SCB, KTB

Singapore, September 25, 2015 -- Moody's Investors Service says that a
proposed loan restructuring exercise by Krung Thai Bank Public Company
Limited (KTB, Baa1 stable, ba1) and Siam Commercial Bank Public Company
Limited (SCB, Baa1 stable, baa2) relating to Sahaviriya Steel Industries
Public Company Limited (SSI, unrated) is credit negative for both banks.

The proposed restructuring -- which involves three creditors and amounts
to THB50 billion in debt -- relates to a decision by SSI to halt
production at the former Corus steelworks in Teesside, UK.

KTB and SCB together account for THB45 billion in loans to be restructured.

"Additional provisions on SSI exposures will hurt the banks'
profitability and ability to generate capital internally this year,"
says Simon Chen, a Moody's Vice President and Senior Analyst.

KTB said it will make additional specific provisions of about THB9 billion
in 3Q 2015 for its SSI exposures, and will also increase general
provisions to replenish its reserve coverage ratio back to 100%. It has
estimated an effect of around THB6 billion on net profit for 3Q 2015.

SCB said that it will make specific provisions on THB10 billion-THB11
billion on its THB22 billion in SSI exposures, while also booking a gain
of THB7 billion-THB8 billion on equities and investments in order to
mitigate the effect on net profit in 3Q 2015.

"We estimate that the capital ratios of KTB and SCB, which would likely
have risen this year with retained earnings despite the slow Thai economy
and increasing asset risks, will instead remain roughly flat because of
their additional provisions for SSI exposures," says Chen.

At end-June 2015, KTB and SCB had common equity Tier 1 ratios of 10.6%
and 13.8%, 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.

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.