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Published on August 17, 2007

He said the bank had not invested in CDOs with sub-prime debts.

The problem in the US property sector has triggered fears of a global credit crunch, as financial institutions and hedge funds around the world have invested in CDOs with sub-prime loans.

Sub-prime loans are those extended to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

The country's largest state-owned bank has invested in structured CDO products for several years. It set a limit of $160 million on its investment in CDOs - a figure based on an acceptable risk level and suitability for the bank's investment portfolio.

"The level of US$160 million, or 0.54 per cent of the bank's total assets, is enough for investment in this product. It provides good returns, which are likely to be higher than the bank's financial costs from issuing hybrid bonds," Apisak said.

Krung Thai Bank recently offered hybrid bonds that can be counted as tier-one capital in overseas markets with coupon rate of about 7 per cent.

Apisak said the bank had invested in five CDOs on a long-term basis with minimum maturity of seven years. The underlying assets of the CDOs are of high quality and are diversified.

Of the bank's investment in CDOs, 25 per cent is in the banking and insurance sector, 18 per cent in electronics, 11 per cent in energy and manufacture, 10 per cent in auto and transport, 9 per cent in consumer products, 8 per cent in retail, 6 per cent in infrastructure and 5 per cent in construction.

"The bank does not invest in sub-prime CDOs. We invest in investment-grade CDOs only and the credit rating of some tranches has recently been upgraded. The bank believes it is not risking any losses from the investment," Apisak said.

Moreover, the bank is looking for opportunities for overseas investment in other financial products. The credit spread between bid and offer rates in the fixed-income market has widened, so overseas investments will contribute better returns, Apisak said.

Bank of Ayudhya said in a recent statement that it had also invested in CDOs with a combined value of $85 million (Bt2.92 billion), accounting for 0.4 per cent of the bank's assets. The credit rating of the CDOs is at least A or higher, and they are diversified into several sectors such as the financial industry, insurance, communication and energy, the bank said, adding that it does not invest in sub-prime CDOs.