BOT clarifies bank's capital adequacy

BankThai's capital adequacy ratio is currently higher than the required level of 8.5 per cent, the Bank of Thailand clarified yesterday, although it is likely to need to increase capital for business expansion in the next few years.

The statement from the central bank, the major shareholder in BankThai (BT), came a day after BT executives said the bank had to urgently sell off about Bt3.8 billion worth of non-performing loans (NPLs) to maintain the required capital adequacy ratio.

Bank of Thailand (BOT) assistant governor Sorasit Soontornkes said yesterday that BT needed fresh funds from a new strategic partner for business expansion, similar to the practice followed in the recapitalisation of other banks, such as TMB Bank.

"The new partner must buy the BT stake from the Financial Institutions Development Fund and must look forward to the bank's business in the future," he said.

Sorasit said the potential partner must have competence in management and risk management.

Tongurai Limpiti, senior director of the central bank's Fund Operation Department, insisted that BT's capital adequacy ratio was higher than the required 8.5 per cent even before it unloaded the NPLs to Bangkok Commercial Asset Management and Sukhumvit Asset Management.

Under Bank for International Settlements (BIS) guidelines, the ratio underwent up after BT completed the deal with a profit of Bt200 million.

The bank set aside a reserve of Bt3.6 billion for the bad assets, but could sell them at Bt3.8 billion, Tongurai said.

The reduction in its NPLs meant that BT's risk assets reduced, which increased its ability to provide loans.

"The BIS ratio of 8 to 9 per cent limits lending because the risk assets increase, causing the ratio to decline. The selling of NPLs will widen the room for the loan expansion," Tongurai said.

BT's capital adequacy ratio was 10 per cent after the Financial Institutions Development Fund injected money in the last round of recapitalisation. However, it declined gradually due to revaluation of the bank's collateralised debt obligations (CDOs) on a mark-to-market basis.

Tongurai said BT had already set aside reserves for a 76-per-cent reduction in the CDOs' value, but the securities' price has been steady since April and the bank has received continuous returns from the debt instrument.