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2 ASIA HAND 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
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