Thai banks continue to struggle despite their efforts to restructure following the Asian crisis of 1...
Thai banks continue to struggle despite their efforts to restructure following the Asian crisis of 1997, according to Harvey Hammond, Asia Pacific fund manager at Baillie Gifford.
Hammond says the Thai banking sector is still recovering from the over investment it experienced in the run up to the crisis, based on the then assumption of further economic growth.
At that time banks in Thailand were extensively borrowing US dollars and when the Thai baht depreciated, borrowing costs rocketed.
Thai banks were hit on two fronts and companies found themselves unable to pay off their loans, Hammond says.
At the peak of the crisis, 12 to 18 months ago, non-performing loans (NPLs) made up between 40-50% of total loans
According to Robert Murphy, global financial analyst at Gartmore, Thai banks have the worst asset quality in Asia due to their high level of non-performing loans.
Morten Frederiksen, investment manager at Scottish Equitable Asset Management, remains pessimistic about the banking sector in Thailand.
He says several banks have had to raise capital recently, among them the Bank of Ayudhya.
He says the worry is that all banks will have to raise capital via the stock market and there are not enough investors to come up with sufficient money.
Frederiksen believes transparency has to be ensured in the Thai banking system and there needs to be a strong move to reform. Allegations of corruption have been damaging to the sector, he says.
There has also been criticism of the Thai government for not getting more involved in the wake of the crisis.
Hammond points out the Thai government is setting up an asset management company for the government-majority owned Krungthai Bank and there has been talk of nationalising NPLs.
However, this would raise questions about whose responsibility it is to bare the burden of NPLs and what would happen if there were a repeat situation.
However, there are some positive signs things may change in the sector.
The Thai Danu bank has sold a number of its bad loans to other financial institutions, enabling it to clean up its balance sheet, says Hammond.
Murphy sees a recovery in the sector, especially among private banks.
He points out that at the end of June, where Thai banks overall had NPLs of 32%, private banks had NPLs of 22%.
With initiatives to reduce operating costs among banks, Murphy believes in the long term the Thai banking market should become attractive.
He adds Thai banks posted good returns before the crisis and he expects them to do so again.
Some small Thai banks have been acquired by foreign banks, among them Bangkok Metropolitan Bank, which was recently acquired by HSBC.
Murphy says: "HSBC doesn't tend to invest in an unstable country, buying a Thai bank is an indication of stability. It shows the bank believes the Thai market is a fairly large and interesting one."
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