Plans to boost capital in the Islamic Bank of Thailand will hinge on the bank's success in rehabilitating its finances and addressing its ongoing bad loans, says Somchai Sujjapongse, the director-general of the Fiscal Policy Office.
"Before the ministry approves a capital increase ... we need to see success in the restructuring plan," Mr Somchai said following a meeting with bank executives yesterday.
The Islamic Bank of Thailand, or IBank, currently has capital funds at 4.6% of risk assets, well below the 8.5% minimum set by the Bank of Thailand for commercial banks, and the 12% to 15% levels currently maintained by the country's largest banks. The global Basel III standard does not apply to state-owned financial institutions such as the IBank, which is under the supervision of the Finance Ministry.
"If the restructuring plan successfully leads to a reduction in non-performing loans, it would help reduce the need to raise new capital. But if bad loans fall only slightly, then we will need to add more funds," said Mr Somchai.
Non-performing loans at IBank as of Dec 31 stood at 24.6 billion baht, or 22.59% of its outstanding loans.
The bank is pursuing several options to recover debt, including filing court foreclosures or restructuring debt with clients.
The Fiscal Policy Office and the State Enterprise Policy Office want to give the bank until June to turn around its finances before committing to a capital increase. The Finance Ministry also plans to send consultants to the bank to assist management in restructuring.
Mr Somchai stressed that IBank continues to operate normally, particularly retail lending operations, but has tightened underwriting practices for large corporate lending.
"The Finance Ministry will ensure there will be no impact to the public," he said.
Besides the IBank, the Finance Ministry is working on a restructuring for the SME Bank, another state-owned institution. The bank, set up to support small and medium-sized companies, has non-performing loans of 39 billion baht, or 40% of its total outstanding loans, with capital funds at -0.95%.
About the author
- Writer: Wichit Chantanusornsiri
Position: Business Reporter