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    Southeast Asia
     May 4, 2007
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Thai Military Bank in the line of fire
By Shawn W Crispin

BANGKOK - Soon after Thailand's military seized power last year in a bloodless coup, the Thai Military Bank (TMB) started to bleed cash. Now, the military-affiliated bank's dubious plan to raise US$1 billion in new capital threatens to set off new bouts of political and financial chaos.

TMB - Thailand's fifth-largest bank by assets, which maintains the

personal bank accounts of many senior military officials - saw its overall retained losses jump from 44 billion baht (US$1.3 billion) at the end of last September to about 55 billion baht by year's end. The bank announced a 12.3 billion baht financial loss for 2006, a negative-257% swing from the 7.8 billion baht profit turned the previous year. Over the past calendar year, TMB's shares have fallen from about 5 baht to 1.8 baht per share at present.

To cover those losses and expand new lending, TMB unveiled plans this week to raise $1 billion in new capital through a rights issuance and debentures, which if fully subscribed would nearly double the bank's current capitalization. However, the question circulating in Thai banking circles is what foreign investor would possibly subscribe to the offerings in light of the bank's continued poor profitability, weak asset quality and new non-performing-loan risk.

TMB's board attributed last year's 12.3 billion baht loss to tighter capital-provisioning rules for non-performing loans in line with the central bank's implementation of the so-called International Accounting Standard 39. That included the recognition of more than 5 billion baht's worth of irretrievable loans it had transferred to the state-run Thailand Asset Management Corp rescue facility in 2002.

Yet TMB's financial troubles run much deeper than mere accounting adjustments. Many banking analysts doubt that even if TMB is able to raise new equity and reorganize its capital structure this year, it will be able to eliminate the retained losses. Partly because of TMB's overt links to the armed forces, and partly because of its quasi-state-owned managerial mindset, the bank remains one of the country's most opaque and uncompetitive financial institutions in what banking analysts consider one of Asia's most over-banked metropolitan economies.

Bad loans to property developers and the overextended sugar industry blew big holes in TMB's balance sheet in the wake of the 1997-98 Asian financial crisis, requiring the state to step in to stanch the financial hemorrhaging. Its more recent forced merger with the beleaguered, quasi-state Industrial Finance Corp of Thailand continues to weigh against TMB's overall performance. TMB's loan loss reserves, known in banking circles as the "coverage ratio", stand at a mere 46%, dangerously less than those of the country's top three banks, which range from 98% to 70%.

Reasserting control
Now, there are new concerns among some Bangkok-based banking analysts about the military's reassertion of control over the bank's management. Thailand's armed forces officially only hold a 4.6% stake in TMB, but the Ministry of Finance is the bank's largest shareholder through a 31.2% holding. TMB has long held a monopoly on military procurement financing, which because of the national-security dimension to the transactions shields it from outside scrutiny of the pricing and net interest margins earned on the deals.

TMB's board currently includes only two full-blown military officials - including top coup leader and army commander General Sonthi Boonyaratklin - but some banking analysts contend that a recent boardroom rotation resulted in the appointment of more known military proxies. Meanwhile, military-appointed Deputy Finance Minister Sommai Phasee was formerly TMB's chairman, and he is currently playing a leading behind-the-scenes role in arranging the bank's planned $1 billion recapitalization.

That's because the financial - and potential political - stakes are so huge that the offerings are fully subscribed. The military government recently hand-picked respected Thai banker Chulakorn Singhakowin to chair TMB's board of executive directors, who it clearly hopes can leverage his international connections to sell the upcoming offerings to big institutional investors. (Through an intermediary, Chulakorn declined to be interviewed for this article.)

Still, some Bangkok-based bankers warn that a weakening domestic economy, including anemic new private investments and weakening consumer sentiment, could revert many of TMB's recently restructured loans back to non-performing status, exposing even bigger holes on its balance sheet. Banking analysts expect TMB to announce a larger loss in the second quarter than last year's 12.3 billion baht annual loss, meaning that 

Continued 1 2 

Clouds on Thailand's horizon (Mar 27, '07)

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