The State Enterprises Policy Commission or superboard has thrown a lifeline to the Islamic Bank of Thailand (IBank) by approving 16 billion baht in fresh funds to the financially ailing institution via a capital increase. The state-owned bank’s capital adequacy ratio (CAR) will swing back to the Bank of Thailand’s minimum requirement of 8.5% of risk-weighted assets from minus 1% now, senior executive vice-president Kunchit Singsuwan said on Monday.
The superboard has approved the bank’s 10-billion-baht capital increase request on top of another 5.1 billion baht recapitalisation earlier allowed by the Finance Ministry.The capital increase will be done in phases, Mr Kunchit said, adding that IBank’s CAR was expected to meet the central bank’s minimum level by late next year.
IBank is one of two ailing specialised financial institutions the superboard is requiring to rehabilitate their business to address their problems in the long run, the other being the Small and Medium Enterprise Development Bank of Thailand. IBank is saddled with a hefty amount of bad loans due to its imprudent approval process in the past. The Finance Ministry has a 48.54% stake in IBank, the Government Savings Bank has a 39.81% share, Krungthai Bank
has 9.83%, and other shareholders account for the rest. IBank’s non-performing loans (NPLs) amount to 50 billion baht or half of its total lending. Mr Kunchit said less than 5 billion baht or 10% of the NPLs was borrowed by Muslim customers, and the bank planned to handle these bad loans by itself.
For the remaining 45 billion baht in bad loans, IBank has proposed four options for Finance Ministry approval. They are disposal of all bad loans to asset management companies, selling them all to state-owned Sukhumvit Asset Management, setting up its wholly owned asset management subsidiary to manage bad loans and the ministry establishing an asset management company to cope with the bank’s bad loans.
Its NPLs will decline sharply to 2% of its outstanding loans if all the 45 billion baht worth of bad loans are sold out. IBank lent 7 billion baht worth of net new loans, with half extended to retail borrowers with credit amounts of less than 20 million baht each. The bank plans to raise the number of its Muslim customers to 1 million accounts or most of its total clients by 2017. It has total deposits of 100 billion baht, which is close to the level of the bank’s outstanding loans.
Originally published on www.bangkokpost.com