KTB's bad loans on the rise again

The bank will be forced to set aside more provisions for the bad debt, president Apisak Tantivorawong said.

The White Knight concept was employed by Viroj and involved aggressive lending four or five years ago when most commercial banks were taking a cautious approach to avoid NPLs.

KTB was lending more than Bt100 billion a year in order to boost national economic activity.

Viroj, who is reportedly close to Somkid Jatusripitak, the then finance minister, was KTB president from July 9, 2001, to July 8, 2004.

Those bad debts are starting to appear on the balance sheet. NPLs have been increasing since early this year. In the first quarter, distressed debt increased for the first time in the past 10 years.

It is Bt64.24 billion, or 6.88 per cent of total loans. In December last year bank NPLs were Bt59.04 billion, or 6.26 per cent of total loans. The trend is likely to continue into second-quarter results.

Apisak said rising distressed loans had been caused by both "re-entry" NPLs and new bad debt. Many of the new NPLs stemmed from the White Knight period, he said.

At the end of 2004, NPLs were Bt119.69 billion, or 12.35 per cent of total loans.

As a result, the bank was forced by the Bank of Thailand (BOT) to set aside Bt10 billion in reserves to account for 12 controversial loans totalling a combined Bt46 billion.

The bank was ordered to reclassify these loans as doubtful. The affair eventually cost Viroj his job.

Apisak said small and medium-sized enterprise loans had increased significantly in all sectors. The default rate of trade credit among business operators has risen because of a liquidity squeeze.

As a creditor KTB assists customers with liquidity problems but considers their ability to service debt before extending new loans.

"With a higher risk projection KTB will need additional provisions for doubtful debt for the second quarter, although the bank has already set aside loan-loss reserves at 100 per cent as per the BOT requirement," he added.

Despite the economic slowdown the bank has no policy to relax loan-approval conditions. He believed the bank would achieve its new-loan growth target of Bt60 billion this year. It maintains its national economic-growth forecast for the year at 4 per cent.

Investor sentiment has improved thanks to export growth and stock-market climate, KTB said.

The downward economic trend is expected to end by the second quarter. The economy will remain flat for a while before gradually taking off. Several large enterprises have investment plans in the pipeline, Apisak said.

Somruedi Banchongduang

The Nation