The liquidity crunch facing Italian-Thai Development (ITD) may cause banks listed on the Stock Exchange of Thailand to lift debt provisions, while the net profit of four creditor banks may decrease this year if the amount lent to ITD becomes non-performing loans (NPLs), says Bualuang Securities (BLS).
According to recent news reports, four banks granted loans to ITD with a combined credit line of 24 billion baht. Of the total, 8 billion baht was lent by Bangkok Bank (BBL), of which 4 billion is unsecured loans and 4 billion provided by stated-owned Krungthai Bank (KTB), half of which are unsecured liabilities.
Kasikornbank (KBank) and Siam Commercial Bank (SCB) each extended loans worth 6 billion baht to ITD, with the unsecured amounts totalling 3 and 1 billion baht, respectively.
An analyst at BLS who requested anonymity said the creditor banks of ITD are likely to have set debt provisions for their loans extended to the contractor because of increasing credit risks.
However, if ITD loans become NPLs or loans with credit impairment, the creditor banks must set higher debt reserves, said the analyst.
According to BLS, if ITD debts become NPLs, the four lenders would see their net profits decrease in a range of 2.6% to 4% this year.
In the case of KBank, the profit is expected to drop by 2.6% from the forecast based on the loan estimate of 6 billion baht.
The net profits of KTB and SCB are likely to contract by 3.5% based on the loan forecasts of 4 and 6 billion baht, respectively. BBL's profit is anticipated to decrease by 3.2% based on the estimated loan of 8 billion baht, said the analyst.
"BLS believes this issue will have an impact on ITD's creditor banks and is a factor that could pressure share prices in the short term," said the analyst.
However, BLS anticipates the four banks have already set aside some debt reserves to cope with the risk.
"As a result, we think the banks should be able to manage such risk," said the analyst.