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Published on July 23, 2007

As the crisis hit, BAY needed to adjust all aspects of its operation, particularly its management style. The vision of the bank's top executives then was key to the bank's survival now, said former chief business marketing and public relations officer Charlotte Dhonavanik.

In the wake of the crisis, Krit Ratanarak, who is the bank's major shareholder, was also the top executive as chairman.

"The organisation's leadership is a very important factor. BAY's top management allowed the bank to change drastically, including business focus, working methods, rebranding and giving the bank a spokesperson," she said.

BAY has successfully changed its image from that of a conservative bank to a modern one over the past several years.

As a result of the financial crisis, the country's sixth-largest bank needed large recapitalisation, which was done in two rounds. The first was for Bt23 billion, of which Bt15 billion was new shares offered to existing shareholders and Bt8 billion from the issue of long-term subordinated debentures.

In March 1998, the bank raised funds for the second time by offering a new structured financial product called Stapled Limited Interest Preferred shares (SLIPs), worth Bt26 billion. BAY was the second bank to issue the hybrid securities, which were countable as its first-tier capital. The first was Thai Farmers Bank, now renamed Kasikornbank.

While several local banks at that time offered capital-increase shares to foreigners to raise new capital, BAY decided not to. Shareholders still had confidence in the bank and with SLIPs, it recapitalisation was successful, said Charlotte.

In 1999 and 2000, most banks allocated the bulk of their resources to deal with the bad-debt situation, which was also BAY's key task after the crisis. Its non-performing loans increased to a historic high of about 40 per cent of total credit.

"Selling off distressed loans was one of the bank's key methods of decreasing bad debts. The bank made around Bt5 billion to Bt6 billion annually on average and this helped it stop the bleeding at that time," she added.

Reorganisation and staff reductions were also needed to save the bank. BAY undertook five rounds of employee reduction through early-retirement programmes, four of which were voluntary. Two years after the crisis staff had decreased by about 5,000.

In terms of business changes, the institution shifted its concentration to retail banking after the crisis as corporate customers hardly expanded their investment at all as a result of the dire economic situation. Then the bank focused on consumer finance and mortgages in particular, which later became the bank's key consumer-financing product.

The bank's conservative style of operation, however, has been an advantage as it has been prudent in loan expansion with the concept of "No Land No Loan".

Charlotte said the 1997 financial crisis was an important lesson for the country, both for regulators and business operators. It made everyone aware of the need to manage risks carefully.

"All banks, including BAY, now pay more attention to customer credit scoring and good corporate governance. In addition, the regulators have also introduced several measures to strengthen the country's banking industry," she said.

Somruedi  Banchongduang

The Nation