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Bank of Ayudhya needs more provisions - Fitch

BANGKOK: Thailand's Bank of Ayudhya Plc may need to make 25 billion baht ($663 million) more provisions for bad loans, rating agency Fitch IBCA has said.

Fitch said in a statement received by Reuters on Saturday that this estimate was based on the assumption that 35 percent of its peak impaired loans were lost.

It said the bank's loan loss reserves at the end of 1999 amounted to 27.3 billion baht or 23 percent of peak impaired loans, which appeared significantly below the 35-40 percent loss coverage of most other banks.

Bank of Ayudhya announced on Friday a plan to float two billion new common shares and 1.7 billion warrants to shareholders in a capital-raising exercise which it said was needed to meet its funding requirements for the next three to five years.

Like many Thai banks, Bank of Ayudhya ran into a bad loan crisis during the Asian financial turmoil of 1997/98 and has had to raise millions of dollars to provide for bad loans.

Fitch said the constraints on the bank's earnings recovery and the potential large provisioning expense was likely to result in further severe losses, requiring substantial additional capital raising.

It said the bank's change in its traditional focus on medium-sized businesses during the boom years of the 1990s to larger corporations and to property, construction and hotel developers, left it more vulnerable to the economic crisis.

"(Bank of Ayudhya's) exposure to its two largest borrowers, the Ratanarak Group and the Sahaviriya Group has also been potential source of considerable credit risk, but this has now declined to about six percent of loans," it said.

Bank of Ayudhya reported a 1999 consolidated net loss of 20.7 billion baht mainly due to 15.7 billion baht in provisions and poor earnings.

In 1999, the bank raised 13 billion baht in tier one capital in the form of preferred shares and subordinated debt and 17 billion baht via a ordinary share placement.

Classified impaired loans declined to 119.6 billion baht, or 32.8 percent, mainly due to debt restructuring of 78.7 billion baht, it said.

Fitch said its individual short-term rating of "B" reflected the bank's high level of impaired loans, poor earning outlook, low loss coverage and weak capitalisation.

"Our long-term view is that state support is likely but not certain. (The bank) has a lower share of deposits and loans compared with the major retail banks and is therefore systemically less important," it said.-Reuters