Thai banks to slash NPLs by around US$614m

Thanks to Sahaviriya Steel Industries' reclassification.

Yesterday, the Central Bankruptcy Court approved the proposed rehabilitation plan from Sahaviriya Steel Industries (SSI). Maybank Kim Eng believes that the immediate impact will be positive for the creditor banks who will reclassify the SSI THB22b debt from NPL back into normal loans.

Here's more from Maybank Kim Eng:

We believe the main implication of the agreement is that the creditor banks (SCB/KTB/TISCO) can now reverse the SSI debt from the NPL category back into normal loans. This could effectively reduce the NPL for SCB/KTB/TISCO by 52/52/36bps and boost their coverage ratios by 25/12/15bps.

The impact is likely to be seen in the 4Q16 results to be released in mid- Jan-17. It is important to note that these three banks are unlikely to reverse the assigned provisions for SSI’s bad debt, but they will reclassify the debt into general reserve, reducing the need for future provisions, particularly ones stemming from IFRS9.

Not only do we believe that the three banks will see a reduction in NPLs, but so will the industry. We believe this event will cut NPLs in the system by about THB22b, pushing down the NPL ratio by about 20bps from 3.66% in 3Q16 for the nine banks under our coverage.

Note that NPL resolution will be high in 4Q as banks step up their write-off policy to redeem tax benefits. Therefore, the industry’s NPL ratio is very likely to fall in 4Q16. Next year, it may edge up slightly, but the level should not be higher than 3.66% in 3Q16, in our opinion.