Zero increase in SCB, KTB's capital ratios this year: Moody's
Siam Commercial Bank and Krungthai Bank are expected to show zero increase in their capital ratios due mainly to higher provisions set aside against the Bt45 billion loans to Sahaviriya Steel Industries, said a rating agency.
Moody's Investors Service earlier expected both banks to show an increase in capital with retained earnings, despite the slow Thai economy and increasing asset risks. The rating company said in a research note that the additional provisions could hurt the banks' credit ratings.
"Additional provisions on SSI exposures will hurt the banks' profitability and ability to generate capital internally this year," saids Simon Chen, a vice president and senior analyst of Moody's Investors Service.
KTB said it will make additional specific provisions of about Bt9 billion in the third quarter for its SSI exposures, and will also increase general provisions to replenish its reserve coverage ratio back to 100 per cent. It has estimated an effect of around Bt6 billion on net profit for the quarter.
SCB will make specific provisions on Bt10-Bt11 billion on its Bt22 billion in SSI exposures.
At the end of June, KTB and SCB's tier-1 capital accounted for 10.6 per cent and 13.8 per cent to risk assets, respectively.
Moody's notes that this is one of the first instances of significant asset-quality deterioration in Thailand's large corporate segment in the last few years. Although delinquencies of unsecured retail loans and loans to small and medium-sized enterprises have been rising, the performance of loans to large Thai corporates have so far remained resilient to the country's slowing economy.
"And while the circumstances of SSI's restructuring may be unique to the UK steelmaking industry and not necessarily indicative of broader problems with large corporate borrowers in Thailand, in this context we note that special-mention loans - which can be a leading indicator of nonperforming loan formation - have been rising in the corporate sector," it said.
According to Moody's, any deterioration in the performance of loans to large corporates will mean increased credit costs for Thai banks because the size of these loans is often large, meaning that a small number of problem loans can generate significant increases in banks' overall credit costs.
