SME bank, Standard Chartered locked in legal

His comment came after Standard Chartered filed a lawsuit against the SME bank, claiming it had breached its interest-rate swap contract.

In May 2006, Standard Chartered had underwritten floating rate certificate deposits (FRCD) worth US$300 million or about Bt11.4 billion for the SME bank, which had used these FRCDs to raise funds abroad.

In order to hedge against risks associated with the volatility of exchange and interest rates, the SME signed a cross-currency swap and an interest-rate swap with Standard Chartered. 

However, Somchai said, there should have been no problems if the management team had done what they had been told to do. Instead, he said, the managers had signed swap contracts that were beyond their authority, which resulted in high costs.

He said the bank's board had given them the job of hedging against financial risks, but instead the managers went for financial speculation.

The board of the SME bank has asked the National Counter Corruption Commission to investigate the former management team for irregularities, he said, adding the bank would not consider this swap binding.

He said the opposing party knew about the SME bank's intentions as the board had informed Standard Chartered about its plans. 

"However, Standard Chartered is demanding that the SME bank pay it more Bt323 million, which we have refused," Somchai said.

The SME bank paid Bt324 million for the swap contract.

However, Somchai was quick to add that the dispute would not affect investor confidence because the SME bank had already paid FRCD holders in full. 

"If the court orders the SME bank to pay more, we would follow the verdict. We have already set aside provisions," said Somchai.

The bank's executive vice president, Somchai Tantitanawat, estimated that in the worst-case scenario the liability could be as high as Bt3 billion.