Mixed blessings

While most banks put smiles back on their owners' faces last year, state-owned ones lagged far behind, weighing down the sector

SOMRUEDI BANCHONGDUANG

The requirement for higher reserves put a dent in the returns of Siam City Bank last year.

Thai banks continued to underperform the broader stock market in 2007, with a sector total shareholder return (TSR) of 27.06% last year compared with a market average of almost 47%.

Out of the 25 sectors on the market, the banking sector ranked 13th in terms of returns.

Yet a closer look at the performance of the sector shows a more mixed picture, as three banks -  Krung Thai Bank, Siam City Bank and TMB Bank -  posted negative returns that helped drag down the overall sector performance.

But the weak performance of Thai banks has hardly been a surprise. On a three-, five- or 10-year basis, the sector has steadily underperformed the overall market, reflecting in part delays by institutions to clean up their balance sheets and improve their efficiency in the aftermath of the 1997 economic crisis.

Analysts said 2007 results was mostly hurt by sluggish loan growth and higher provisioning requirements forced by the central bank's adoption of the tougher IAS 39 accounting standard.

The adoption of IAS 39 "had a heavy impact on several banks, particularly state-owned banks", said Sukanya Udomvoranun, an analyst with Kim Eng Securities.

Out of all the banks, TMB Bank posted the worst returns for 2007, with a -40.88% total shareholder return for the year as investors punished the bank severely for the uncertainties swirling over its management strategy and efforts to raise new capital.

TMB at the end of the year successfully raised more than 37 billion baht in new capital by bringing in ING as a 30% strategic partner and a rights issue by the Finance Ministry. But the news did little to bolster short-term sentiment, and the bank's stock ended 2007 at 1.46 baht each, down 14 satang from ING's purchase price. TMB set aside 30.98 billion baht in new provisions in 2007, with a net loss for the year of 43.65 billion.

Two state-owned banks, Krung Thai and Siam City, also posted negative TSRs of around -10% to -11% for 2007, almost entirely attributed to net losses as a result of higher provisioning requirements.

Siam City Bank posted net losses of 2.02 billion baht for 2007, compared with profits of 4.25 billion the year before, while KTB posted a net profit of 6.11 billion in 2007 compared with profits of 13.79 billion the year before. Dividends for KTB, the country's second-largest bank in terms of assets, dropped to 0.3 baht per share for 2007 operations from 0.51 the previous year.

Apisak Tantivorawong, the president of KTB, acknowledged that shareholder returns last year were affected by the need to set aside new loan-loss reserves of 19.5 billion baht.

"But we expect shareholder returns this year to pick up as provisioning needs now have normalised," he said.

The fourth listed state-controlled bank, BankThai, showed a positive 2007 TSR of 12.05%, despite also posting sharp losses for the year as a result of higher provisioning to cover its distressed assets and potential investment losses on its offshore collateralised debt obligations. The bank raised 1.9 billion baht late last year in an offering supported by its major shareholders, the Financial Institutions Development Fund and private equity firm TPG Newbridge.

Among the top sector performers, five posted 2007 TSRs above 43%: Siam Commercial Bank, Tisco Bank, Kasikornbank, Bank of Ayudhya and Thanachart.

SCB led all banks with a 2007 TSR of 53.62%, well outpacing its three-year return rate of 25.6%. SCB posted 2007 profits of 17.35 billion baht, a gain of 31% from the year before, with steady gains across all of its business lines.

SCB president Kannikar Chalitaporn said the bank's internal change programme was a main driver for the bank's improved performance.

Share prices for the bank have risen by 50% over the past 18 months, she noted, with SCB now the country's largest bank in terms of market capitalisation.

"We expect to continue to post improving shareholder returns over the next several years. Our strong financial status, business fundamentals and resources will help support our operations in the future," Mrs Kannikar said.