World Economy

Thai Banks Face Biggest Default Since ’97

Thai Banks Face Biggest Default Since ’97Thai Banks Face Biggest Default Since ’97

Teesside, a gritty steel making district in England’s north east, is almost as far removed as you can get from the steamy streets of Bangkok. The two collided this week to inflict the biggest default on Thai bankers since the Asian financial crisis.

Sahaviriya Steel Industries Pcl, the Bangkok-based operator of Southeast Asia’s largest flat-steel manufacturing complex, reneged on 50 billion baht ($1.4 billion) of loans Monday following the failure of its four-year old UK venture. The group said it was suspending production at the Teesside plant, which employs about 2,000 people, amid a drop in prices and a supply glut stemming from slowing economic growth in China, Bloomberg reported.

Thailand’s biggest default since Thai Petrochemical Industry Pcl buckled under $3.8 billion of liabilities during the 1997 Asian crisis looks set to knock earnings at Siam Commercial Bank Pcl, Krung Thai Bank Pcl and Tisco Financial Group Pcl, which combined had extended most of credit. As they negotiate a restructuring, the three leading creditors to the company will take a hit to their current quarterly earnings that could, in the case of Tisco at least, wipe out any profit entirely, SCB Securities Co. says.

“Sahaviriya Steel overinvested in the UK and steel prices went down continuously from there,” said Suchada Pantu, an executive vice president in Bangkok at Thai Rating & Information Services Co. “They used too much debt because they couldn’t issue enough equity and bonds at that time. Now they have to find new partners” to survive, she said.

Should all of Sahaviriya Steel’s debt become nonperforming, bad loans in the Thai banking system will rise to 2.86% of total advances, from 2.46%, Ronadol Numnonda, Bank of Thailand’s assistant governor, said in a statement Sept. 22. A level of 2.86% would be the highest since July 2011.

“This will not affect the stability of the overall financial system,” he said. “Moreover, the lenders of Sahaviriya already set aside some provisions. This should be sufficient to deal with this debt.”

Siam Commercial Bank will make an extra 10 billion baht to 11 billion baht of provisions to account for the bad Sahaviriya Steel debt, and aims to minimize that blow this quarter by realizing seven billion to eight billion baht of investment gains, it said in a Sept. 21 exchange filing.

Krung Thai Bank will allocate another nine billion baht in addition to the money it’s already set aside, and expects to take a six billion baht hit on net profit in the three months to Sept. 30, about 70% of what its earnings have averaged every quarter since 2013.