Thai Islamic Bank hit by bad debt

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The Islamic Bank of Thailand, or IBank, the country’s only Shariah-compliant bank, has been facing a debt explosion in around 100 “problem accounts” and will now need to restructure these loans. The country’s finance ministry said it is investigating possible corruption at IBank.

The state-owned bank admitted on February 12 that it suffers from non-performing loans that amount to 39 billion baht ($1.3 billion), or about 30 per cent of its outstanding loans.

Ninety per cent of the non-performing loans are represented by just about 100 accounts of corporate borrowers, the bank said. The bulk of the bad loans represent property and construction loans offered to borrowers in Bangkok, with the highest-value account being one borrower in default of 2 billion baht ($66 million).

According to Shariah principles, Islamic loans are granted on a risk-sharing basis between lender and borrower and always involve a collateral such as land or property. However, it turned out that some collaterals had been overvalued by Ibank – in some cases 80 per cent higher than market prices – and others were even non-existent.

The bank is now pursuing several options to recover debt, including filing court foreclosures or restructuring debt with clients which could turn out difficult as in some cases loans had been transferred to nominee accounts.

The bank’s new president Thanin Angsuwarangsi, who took over the role only recently, said the bad debt at IBank was largely caused by “grossly negligent lending by former executives”, missing supervision and no separation of credit and risk analysis units at the bank.

He added that IBank will set up an inquiry panel to review past loan practices to find out why bad loans have reached such high levels, and said that he hopes to be able to recover at least 6 billion baht ($200 million) in 2013. He has also asked the bank’s owner, the Thai Finance Ministry, to inject fresh funds worth 13 billion baht.

The bank will try to maintain its lending at 120 billion baht in 2013. New lending to large corporates will be reduced and the bank will focus on retail clients who are Muslims.

The current capital funds of IBank stand at 4.6 per cent of risk assets, well below the 8.5 per cent minimum set by the Bank of Thailand for commercial banks, and the 12 to 15 per cent levels currently maintained by the country’s largest banks. The global Basel III standard in Thailand does not apply to state-owned financial institutions such as IBank.

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Reading Time: 2 minutes

The Islamic Bank of Thailand, or IBank, the country’s only Shariah-compliant bank, has been facing a debt explosion in around 100 “problem accounts” and will now need to restructure these loans. The country’s finance ministry said it is investigating possible corruption at IBank.

Reading Time: 2 minutes

The Islamic Bank of Thailand, or IBank, the country’s only Shariah-compliant bank, has been facing a debt explosion in around 100 “problem accounts” and will now need to restructure these loans. The country’s finance ministry said it is investigating possible corruption at IBank.

The state-owned bank admitted on February 12 that it suffers from non-performing loans that amount to 39 billion baht ($1.3 billion), or about 30 per cent of its outstanding loans.

Ninety per cent of the non-performing loans are represented by just about 100 accounts of corporate borrowers, the bank said. The bulk of the bad loans represent property and construction loans offered to borrowers in Bangkok, with the highest-value account being one borrower in default of 2 billion baht ($66 million).

According to Shariah principles, Islamic loans are granted on a risk-sharing basis between lender and borrower and always involve a collateral such as land or property. However, it turned out that some collaterals had been overvalued by Ibank – in some cases 80 per cent higher than market prices – and others were even non-existent.

The bank is now pursuing several options to recover debt, including filing court foreclosures or restructuring debt with clients which could turn out difficult as in some cases loans had been transferred to nominee accounts.

The bank’s new president Thanin Angsuwarangsi, who took over the role only recently, said the bad debt at IBank was largely caused by “grossly negligent lending by former executives”, missing supervision and no separation of credit and risk analysis units at the bank.

He added that IBank will set up an inquiry panel to review past loan practices to find out why bad loans have reached such high levels, and said that he hopes to be able to recover at least 6 billion baht ($200 million) in 2013. He has also asked the bank’s owner, the Thai Finance Ministry, to inject fresh funds worth 13 billion baht.

The bank will try to maintain its lending at 120 billion baht in 2013. New lending to large corporates will be reduced and the bank will focus on retail clients who are Muslims.

The current capital funds of IBank stand at 4.6 per cent of risk assets, well below the 8.5 per cent minimum set by the Bank of Thailand for commercial banks, and the 12 to 15 per cent levels currently maintained by the country’s largest banks. The global Basel III standard in Thailand does not apply to state-owned financial institutions such as IBank.

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