Report casts gloom on Thai banks

BANGKOK, June 23 (AFP) – Thailand’s banking sector plunged into fresh gloom Wednesday as US ratings agency Moody’s Investors Service said the crisis-hit industry remained “deeply impaired.” The judgment came at a time when many investors had been expecting ratings upgrades from foreign agencies for debt-laden Thai banks which have been struggling to recapitalise. In a report received here Wednesday, Moody’s said the banking sector remained in deep crisis and warned that all banks remain “heavily insolvent in true economic terms.” “Although the largest banks in the capital starved system have been able to move closer to satisfying current regulatory requirements for loan loss provisioning, the mid-sized and smaller banks remain well behind. Additionally, government assistance and/or regulatory action, including intervention, vis-à-vis these deeply impaired banks can be complicated by political considerations,” it said. Consequently, Moody’s believed that the prospects for these banks, as well as for those that have already been intervened in by the government, still remain uncertain. “The outlook for their ratings continues, therefore, to be negative.” Moody’s said debt in “less impaired” banks, including Bangkok Bank, Krung Thai Bank, Thai Farmers Bank, Siam Commercial Bank, and Industrial Finance Corporation of Thailand, was stable in the Ba3/B2 range. Moody’s said it expects that Bank of Asia’s subordinated debt, which is rated Ba2, will benefit from support by its new parent, ABN AMRO Bank NV. Weaker commercial banks, like Bank of Ayudhya and the intervened banks, including Siam City Bank and Bangkok Metropolitan Bank, were rated lower because their recapitalization requirements were more urgent and their treatment of subordinated creditors was an mmediate issue. Therefore, their outlooks were negative, Moody’s said. The report said that additional capital was desperately needed by all Thai banks. “The system’s current (June 1999) capital and loan loss reserves, less accrued interest (most of which is unlikely to be recoverable) is estimated to total only about 23 percent of gross loans.” And despite the huge amounts of capital pumped into banks as part of restructuring efforts, “much more is required.” Moody’s also said that the crisis will result in a big increase in the presence of foreign banks in the Thai system, and transform the competitive landscape over the medium and longer term. “It is a distinct possibility that a much larger, and possibly even a dominant, role will be played by foreign banks and that local banks will be marginalised.”