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Published on July 17, 2007

There was an immense level of non-performing loans (NPLs) in the Kingdom's financial sector after what was termed the "tom yum kung disease" forced banks to stop providing new loans. It was a reaction that hammered the country's economy. KTB was one of the in

stitutions suffering from a large number of NPLs - at their peak, about 48 per cent of the bank's total loans.

As a government-owned bank, KTB was urged by the then-administration to lead other banks in lending aggressively, in a bid to boost economic growth, senior executive vice president Sahas Treetipbut recalled.

As a result, KTB provided Bt140 billion worth of loans within a year of the crisis, and in doing so recorded the industry's highest lending record. The bank attempted to reduce bad debts with a haircut and injections of new money into business operations. In this way, it hoped to improve both customers' financial health and the overall economy, he said.

The bank also needed to raise a large amount of funds to cover the loan expansion, so it offered higher deposit rates than its competitors, although domestic interest rates after the crisis were at quite a low level. In only one year, the bank raised as much as Bt100 billion.

"Standing up as the leader, as the loan provider, followed government policy for the economic recovery and repaid KTB's obligation to the government after the Finance Ministry helped the bank's recapitalisation," Sahas said.

KTB was supported by its key shareholder, the Finance Ministry, in a capital increase under the "August 14 measure" introduced by the authorities. The Bank of Thailand (BOT) and the Finance Ministry in 1998 announced the measure to help bail out the financial sector, and as the country's largest state-owned bank, KTB was a major participant in the programme.

Under the restructuring plan, the Finance Ministry provided the bank with recapitalisation funding of Bt185 billion, of which Bt77 billion was received in December 1998 and the remaining Bt108 billion in 1999.

However, the government's funding injection to the state-owned bank came with conditions. It had to absorb the performing assets of defunct Bangkok Bank of Commerce and consolidate with First Bangkok City Bank, which also closed its doors.

The consolidation doubled the bank's staff, increasing its operating costs when it could least afford it. In a bid to reduce costs amid economic recession in 1998, KTB introduced an early-retirement programme, and about 6,000 staff resigned.

As well, the bank realised its business operations and management structure needed re-engineering. It appointed foreign advisers to provide the best advice available, and the subsequent re-engineering programme led to significant changes at the state-owned bank.

Sahas said KTB shifted its focus from wholesale operations to the retail banking business, in line with the country's economic environment.

After the crisis, the BOT allowed foreign banks to acquire larger stakes in Thai financial institutions, and local banks had to adjust themselves to cope with greater competition from the newcomers.

"Retail customers were more important for the banking business after the crisis, because corporate customers slowed their investment. All banks, therefore, paid more attention to fee-based income, KTB among them. From this, KTB's 'convenience bank' concept was created," he said.

Apart from the organisational changes, the bank also made strong moves away from the culture of a state-owned enterprise towards that of a commercial organisation.

Somruedi  Banchongduang

The Nation