DBS Thai Danu Bank Reports Second Consecutive Quarter Of Operating Profit

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Reports Bt 92.2 Million Operating Profit for the First Nine Months

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Increase in Net Interest Income and Lower Operating Expenses Keep Bank on Course

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Non-Performing Loans Down To 7.5% Of Total Loans

BANGKOK, OCT.19 - DBS Thai Danu Bank today reported an improvement in operating income for the first nine months of 2000, recording a Bt 92.2 million (US$2.1 Million) operating profit versus a loss of Bt 1,162.3 million for the same period a year ago.

The Bank, a subsidiary of Singapore's DBS Bank, said the results announced today reflected a second successive quarter of operating profit since the start of the economic crisis in July 1997, a clear signal that the re-building plan at the Thai bank is on track. Third quarter results showed a 100% increase in operating profit to Bt 85.2 million compared to the Bt 42.6 million in operating profit reported for the second quarter of 2000.

On a consolidated basis, DBS Thai Danu Bank reported a lower operating profit of Bt 35.6 million for the first nine months of the year due to the consolidation of DBS Thai Danu Securities.

Bank officials attributed the year-to-year improvement to an increase in net interest income and lower operating expenses, which declined by 22.6% to Bt 1,637.5 million. Fee and commission income and other income showed modest improvement for the period.

DBS Thai Danu Bank said it added a further Bt 400.0 million to its provisions for non-performing loans (NPLs), satisfying the total requirement set by the Bank of Thailand three months ahead of the central bank's year-end deadline.

The Bank reported a net loss of Bt 12,488.0 million for the nine months to September 2000 against a net loss of Bt 11,315.7 million in the same period last year. This was due principally to a loss of Bt 11,414.0 million on the sale of NPLs during the third quarter this year.

The sale of 77% of the Bank's non-performing loan portfolio has transformed its financial position dramatically. NPLs on an account basis are now just 7.5% of total loans, down from 34.1% at the end of June 2000.

Though a large part of the Bt 13.5 billion in fresh capital raised in the second quarter 2000 was used to offset losses incurred through the sale of NPLs, DBS Thai Danu Bank nonetheless reported a capital adequacy ratio (CAR) of 13.9%. The BOT minimum for CAR is 8.5%.

As a result of the NPL sales, total loans fell from Bt 98.9 billion as at December 31 1999, to Bt 65.1 billion, and total assets declined from Bt 107.7 billion to Bt 94.1 billion. Non-bank customer deposits were managed down from Bt 89.3 billion at December 31 1999, to Bt 70.1 billion at September 30 2000.

Pornsanong Tuchinda, President of DBS Thai Danu Bank, said the third quarter results clearly indicated that the Bank was "fully in recovery mode."

"We have dealt aggressively with our NPL problem, and our successful recapitalisation in the first half of the year enabled us to sell most of the NPL portfolio. Our balance sheet is much cleaner now with the NPL ratio down to 7.5%. This sets us apart in the Thai banking industry.

"We take some pride in this accomplishment, and are focussed entirely on rebuilding our banking franchise. We have boosted our middle and senior management levels with fresh talent to guide us into the future.

"Our attention right now is on serving our customers better. Over the next six months we will be revamping our branches to orient them towards better sales and customer service. We will be centralising some branch processes to gain further efficiencies, and to allow branch staff to focus squarely on customers without the distraction of processing.

"However, our loan growth will remain cautious and selective. We are conscious of the uneven and fragile state of economic recovery in Thailand, and intend to remain vigilant against potential deterioration in asset quality. Rather than disband our debt-restructuring group entirely, following the NPL sales, we have kept part of it as a special asset department, to resolve remaining NPLs and further reduce the NPL level, as well as to monitor our restructured loans closely to prevent slippage," Tuchinda said.

DBS Thai Danu Bank's operating performance of the nine months ended 30 Sep 2000 improved over the nine months ended 30 Sep 1999, rebounding at bank level from an operating loss of Bt 1,162.3 million in 1999 to a modest operating profit of Bt 92.2 million. The third quarter of 2000 was also the second consecutive quarter of operating profit since the start of the Asian financial crisis, showing a trend of continuing improvement (see Appendix 1 for quarter-on-quarter figures).

Net loss after tax widened from Bt 11,315.7 million in 1999 to Bt 12,488.0 million due to losses on sales of non-performing loans amounting to Bt 11,414.0 million. With further provisions in 3Q2000, the Bank's loan loss provisions are 100% of the provisioning level required by the Bank of Thailand.

The key drivers of the improvement at operating level were an increase in net interest income, which rose 87.4% to Bt 1,207.9 million from Bt 644.6 million, lower levels of non-performing loans (NPLs) which reduced interest drag and lower funding costs in 2000 vis-à-vis 1999.

Quarter-on-quarter, the Bank's operating profit rose 100.0% to Bt 85.2 million from Bt 42.6 million in the previous quarter on the back of increases in fee and other income. However, operating performance was affected by Bt 30 million in provisions for impairment of investments due to the falls in Thai equity prices during 2000.

The Bank's operating costs continued to fall as the Bank reaped the full benefit of the repositioning programme implemented during 1Q2000. Operating expenses fell 22.5% year-on-year from Bt 2,114.2 million to Bt 1,637.5 million due to declines in personnel costs and other expenses.

Total loans fell from Bt 98.9 billion as at 31 Dec 1999 to Bt 65.1 billion due principally to the sale of NPLs in 3Q2000 (see below). Likewise, total assets declined from Bt 107.7 billion to Bt 94.1 billion. Non-bank customer deposits were managed down from Bt 89.3 billion at 31 December 1999 to Bt 70.1 billion at 30 September 2000. Meanwhile, total liabilities fell from Bt 103.9 billion at 31 December 1999 to 90.1 billion at 30 September 2000. The loan-to-deposit ratio fell to 92.8% at 30 September 2000 from 111.0% at 31 December 1999.

Capital Adequacy

The Bank's capital adequacy ratio fell to 13.9% from 26.1% as at 30 June 2000 as a large part of the Bt 13.5 billion in fresh capital raised in 2Q2000 was used to offset losses incurred through the sale of NPLs. However, the Bank's capital adequacy measures remain well above the minimum levels specified by the Bank of Thailand.

NPLs and Provisions

In 3Q2000, the Bank sold most of its non-performing loan portfolio. A total of Bt 30,492 million of NPLs, amounting to 77% of its NPL portfolio, was sold to two buyers for a total of Bt 8,393 million. The sales entailed a net loss of Bt 11,414 million after setting off against provisions.

NPLs on an account basis have fallen to Bt 5,351.3 million from Bt 35,637.0 million at the end of 1999. The table below compares the Bank's NPL position as at the end of the last four quarters.

With further provisions in 3Q2000 for loan losses of Bt 400.0 million, the Bank has complied with the BOT's requirement of 100% provisioning three months in advance.

Recent Developments

The sale of 77% of the Bank's NPL portfolio marks a major milestone in the recovery of the Bank from the effects of the Asian financial crisis. Having brought the ratio of NPLs to total loans down to 7.5%, and having provided fully for the remaining NPLs, the Bank is able to turn its attention to rebuilding its business. The Bank has boosted its senior and middle management with fresh talent to take it into the future.

However, the Bank's management is cognisant of the fragility of the economy and intends to maintain a prudent level of loan growth. The Bank will launch shortly a credit officer certification programme in common with the rest of the DBS Group to strengthen credit risk management at origination.

The Bank remains vigilant against potential deterioration in asset quality. Rather than disband its debt restructuring group entirely, it has kept part of it as a special asset department to focus to resolving remaining NPLs as well as to monitor restructured loans to prevent slippage.

Following a two-month pilot, the Bank will be implementing major changes over the coming six months in its business model for its branch network. These changes will include branch reconfiguration to emphasise sales and customer service as well as centralise certain branch processes for greater efficiency.

Appendix 1: DBS Thai Danu Bank Financial Performance for Second and Third Quarters of 2000.