The proposed merger between SME Bank and Government Savings Bank is only an idea and has not been agreed upon, says the Finance Ministry.
Somchai Sujjapongse, director-general of the Fiscal Policy Office (FPO), said the merger is just one idea from a study to find solutions to SME Bank's problems.
He told depositors to have confidence in SME Bank, saying despite its problems the government is keen to tackle them and the bank will enter a rehabilitation process led by Pichai Chunhavachira soon. A rehabilitation plan will be presented to the board on Friday.
SME Bank reported net assets of 97 billion baht, liabilities of 69 billion, outstanding loans worth 96 billion, and non-performing loans (NPL) of 31 billion, or 33% of total assets. Its capital adequacy ratio is at 1%, far below the 8.5% required by the Bank of Thailand.
The Islamic Bank, another state-owned bank, also has a high NPL rate, at 22.5% or 24 billion baht, against outstanding loans of 109 billion. Its capital adequacy ratio is also below the required level, at 4.6%.
"The NPL problem at both state banks was due to their poor loan management. To tackle this problem we need to be cautious, because if we cut our losses by selling bad debt, the prices will be far lower than the actual values, which could lead to legal battles with debtors in the future," said Mr Somchai.
But he acknowledged that some of the bad debts were the result of schemes that used state banks to assist risky clients who were rejected by commercial banks.