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Published on January 12, 2008

The source said the recapitalisation currently under way would raise funds for the bank at a slightly higher amount than needed to cover the loss in its CDO, which is required to be appraised again on a mark-to-market basis under the international accounting standard. No one can predict how much the CDO investment will fall.

Moreover, the bank must have enough capital to run its businesses, particularly credit expansion, because it must follow the international practices of the Bank for International Settlement (BIS).

"The bank may need to raise capital for another round, depending on the change in the CDO value. The present recapitalisation can solve the problem only in the short term," said the source.

BankThai has raised funds twice since last April. At that time, BankThai offered 731.44 million shares in a private placement to TPG Newbridge and two other investors: Blum Capital and Marathon Asset Management. The second recapitalisation is currently under way.

The source said BankThai was actually a good potential bank but had faced unexpected losses from its CDO investment.

Earlier, analysts forecast that BankThai would possibly increase its capital again to boost its BIS ratio. Globlex Securities projected that the bank would increase an additional Bt3 billion to Bt5 billion to boost the BIS ratio to 12-14 per cent, from the current ratio of 10 per cent.

Ayudhya Securities also predicted the bank would have to set aside additional reserves for a possible further loss from CDO amid the uncertainty of the US sub-prime mortgage crisis.

BankThai has failed to sell out its capital-increase shares for existing shareholders in the current recapitalisation.

It informed the Stock Exchange of Thailand on Thursday that shareholders exercised their rights for only 3,048,040,000 shares from a total offering of 4,449,800,000 shares.

The bank plans to sell the remaining 1,401,800,000 shares to the Financial Institutions Development Fund (FIDF), the TPG Newbridge Group, Blum Strategic III BT Hong Kong, MSOF Hong Kong BT and other existing shareholders.

The source said the FIDF might not exercise its right this time, but rather allow other investors to buy the shares to help the bank complete its recapitalisation, in order to boost capital in line with the BIS ratio.

"The fund may maintain its current position and does not mind keeping the shareholding ratio at this level," said the source, adding that the TPG Newbridge Group or other existing shareholders could exercise their right due to the bank's potential and the low price of Bt1.38 per share.

Meanwhile, the Bank of Thailand has been discussing the future of small banks, in order to set guidelines for the second phase of the Financial Sector Master Plan. Some central bankers believe small banks can survive in the industry through a niche-market strategy.

However, others do not think small banks will be able to continue in business amid the current strong competition. The niche-market strategy, such as hire-purchase, can generate only a thin margin and may finally lead to losses. Small banks may need strategic partners or mergers with other banks.

Anoma Srisukkasem

The Nation