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Krung Thai Bank crafts plan to join regional banking powers

Krung Thai Bank Pcl, Thailand's second- largest lender by assets, is cleaning up its balance sheet and preparing to make acquisitions in a bid to join the ranks of the biggest Southeast Asian banks.

[SINGAPORE] Krung Thai Bank Pcl, Thailand's second- largest lender by assets, is cleaning up its balance sheet and preparing to make acquisitions in a bid to join the ranks of the biggest Southeast Asian banks.

After making large provisions last year for Thailand's largest default since the 1997 Asian economic crisis, Bangkok-based KTB is boosting profits and positioning itself to buy another Thai bank, according to Chief Executive Officer Vorapak Tanyawong.

That purchase should give KTB the scale to pursue a merger with one of the region's biggest lenders, he said.

"First step, KTB needs to be strong enough to act," Mr Vorapak, the former Thailand country head at New York-based JPMorgan Chase & Co, said in an interview this week in Bangkok. "For Thai banks including KTB, it would be too slow to expand overseas by opening branches. We have to seriously focus on regional acquisition. The problem is Thai banks are too small."

He declined to elaborate on targets or the timing for any acquisitions. 

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Southeast Asian banks are bracing for increased competition from within and beyond the region, which is driving consolidation.

Mitsubishi UFG Financial Group Inc, Japan's biggest lender by assets, is buying stakes in emerging Asian markets. Kuala Lumpur-based CIMB Group Holdings Bhd is seeking a presence in all 10 members of the Association of Southeast Asian Nations. By 2020, a banking integration agreement between the region's finance ministers will allow greater cross-border market access for qualified banks.

KTB plans to close its gap with domestic rivals in terms of growth, profitability and other performance measures by 2018, Mr Vorapak said. The bank needs to grow to avoid getting sidelined by a competitor, he said.


"My top priority is to turn KTB into a very strong bank in terms of asset base and profitability," Mr Vorapak said. "If a Thai bank makes a regional acquisition, it will be either via cash tender or share swap. Either way, the bank must have strong base to prepare for a merger of equals."

Having the government as majority shareholder will give KTB an edge over Thailand's family-run banks in doing deals because tycoon owners fret more about ownership dilution, he said.

With a valuation of 245 billion baht (S$9.7 billion), KTB ranks fourth among Thai lenders and 15th among Southeast Asian banks. Siam Commercial Bank Pcl, Thailand's largest lender by market value, ranks ninth in the region, followed by Kasikornbank Pcl, run by the Lamsam family. Singapore-based DBS Group Holdings Ltd. is Southeast Asia's biggest lender, with a market capitalization of US$23.7 billion.


Any domestic acquisition would need to be large enough to bring KTB up to the size of a major regional bank, Vorapak said, without mentioning any specific banks. CIMB, which operates in almost all Southeast Asian countries and is the major regional lender nearest to KTB's valuation, has a market value of US$8.1 billion, 19 per cent higher than the Thai bank, according to data compiled by Bloomberg.

KTB has been weighed down by its lending to Sahaviriya Steel Industry Pcl, whose default last year became Thailand's largest since the 1997 regional financial crisis. The prospects are brightening this year for the bank amid signs that problem loans are stabilising. Such debt should account for 4 per cent of total loans at this year, close to the level in the three months ended in September, Mr Vorapak said. That would mean improved profit, he said.

Thananchai Jittanoon, a Bangkok-based analyst at UOB Kay Hian Securities (Thailand) Pcl, said it's premature to evaluate KTB's growth ambitions.

"The bank's most urgent task is to deal with the bad debt problem," he said Friday in a telephone interview. "The level of bad loans is unlikely to peak until the middle of this year."


Mr Thananchai has recommended buying KTB shares since 2010, according to Bloomberg data.

He said the lender's expansion in high-yielding loans - such as to small- and medium-size businesses, and retail - has delivered "impressive results," boosting net interest margin. The bank's push in advisory services will increase fee-based income, he said.

Of the 28 analysts tracked by Bloomberg who follow KTB, 12 have hold recommendations, 11 say buy the stock and 5 say sell.

This year's target for loan growth is around 3 per cent to 3.5 per cent, at par with expected economic expansion and a "conservative" goal, Mr Vorapak said. KTB also is diversifying its revenue mix, making a push in Thailand's debt capital market to rely less on traditional lending.

The bank ranked third last year in market share for managing local bonds, with 632 billion baht in total value. That was behind Kasikorn Bank Pcl and CIMB's Thai unit.

KTB shares were unchanged at 17.50 baht as of 12.33pm.


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