Krungthai Bank aims to launch subordinated debentures this year even though the funding cost of this instrument will be higher than previous sub-debt issues, as their only purpose was to strengthen Tier 2 capital.
The new issue will be made when the Securities and Exchange Commission finalises a regulatory document that will allow only accredited investors to buy subordinated debt issued by banks.
The SEC regulation is expected to be announced soon, and several banks plan to issue subordinated debt, said Kittiya Todhanakasem, first senior executive vice president at KTB.
None of the Thai banks have issued sub-debt since Basel III was implemented on January 2, 2013.
She explained that under the Third Basel Accord, sub-debt buyers must accept the loss-absorption cost, which means they must have sufficient accreditation.
Therefore, the SEC has to regulate the buyers according to their assets under management, while bank issuers must offer a high return to attract buyers as a trade-off for the loss-absorption cost that buyers have to bear.
Under these circumstances, KTB’s new issue will need a higher coupon rate than previous subdebt instruments, she noted.
Banks require subordinated debt to reinforce Tier 2 capital. KTB’s capital adequacy ratio at the end of last year was 14.8 per cent, of which 4.6 per cent was Tier 2.
Kittiya said the bank could raise funds through unsecured notes, which would not be included in Tier 2. Even though a Thai bank recently raised funds in US dollars, KTB has enough dollars to support its customers’ requirements because it last year issued $500 million in dollar-denominated senior unsecured notes.
If its customers require more dollars, the bank has three tools to acquire them: bilateral loans, baht swaps and dollar-denominated senior unsecured notes.
On loan-loss provisions, Kittiya said KTB would keep these at a normal level of Bt1.5 billion per quarter despite the current uncertain environment. However, the bank may review its reserve policy next year to comply with Bank of Thailand requirements.
The BOT has noted that the banks have remained profitable, so are able to set higher provisions to ensure the banking system is protected, come what may.
Vorapak Tanyawong, president of KTB, said his bank was devel-oping a risk-model tool to help it analyse new loan applicants.
This will make the credit-approval process less time-consuming for staff and more efficient.
“Our risk model will consider the past three years of customers’ credit history and the previous loan-portfolio base as the indicators for analysing creditworthiness. We believe that after implementing the risk-model tool, we will see improvements in our non-performing-loan rate within two years,” he said.
KTB’s current NPL rate is more than 3 per cent.
He said small-business clients were risky during the economic slowdown but this category generated high loan yield. Therefore, the bank has to be selective by focusing on supply chains of KTB’s larger corporate customers.
Small businesses are defined as those with a credit limit of Bt20 million.
Weidt Nuchjalearn, first senior executive vice president of KTB, said the bank had set up a new division to oversee the risk and debt-collection system for retail customers and small businesses. When the risk model and the revised collection system are implemented, within three years, lending to small businesses will climb to 60 per cent of the total SME (small and medium-sized enterprises) loan portfolio from 30 per cent currently.
Outstanding loans to small businesses now account for Bt100 billion of the total SME loan portfolio of between Bt340 billion and Bt350 billion.