Thailand's Siam Commercial Bank (SCB) said it has set aside up to 11 billion baht ($307.86 million) in additional provisions in the current quarter on loans made to loss-making Sahaviriya Steel Industries (SSI) and its subsidiaries.
The disclosure on Monday by SCB, Thailand's third-largest lender, of the new provisioning means two other major Thai banks that have extended large sums as loans to SSI could also be announcing additional provisions, analysts said.
SCB, Krung Thai Bank and Tisco Bank gave syndicated loans of about 44 billion baht to SSI, Thailand's largest steelmaker, to acquire a British steel mill in early 2011.
The mill, now a unit of SSI, said on Friday it was halting operations at its Redcar plant in northeast England, citing a sharp decline in steel prices.
SCB said in a statement the "significant additional provisions" were for the 22 billion baht in loans related to SSI and its subsidiaries.
The provisions were in the range of 10-11 billion baht, and the loans to SSI's UK subsidiary would be fully provided, assuming no collateral value, it said.
SSI loans are currently classified as special mention loans by the lenders. If the debts turn into non-performing loans, they will significantly increase the bad debts of the overall banking sector, which faces weak lending growth this year due to a sluggish economy, analysts said.
Concerns about the higher provisions on SSI pushed SCB shares down 1.7 percent by 0540 GMT, while the main Thai index was down 0.1 percent.
Trading in shares of SSI was halted on Monday. The shares have fallen 44 percent in the past three months, underperforming the 8 percent drop of the main index.
The three banks and SSI are scheduled to hold a joint press conference on Monday afternoon.
SSI, Southeast Asia's largest, fully integrated steel sheet maker, has been blighted by sluggish domestic demand and a weak global market. It has made losses since 2011.