Banking

Banking

 

Heavy provisions for SSI (UK) loans in 3Q15. SSI’s three creditors– SCB, KTB and TISCO - will make additional provisions for loans made to SSI UK in 3Q15 after SSI’s UK subsidiary (SSI UK) announced a temporary shutdown of operations due to financial problems caused by the unfavorable market condition for slab steel and high operating cost.      

 

SCB: Mitigating impact by realizing gain on investment. SCB reported to the SET that it plans to set aside additional provisions of Bt10-11bn for its exposure of ~Bt22bn to SSI and its UK subsidiary, but it will soften the impact by realizing gains of Bt7-8bn from its general equity and investment portfolio in 3Q15, leaving the net impact on its bottom line at Bt2-4bn. This will fully provision the loan to SSI’s UK subsidiary with assumption of zero collateral value. Provisions will also be upped on loans to parent SSI to reflect further reduction in value of collateral. Factoring in Bt11bn additional provisions for SSI loans and Bt8bn realized investment gain, we assess the impact on 2015F at 5% to Bt48.9bn or Bt14.37/share (-8% YoY) and preliminarily forecast 3Q15 earnings at Bt10.1bn (-24% YoY, -23% QoQ).  

 

KTB: Partly absorbed by excess provisions. KTB reports that it will need to make additional provisions of Bt9bn on its Bt22.9bn exposure to SSI and its UK subsidiary to bring it up to full (from 54% at end-2Q15). It will make new provisions of Bt6bn and transfer Bt3bn of its excess reserve as specific provisions on SSI loans. This will lower LLR coverage to 100% from 124%. Since SSI UK has been shut down temporarily, it will assume no collateral value and will fully provision the loans to SSI UK. It will also make additional provisions for parent SSI, as the guarantor. We raise our provision forecast by Bt2bn as we had already factored in extra provisions of Bt6bn in 2H15. We assess the impact on our 2015F at 4% to Bt29.5bn or Bt2.11/share (-11% YoY) and preliminarily forecast 3Q15 earnings at Bt5.1bn (-45% YoY, -36% QoQ). We also put our forecast and target price under review. 

 

TISCO: Almost wipes out 3Q15 profit. TISCO disclosed that it will make additional provisions of Bt1.4-1.5bn on its Bt4.4bn loans to SSI and its UK subsidiary (Bt821mn for SSI and US$100mn for SSI UK) to achieve 100% coverage of clean exposure, based on collateral value as per BoT guidelines. The collateral value of SSI UK will be set to zero due as it is not possible to make a precise valuation in the current situation. The provision expense may affect TISCO’s operating performance slightly but not materially, as provisions have been made progressively and at the same time, the asset quality of its hire-purchase portfolio is improving, reducing the need for provisions. In addition, TISCO is seeing steady growth in fee-based income and this will provide good support to this year’s operating performance. TISCO plans to write off the loan to SSI UK after making 100% provisions. This means NPLs will go up slightly since the SSI loan is ~0.34% of total loans. Additional provisions of Bt1.4-1.5bn will slice 25-26% off our 2015F earnings and we believe will essentially wipe out 3Q15 earnings. We put our forecast under review pending the analyst meeting on September 23.