Published on July 7, 2007
Around 1996 the bank saw the country's economy moving toward recession. President Banthoon Lamsam, now the bank's CEO, forecast that the Thai banking system's net profits would decrease sharply. Adit Laixuthai, the bank's first senior vice president, recalled that Banthoon's remark had had a significant impact on the country's stock market.
Once the crisis erupted, the Bank of Thailand (BOT) ordered commercial banks to set aside huge amount of additional loan-loss reserves.
The first challenge was the adequacy of the bank's capital base. Thai Farmers Bank, as it was then, raised Bt97 billion over the next two years through three actions
l It raised Bt33 billion in April 1998 by issuing 376 million common shares, its first such issue.
l It then offered Stapled Limited Interest Preferred shares (SLIPs) totalling Bt40 billion in January, 1999.
l Then the country's fourth largest bank increased capital for the last time in October in the same year by Bt24 billion through another common-share issue.
"The bank was successful on recapitalisation for all three rounds, and the market was opened only for a short period. Just after the bank completed the capital increase, the window closed," Adit said.
Once the bank completed recapitalisation, bad-debt management was the second key task in that period. The bank divided its assets into two groups, "good bank" and "bad bank", and set up two asset-management teams. The bank also set up two "asset-management corporations" (AMCs), Thonburi and Chantaburi, to resolve the NPL problems of the bank and its subsidiaries respectively.
In another key move, the bank set aside a loan-loss provision higher than the amount called for by the Bank of Thailand. This is still the bank's practice.
With its aggressive approach to distressed loans, the bank's NPLs fell from a peak of around 40 per cent of total debt to a single digit now.
The last key task during the economic crisis was reorganisation, which meant concentrating on those core businesses in which the bank had the most expertise. Moreover, the bank's way of business operation was also significantly changed, particularly its attitudes toward credit and risk management.
"The bank's loan-approval process was changed once we built up a new credit culture by learning lessons from the financial crisis. For example, the bank would consider business potential and cash flow on loan approval in addition to loan collateral," Adit said.
He said management's "will" was the key factor that helped the bank survive the crisis. Although the bank had to bite the bullet at first, it led to a better situation finally.
The bank learned that it had to be proactive, constantly preparing for unexpected change.
As the country's financial landscape is again expected to change significantly, in particular from financial liberalisation, the bank needs to constantly strengthen itself, he said.