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Published on November 30, 2007

The Financial Instit-utions Development Fund (FIDF) yesterday ordered BankThai to further explain its risk-management policy.

This is because the fund, the major shareholder of the loss-making bank, is dissatisfied with the explanation that management gave on its investment in collateralised debt obligations (CDOs).

Bank of Thailand Assistant Governor Sorasit Soontornkes said yesterday after a meeting of the FIDF board that discussed BankThai's damage from its investment in sub-prime CDOs, that the bank's management had failed to clearly explain its risk-management policy. The central bank manages the FIDF.

FIDF manager Tongurai Limpiti earlier said the board would consider whether the bank's executives had made the correct decision and how to respond to the losses.

The fund yesterday considered the result of the probe of an ad-hoc audit committee set up by BankThai after the FIDF complained to the bank about the investment. "It depends on the bank's board whether to act against the executives," Tongurai previously said.

The CDOs were marked down to 63 per cent of face value, but the loss has yet to be incurred. BankThai must set aside extra reserves of US$6 million (Bt203 million) to cover the falling price of the CDOs, after already setting aside $51.9 million.

For the first nine months of the year the bank's performance was in the red to the tune of Bt2.99 billion.

A BankThai shareholders' meeting earlier agreed to sell Bt7.68 billion worth of new shares to existing retail shareholders. The recapitalisation will bring its capital-adequacy ratio up to 12-13 per cent.

Sorasit said the FIDF was ready to inject money into the bank to subscribe to the capital-increase shares and maintain its holding. He said the FIDF would buy shares not taken up by retail investors, in order to maintain its stake.

He insisted the fund had to put more capital in to keep the bank's financial health stable.

Tongurai said earlier that BankThai could sustain loss from the CDOs because it had set aside reserve provisions.

The loss from the falling price of the CDOs will worsen the bank's performance, because its capital-adequacy ratio has fallen to 6.5 per cent.

Tongurai recently said that even though the FIDF will close after the Deposit Insurance Agency is founded, the fund was not seeking to unload BankThai stakes.

BankThai, Krung Thai Bank, Bank of Ayudhaya and Bangkok Bank have indicated exposure to CDOs, but SCB Securities said BankThai would be the hardest hit. Assuming a loss of 20-30 per cent on non-sub-prime CDOs, it estimates additional losses of Bt1.6 billion to Bt2.5 billion.

Anoma Srisukkasem

 The Nation