KTB president Apisak Tantivorawong yesterday said the ministry had "forgotten" to set up a budget to repay the bank's debt. The debts then turned into NPLs, he told a meeting of shareholders.

The largest state-owned bank saw its first-quarter NPLs rise by Bt5.16 billion, of which Bt4.6 billion was due to bad loans borrowed by an agency of the Agriculture and Cooperatives Ministry during the Thaksin government.

The bank's NPLs as of the first quarter were Bt64.2 billion, representing 6.88 per cent of total lending, rising from Bt59.04 billion representing 6.26 per cent in the previous quarter.

"This state agency failed to service the debts, until they exceeded the central bank's limit. Then they turned into NPLs," Apisak said.

However, he said the loan was guaranteed by the Finance Ministry, so it is not that risky.

KTB chairman Suparut Kawatkul said the bank had already suggested two options for debt payment: a loan-maturity extension, which will boost the interest burden, or seeking a government budget for repayment. Both options would need Cabinet approval.

When the state agency, which the Agriculture and Cooperatives Ministry declined to name, will be able to repay its debt also depends on when the ministry proposes such options to the Cabinet. But Suparut believes the agency should be able to perform the debt repayment during the interim government.

Apisak added that commercial banks' NPLs in the first quarter had risen for the first time since peaking in 1998, reflecting an economic slowdown.

However, Phatra Securities said in a report that the negative reaction to NPL formation and low loan-loss provisioning appeared overdone.

"We believe KTB's NPL formation should decline to a normal rate in the following quarters.

"The low coverage could be defused by strong internal capital generation," the securities house said.

According to Phatra, the concern over KTB's low coverage, with the presumption that it will lead to a need for recapitalisation, is also unwarranted. The bank focuses more on tax deductibility, which is more important from the cash-flow standpoint, it said.

KTB's first quarter cost-method (unconsolidated) net profit was Bt4.4 billion, up 931 per cent quarter on quarter but down 8 per cent year on year.

Consolidated earnings (adjusting for the deferred bonus, equity account and taxes) should be about Bt4.5 billion, in line with what Phatra expected but higher than the general consensus.

Somruedi Banchongduang

The Nation