The state-owned Small and Medium Enterprise Development Bank of Thailand (SME Bank) plans to divest 5.2 billion baht worth of bad loans that cannot be restructured as part of efforts to bring its non-performing loan (NPL) ratio below 10%.
Around 2 billion baht of the 5.2 billion in NPLs is to be put under the hammer this year, said president Mongkol Leelatham.
These bad loans have been extended for more than a decade and liquidation gets the debt off the bank's books, he said.
"If we don't do anything with these NPLs, they will be like sediment, weighing down the bank and affecting its capital adequacy ratio, as the collateral that backed them is not worthwhile," said Mr Mongkol.
He wants the bank's NPLs to fall from 18-19% to below 10% of its outstanding loans as soon as possible, helping prepare for the stricter International Financial Reporting Standard 9 (IFRS9).
The major change in the new standard is the expected credit loss impairment model, which requires forecasting the possible loss of credit in place of the incurred loss model of the IAS39. This will require banks to put aside higher loan-loss provisions.
The Federation of Accounting Professions is scheduled to meet on July 17 to discuss a subcommittee proposal assigned by the Oversight Committee on Accounting Professions to delay the implementation of IFRS9 for another year from Jan 1, 2019 to prevent any adverse effects to SMEs.
"We want to transform to strengthen the bank. The issue is the policies of the government, the bank's board and executives," said Mr Mongkol.
He said the bank will abolish its non-core businesses, including auto leasing, after the new accounting standard is adopted.
The bank once offered auto loans, particularly for taxis, with its outstanding loans totalling 600 million baht.
SME Bank will sell off its auto loans if its debt restructuring process fails, as the value of the related taxis will drop further if the sale process takes even longer, said Mr Mongkol.
The bank posted an operating profit of 2.02 billion baht with a net profit of 457 million last year after setting aside loan-loss provisions.
Earlier this year, SME Bank received approval from the State Enterprises Policy Commission to exit its rehabilitation plan after improving its operating performance and cutting NPLs over the past three years.
The bank was among seven state enterprises under rehabilitation. The others are Thai Airways International, the State Railway of Thailand, the Bangkok Mass Transit Authority, TOT Plc, CAT Telecom and the Islamic Bank of Thailand.
SME Bank suffered a net loss of 4.03 billion baht in 2012 before rallying back to a net profit of 396 million in 2013, 176 million in 2014, 1.24 billion in 2015 and 1.60 billion in 2016. The bank's bad loans peaked at 35 billion baht or 40% of total lending several years ago.
