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Published on September 3, 2007

In the current environment, there is a higher risk with investment in derivatives. As a result, the bank is likely to shift from CDOs to lower-risk products, said executive vice president Bordin Unakul.

The country's biggest bank has invested US$50 million (Bt1.72 billion) in CDOs which are rated AA. The underlying assets of the CDO structure are high quality without US sub-prime loans.

"The return on COD investment right now is satisfactory and it is not affected by the US sub-prime crisis. The bank wants to sell the CDOs before their maturity mainly because of a satisfactory return on that investment. It has nothing to do with the sub-prime factor," he said.

Bordin added that with the market uncertainty, returns on investments in financial products were not a straightforward theory like "one plus one will give two". Although the bank and its fund managers have analysed the investment based on its fundamentals, it is possible to err amid the current huge fluctuations.

By selling the CDOs ahead of their redemption date, the bank will face discounts. The proceeds will then be diverted to prime financial products, he said.

Bangkok Bank's liquidity is ample and so it must control funding costs. Its investment portfolio is about Bt300 billion, of which 80 to 90 per cent is in local and foreign bonds.

A source at Bank of Ayudhya (BAY) said the bank closely monitored its CDO investments and had anticipated the impact of the US sub-prime crisis. Even in the worst case, it would be able to cope with the problem and has prepared itself through such things as provision for asset depreciation.

BAY has CDOs with a value of $85 million, or 0.4 per cent of its assets. Their credit rating is at least A, and they are diversified in several sectors such as finance, insurance, communication and energy, the bank said. It does not invest in sub-prime CDOs.

Somruedi Banchongduang

 The Nation