Thai banks make extra provisions for loans to steel firm

22 July 2015

Thailand's three major banks have made extra provisions to cover increased risks related to syndicated loans of 44 billion baht ($1.3 billion) to Sahaviriya Steel Industries Pcl (SSI), bank executives said on Wednesday.

Krung Thai Bank, Siam Commercial Bank and Tisco Bank lent SSI, Thailand's largest steel maker, the money to acquire a British steel mill for $1.1 billion in early 2011. The loans were secured against the plant.

SSI has made losses since 2011. The company's hard times prompted Thailand's central bank to instruct the three banks to set aside loan loss provisions of up to 60 percent, up from 36 percent previously, the bankers told Reuters.

Southeast Asia's largest, fully integrated steel sheet maker, has been blighted by sluggish domestic demand and a weak global market.

"We booked extra provision for loans extended to SSI," Oranuch Apisaksirikul Chief Executive Officer at Tisco group told reporters. But he said the debt was not bracketed as non-performing loans.

Pimolpa Suntichok, head of corporate business at Siam Commercial Bank told Reuters that provisions for SSI loans were included in the bank's overall provisions of 5.1 billion baht for the second quarter.

Krung Thai Bank has taken similar action, according to an official there.

Analysts estimate that Siam Commercial and Krung Thai loaned SSI 20 billion baht apiece, while Tisco loaned 4 billion baht.

SSI officials did not respond to Reuters' requests for comment.

Slower-than-expected economic growth and rising household debt has raised concern over the quality of Thai banks' loan book, with more debt turning bad.

Chalie Kueyen, analyst at KGI Securities said in note that SSI's debt-restructuring process was likely drag on, and the loans could turn into NPLs.

"If that happens, it would trigger asset quality risk for all three banks and the whole banking sector," Kueyen said.

SSI loans are currently classified as special mention loans. If SSI's loans turn into NPLs, Kuyen estimated Thai banks NPLs would rise from 3.0 percent of total lending to 3.5 percent.