BAAC seeks Bt10-bn capital injection

The debt moratorium will benefit 3.95 million clients of the bank with combined loans of Bt396.95 billion, BAAC president Luck Wajananawat said yesterday. The scheme will cut interest income by Bt12 billion per year, or Bt36 billion for a three-year debt suspension, while principal due this year is about Bt200 billion.
Each beneficiary of the moratorium can choose to suspend principal payment for three years with interest cut by 3 percentage points or pay principal with interest cut by 3 percentage points. The bank estimates that about 50-80 per cent will choose first option.
“The scheme will cause the bank’s adequacy ratio to fall to 9.6 per cent from the 10 per cent required by Bank of Thailand, so it needs fresh capital of Bt10 billion for the next three years,” Luck said.
The government has promised to help state banks participating in the scheme with a subsidy covering half of the total loss of interest income.
Luck said the BAAC would cut its operating expenses to absorb the cost of the scheme. In this way, the bank will save about Bt2.3 billion. It will also expand its lending target to Bt80 billion from the Bt73 billion previously targeted, which should generate more income.
“The scheme will not damage finance discipline since there are strict conditions [targeting it at] debtors with good credit ratings.”
Debtors can apply to join the scheme at the bank’s branches nationwide from May 1 to August 30. The debt moratorium will run from September 1 this year to August 30, 2015.
Those eligible must owe not more than Bt500,000 and must have a good credit record. Home and leasing loans are not covered by the scheme, nor loans to people with a regular income.
Luck said the average BAAC borrower had Bt100,000 of debt.
The new debt scheme covers about 90 per cent of the BAAC’s clients. The rest will be debtors of Government Savings Bank and other state-run banks, including the Small and Medium Enterprise Development Bank of Thailand.
The Finance Ministry estimates the cost of the subsidy to banks at about Bt22.85 billion over the next three years. Finance Minister Kittiratt Na-Ranong believes that the programme will boost economic growth by 0.4-0.7 percentage point as farmers and lower-income groups will have more money to spend.
Economists, however, have sharply criticised the scheme as a policy designed to win political popularity that will damage the country’s credit culture in the long run.
Luck said those who previously got a debt moratorium designed to help non-performing borrowers could join the new scheme if they were able to service their debts. The previous moratorium for poor-credit-rating borrowers embraced 456,955 people with combined debts of Bt56.83 billion, he said.
Luck said the BAAC would also try to manage its non-performing loans better, planning to cut the rate of bad loans from 5.34 per cent of the total to 3.25 per cent within three years, which should save costs.