Silver lining in the deluge of debt

“In anticipation of higher NPL purchases next year, SAM plans to raise more funds and explore new sources of raising funding through the bond market.” — Tharatporn Techakitkachon, Chairman, Sukhuvit Asset Management Company (Photo: Arnun Chonmahatrakool)

Sukhumvit Asset Management Company (SAM) is optimistic that non-performing loans (NPLs) in the hospitality and tourism sectors can be contained, as some investors are keen to extend fresh financing for properties with potential in preparation for the trend of medical tourism when travel ramps back up again.

Liquidity support is a key tool to help these sectors fight the protracted Covid-19 outbreak, SAM President Tharatporn Techakitkachorn said in an exclusive interview with the Bangkok Post.

SAM is the second largest asset management company (AMC) in the country.

Hotel woes

The country’s tourism industry has suffered during the pandemic, with many hotels temporarily closed pending a return to normal.

Thailand’s tourism industry is expected to take 3-5 years to break even, Mr Tharatporn said.

He said many investors are interested in the hotel business, planning to pour new money into properties they see as having business potential.

These upgraded hotels can continue in business and the owners are not looking to sell, Mr Tharatporn said.

For example, some closed hotels have been bought up by investors and renovated into hospitals and health centers in response to the demand for medical care as the country’s demographics age. These renovated hotels are prepared for the trend of medical tourism when travel resumes.

He said financial assistance from banks in terms of debt restructuring and additional liquidity support can help some hotels survive. The Bank of Thailand’s Asset Warehousing Program is another possible solution to combat NPLs in the hospitality industry.

However, some hotels are due to close permanently due to a lack of cash and should be classified as NPL, Mr Tharatporn said.

NPL stable this year

Thailand’s economy may have bottomed out last year and its recovery this year has been weak and uneven, he said.

The outlook for NPL in the banking sector appears to be on the rise, but the increase is unlikely to be significant given the central bank’s debt relief measures, which do not expire until the end of 2022, Ms. .Tharaporn.

As a result, SAM expects the level of NPLs and non-performing assets (NPAs) that will be sold by banks to AMCs this year to be lower than normal.

In addition to debt relief measures, the central bank’s relaxations of NPL classifications for the banking sector, support for asset mismanagement through Joint Venture AMC (JV AMC) licenses and the takeover of the economy are expected to slow banks’ NPL sales this year, he said.

“We expect NPL secured sales in the banking sector at 80-90 billion baht this year, compared to a typical average of 100 billion a year,” Tharatporn said.

SAM is well versed in managing bad debt secured rather than the unsecured variety.

The Bank of Thailand’s Debt Clinic project, an unsecured loan restructuring program, plays a key role in managing unsecured bad debts, he said.

NPL buy strategy

Despite the prospect of weaker NPL supply this year, SAM does not have an aggressive strategy, instead planning to act according to the market situation, Tharatporn said.

The company will focus on helping those who have not repaid their debts, especially small and medium-sized enterprises (SMEs), to recover from the pandemic crisis, he said.

SME NPLs account for the largest share at 45% of total NPL outstandings in the banking sector. The remaining portion is split equally between personal and business loans, Mr. Tharatporn said.

Outstanding NPLs in the banking sector have risen to around 600 billion baht, from 500 billion before the pandemic.

As a non-profit-oriented organization 100% owned by the central bank’s Financial Institutions Development Fund, SAM can play a major role in managing and resolving distressed assets of financial institutions and mitigate the country’s PNP level, he said.

While that’s not SAM’s only goal, the company still wants to improve profitability and prepare to buy more NPLs next year, Tharatporn said.

Upward trend next year

The impact of the pandemic in recent years has led the central bank to implement several debt relief measures to ease the financial burden on individuals and commercial borrowers.

The Bank of Thailand has also eased regulations on the classification of NPLs to ease the burden of loan loss provisions for financial institutions. These factors have helped contain the level of NPL over the past two years, he said.

“With central bank relief measures set to expire later this year, NPLs are expected to rise in 2023, possibly exceeding 100 billion baht,” Tharatporn said.

Meanwhile, special mention (SM) loans, which are classified as default within 90 days, more than doubled to 1.1 trillion baht from the pre-pandemic value of 500 billion.

Part of that 600 billion baht hike could possibly be classified as NPL, he said. Proper SM management is a key factor preventing a significant increase in PNPs, Tharatporn said.

Normally, SAM would buy 15-20% of available NPLs from banks. Combined NPL purchases from the country’s two largest AMCs, Bangkok Commercial Asset Management Ltd (BAM) and SAM, account for about 40% of the banks’ total NPL sales per year, he said.

In anticipation of an increase in NPL purchases next year, SAM plans to raise more funds and explore new sources of raising funds through the bond market, Tharatporn said.

The company plans to issue debentures worth 4-5 billion baht in the third quarter of this year.

SAM thinks he could raise 6-10 billion baht in the bond market in 2023 to buy more NPLs, he said.

Improve operations

The company aims to buy double the amount of bad assets this year compared to 2021, in line with rising NPL sales in the banking sector, Tharatporn said.

For 2022, SAM expects banks to sell off troubled assets worth 80-90 billion baht, up from 40-50 billion last year.

Additionally, the company wants to improve NPL resolution and NPA sales by 30% year over year, he said.

SAM has also set an ambitious goal of doubling the company’s efficiency in the medium term after the company completes its digital transformation in three years.

The first phase of the transformation runs from 2022 to 2024, focusing on infrastructure.

After three years of development, the company aims to improve operational processes and bad asset management more efficiently, Tharatporn said.

“We are aiming to double the efficiency of our operations in three key areas: NPL restructuring, NPA sales and the ability to buy bad assets,” he said.

Setting up an AMC JV

Mr. Tharatporn said working with banking partners to set up AMC JVs would be a key business strategy to improve his business efficiency and help solve NPLs in banking.

SAM has been talking with potential partners to establish AMC JVs, he said.

Among potential partners, SAM expects to see a clearer operating model for the AMC JV in the first quarter of this year, Tharatporn said.

SAM can create 1-2 AMC JVs to manage distressed assets of banking partners, he said.

The central bank is allowing financial institutions to apply for JV AMC licenses for three years after announcing the terms last month.

A license is valid for 15 years.

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