Thailand Banks

 Flood Damage – NPL Initial Assessment By Banks

Up to Bt37bn credit line involved for SCB: According to Thai Post and Bangkok Post newspaper, Khun Kannikar Chalitaporn, President of Siam Commercial Bank, indicated that SCB has 300 corporate customers adversely affected by the flood, along with 2000 SMEs customers. These corporate clients’ aggregate credit line is approx Bt15-20bn.
Affected SME customers accounted for another Bt17bn credit line, of which 183 customers with Bt7.5bn loans approached the bank to seek relaxed payment terms. SCB prepared special credit line up to Bt10bn to support customers in the meantime. The total Bt37bn figure (ie 3% of SCB total loans) might overstate true size of damage given some are loans to strong companies where equity owners will be the first to shoulder the loss. Major businesses also have insurance coverage. However, there is a clear downside risk to NPL and provisioning in next two quarters given just 30-40bps of loan provisioning policy at the moment.

Downside risk will manifest in 4Q11-1Q12 – Despite some LLR cushion for BBL, KBANK, SCB, TISCO (figure 1), we expect banks to re-assess their provisioning policy upward as situation unfolds. Near-term financial impact will be seen in forms of softer NIM as banks give out grace period and forego / reduce interest payments. Banks that are clearly at risk are those with low LLR cushion and low provisioning policy (figure 1 and 4). TCAP, KTB, TMB look risky for negative provision surprises given lower LLR coverage and low provisioning expenses than peers.

Regulators relax the rule on NPL classification: Banks, regulators, and credit bureau agreed NOT to classify customers in flooding area as NPLs until the situation is clearer. This will make NPLs figure only visible in late Q4-early 2012. We expect the impacts on NPLs will come into full force into early 2012 after water recedes and damage can be properly assessed. It is difficult to differentiate temporary disruption and long term solvency (due to net worth destruction) at this stage.

Still Evolving numbers: Note that KBANK executives (Khun Vasin and Khun Pakorn) gave estimates 3-6 days ago for Bt4bn exposure to corporate clients and Bt6bn SME exposure. The combined figures represent c1% of overall portfolio. However, the impact estimates rise quite significantly as SCB estimates 3 days ago were just 560 clients vs 2300 clients estimates as of yesterday, largely explained by worse than expected situation in industrial estate area in Ayudhya. Director of Office of SME Promotion estimated the damage to 115K SMEs in flooded area around Bt20billion and will need up to 3-6 months to fully recover.

Provisioning downtrend could reverse in 4Q11-1Q12