TISCO Financial Group
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Bad news: SSI loan requires additional provisions BUY
TISCO Financial Group Plc (TISCO)
Additional provisions against SSI loan in 3Q15. TISCO has called a special analysts meeting on September 23 to clarify additional provisions against SSI loans that it is making in 3Q15. This suggests that SSI’s other creditors, KTB and SCB, may also face additional provisions for SSI and may have to move SSI loans into the NPL column from special-mention, where they are now.
Provision history for SSI by TISCO. TISCO made Bt350mn in extra provisions in 2Q15 for SSI (UK), as a part of a 22% specific LLR on top of 36% LLR earlier set as general LLR. This was done to comply with the BoT requirement that provisions for its loan to SSI (UK) reflect losses at the forced-sale value of SSI (UK) if SSI defaulted. TISCO had 58% LLR against its Bt4bn exposure to SSI (US$100mn for UK operations and Bt800mn for Thailand operations) of which 22% is specific LLR and 36% is general. Out of its Bt3.5bn excess LLR, Bt1.4bn is for SSI loans, now classified as special-mention loans.
Need more provisions? The worst case scenario is adding enough provisions to bring LLR coverage against SSI loans to 100% (i.e. 42% more). These loans are collateralized and are being rescheduled and restructured. Thus, if there is a default, the actual loss should be less than 100%. We estimate Bt1.7bn in added provisions for TISCO; we have no details for the other two banks but believe their LLR against exposure to SSI loans is 58%, the same as TISCO, lining up with 2Q15 BoT guidance. If so, they will need to add Bt8.4bn in provisions. However, all three banks have excess LLR that is larger than the additional provisions needed to cover 100% of the SSI loans. We believe they will use at least part of the excess LLR to bring provisions for SSI loans up to 100%, easing the need for new provisions. Of the three banks, TISCO will be hurt the most from the additional provisions as it has the lowest excess LLR and LLR coverage. For KTB, we have already factored in extra provisions of Bt5bn in 2H15.
