UOB, which will also
receive a management fee equal to 0.1% of the gross book value
of the bad loans.
In both
the Nakornthon and Radanasin deals, regulators maintained a 'golden
veto'' over any major operational changes, such as raising new
capital, delisting from the market or a change in the board.
On
August 24, the Finance Ministry ordered the entire KTB board,
including Mr Mechai, sacked. Sivavongse Changkasiri, former industry
permanent secretary, was appointed new board chairman in mid-November.
