KTB juggles many balls to succeed

Running Krung Thai Bank, the country's largest state-owned bank, requires the art of manoeuvring.

"We have to use private management style to overcome the obstacles. Fortunately, so far our business has been able to achieve targets," KTB president Apisak Tantivorawong said recently.

Other banks envy KTB's privileged status as the priority lender for big state projects. It does not need to compete against other banks for a slice of the public-sector cake. However, Apisak points out that this comes with a disadvantage.

Loans to state projects ensure stability of income, thanks to the low risk of default.

But in return for security amid the growing possibility of debt defaults across the world, KTB has to suffer from low interest margins on loans.

The bank has to go aggressively after private loans with their higher margins, but it is hampered by the law governing state enterprises that sometimes leads to inflexibility.

As a financial arm of the government - it is 55.15 per cent owned by the Financial Institutions Development Fund - it has been asked to finance state programmes. The current government has not yet assigned it to help on any programme, but it is expected to be told to get involved in the rice-pledging scheme.

Apisak admitted that KTB cannot refuse to extend loans to government programmes when asked.

Government loans account for 17 per cent of its loan portfolio, while corporate loans make up 37 per cent, retail loans 25 per cent and SME loans 19 per cent.

Its outstanding loans this year are expected to grow by 10 per cent to Bt1.5 trillion.

Next year, the focus will be on boosting private loans particularly to small- and medium-sized enterprises (SMEs).

To be finalised soon, the business plan for next year targets increasing loans by 1.5 times the gross domestic product growth.

"We have not focused much on small enterprises. Those very small ones will be our key loan driver," he said.

Loans to small enterprises usually carry higher margins than corporate loans. The SME loan portfolio stands at Bt200 billion, half the size of corporate loans.

"We need to boost loan growth to gain more interest income, as interest remains the main source of income for the bank. Higher interest income will boost our profitability, now that we can't be as aggressive in boosting fee-based income as commercial banks," he said.

KTB's fee-based income now represents 17-18 per cent of the total, generated mainly by banking products and non-banking products like insurance.

The ratio has risen from 12 per cent five years ago and is expected to head up further, but gradually. Next year, it could hit 20 per cent.

Overseas banks earn as much as 40 per cent from their fee-based business, but it will take KTB some more time to match that scale.

Aside from the rivalry at home, competition from regional banks would become fiercer with the full launch of the Asean Economic Community in 2015. A wider network would be a defensive strategy.

Now, KTB has seven overseas branches.

"We plan to expand our network in neighbouring countries like Vietnam, which is a major investment destination for Thai companies," he said.

However, it would take time for foreign banks to penetrate the Thai market then, thanks to the strong relationship between local banks and their customers, he added.