IslamicFinance.de

The state-owned Islamic Bank of Thailand (IBank) believes its capital-adequacy ratio will return to positive territory this year. The expectation stems from applying the Finance Ministry's loan-loss provision requirements, which are less stringent than the Bank of Thailand's. The Finance Ministry requires the bank to set aside only 9-10 billion baht in loan-loss provision reserves based on 2012 performance. However, it reserved 15 billion baht to comply with central bank. According to Thongrob Danampai, chairman of IBank's executive committee, IBank's non-performing loans (NPLs) amounted to 38.5 billion baht as of last Dec 31 or 34.2% of its total lending. IBank's suspension of working-capital loans late last year could be blamed for a 15-billion-baht. IBank expects to resolve 20 billion baht in NPLs this year.

The Government Savings Bank (GSB) will continue to focus on supporting government projects, including possible mergers with the ailing Islamic Bank of Thailand and SME Bank. The bank has targeted non-performing loans (NPLs) at 1.15% of total loans this year. Moreover, it aims to achieve an increase in lending this year of 8.5% or 142.8 billion baht. According to the bank's president and chief executive Worawit Chailimpamontri, mergers with the Islamic Bank and the SME Bank have made no progress, but will be pursued if the government needs GSB as a solution to fix the problem. GSB also plans to open 90 new branches nationwide this year, and to launch new services while upgrading information technology and staff skills.

Due to complete management failure, two state-controlled banks, the SME Bank and the Islamic Bank of Thailand, are now dealing with bad loans in excess of 80 billion baht. This management failure is collective, whether it be the executives and directors of the two banks, the political leadership which appointed both or the Finance Ministry officials tasked with supervising the institutions. The problems at the institutions are conflicts in terms of policy direction, internal fraud and corruption and management inefficiency at the board, senior executive and staff levels. The public didn't create the troubles at these banks, but now must shoulder the cost of fixing them.

The Islamic Bank of Thailand has experienced deposit runs due to worries about its financial stability. The state-controlled bank reported some 5 billion baht worth of withdrawals over the past two weeks following reports of its weakening financial status. The government is now to move quickly to reassure the public the bank will have full government support. Prawat Uttamote, a Pheu Thai party list MP and deputy chairman of the border affairs committee said the bank's restructuring plan estimates that 50% of the bad loans or 12 billion can be recouped within the next two years. Therefore, the bank is in no imminent danger, he added. Prime Minister Yingluck Shinawatra separately stressed that deposits in the banking system are fully protected under the Deposit Protection Agency.

The Finance Ministry is supervising and working on a restructuring of The Islamic Bank of Thailand, or IBank. The ministry's approval for a capital increase depends on the success in the restructuring plan, according to Somchai Sujjapongse, the director-general of the Fiscal Policy Office. The bank is pursuing several options to recover debt, including filing court foreclosures or restructuring debt with clients. Mr Somchai stressed that IBank continues to operate normally, particularly retail lending operations, but has tightened underwriting practices for large corporate lending.

The Islamic Bank of Thailand plans to float 55 billion baht worth of Islamic bonds in the local and overseas markets this year, says bank president Dheerasak Suwannayos. He said the bank hoped to raise 5 billion baht from a local Islamic bond issue in the second quarter, the first issued in the Thai market.