![]() Our hands were tied by the legal system." Even if the loans went into litigation, there was still a long delay before we could foreclose. "But there were problems with restructuring the debt. "AMCs were set up to deal with the worst part of the loan portfolio," says Laixuthai. Ploy AMC was liquidated at the end of 2005 because of difficulties recovering the debt. In 1999, Kasikornbank set up Ploy Asset Management Company (AMC), which took control of NPLs from Phatra Thanakit Finance company, formerly a Kasikornbank subsidiary. "We also offer a discounted pay-off option in which the bank writes down loans to a market value," says Kasikornbank's Laixuthai. Some other options include recapitalisation, loan swaps and debt-for-debt exchange. ![]() Strategies for handling NPLs have included the establishment of asset management companies (AMCs). Its NPL level rose to 10.2% at the end of June 2007 from 9.8% at the end of March. In November, Krung Thai Bank said it expected to add another 8 billion baht to its loan-loss provisions in the last six months of 2007 to comply with new accounting standards. "Its hard to believe a billion dollars' worth of non-performing loans wasn't known about." "They aggressively pursued loans without thinking a whole lot about what they were doing," says an analyst at a European bank in Bangkok. The central bank, Bank of Thailand, later singled out Krung Thai Bank for lax lending standards, saying that it had financed several major projects of such dubious quality that the owners would probably not be able to repay the money. The news sent its stock tumbling by more than a third. A total of 12% of Krung Thai Bank's loans, up from 8%, would be considered non-performing. The bank, Thailand's second largest in terms of assets, dropped a bombshell in 2004 when it unveiled that Thailand's central bank had forced it to reclassify more than $1 billion of loans as NPLs – even though they were still being paid. Krung Thai Bank has a legacy of springing unpleasant NPL surprises on investors. "One of the more successful alternatives is to urge our clients to seek strategic partners to turn the company around," says Pongnontakul. Kaival Pongnontakul, head of investor relations at Krung Thai Bank in Bangkok, says the bank has made moves to help struggling debtors, including restructuring and offering haircuts. "A collateral liquidation approach is a strategy we use to resolve bad loans." "Putting outside private equity investors together with some of our borrowers has been a strategy we've used with success to manage our NPL problem," he says. Kasikornbank's Laixuthai says bullet loans do not make up a large part of its NPL portfolio. So the only way to recover the loans is for the banks to bring in investment firms such as ours to see if we can help turn the companies around." The debtors are often too small to go public. "Many banks are constrained by regulations and the lack of a local market, and can't securitise these debts. "We've been invited by several Thai banks to see if we can do anything to help their clients repay restructured loans they took out after the 1997 crisis," says Dean Van Drasek, an executive director at hedge fund Lim Advisors in Hong Kong. Many of these loans were in bullet format – meaning the principal amount is repaid on the final maturity date rather than over the lifetime of the loan or bond – with low interest rates of 2–3%, usually with five- or-10 year maturities, say market participants. Rather than shut the door on beleaguered corporate borrowers in the wake of the Asian financial crisis, many instead extended credit lines and issued soft loans to help them weather the financial storm. The Thai bank's story is typical of many local lenders in the region. ![]() The bank, which had outstanding loans of 704 billion baht at the end of October, expects its full-year results in late January to show lending growth of around 11–13% for 2007, thus meeting its target. Analysts say the Thai economy will grow at 5%, up from 4% last year. ![]() Kasikornbank, formerly Thai Farmers Bank, is aiming for loan growth of 10–15% in 2008, due to a slowly improving economy. Today, bad loans make up less than 5% of our loan portfolio." "Since then, we've had to adopt several approaches to resolve the issue and clean up our balance sheet. "Our problems peaked in 1999, with 43% of our entire loan portfolio deemed non-performing," he says. The press release said the sale was to help the country's fourth largest lender ease management of its non-performing loans (NPLs) and cope with economic and political uncertainties.Īdit Laixuthai, Bangkok-based head of investor relations at the bank, says the sale was the end of a long battle to overcome an overwhelming bad-loan burden. At the end of November, Thailand's Kasikornbank unveiled its sale of 11.8 billion baht ($39.7 million) in bad loans to US investment bank Morgan Stanley and South Africa's Standard Bank.
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