KUALA LUMPUR (Jan 20): CIMB Thai Bank Pcl, which slipped into the red in the financial year ended Dec 31, 2016 (FY16) on higher loan provisions, is confident of returning to profitability this year, helped by its board of directors' guidance and continued support from parent CIMB Group Holdings Bhd, said its president and chief executive officer Kittiphun Anutarasoti.

For one, CIMB Thai plans to raise 5.51 billion baht from a rights issue, which involves an offer of 5.51 billion new shares, to boost its capital position and balance sheet to support business growth.

The 93.71%-owned subsidiary of CIMB Group posted a net loss of 629.53 million baht or 0.03 baht loss per share in FY16 compared with a net profit of 1.05 billion baht or 0.05 baht per share the previous year.

In a statement today, CIMB Thai attributed the FY16 loss to a 66.6% increase in provisions mainly from rising non-performing loans (NPLs) in isolated commodities-related industries during the year, as well as a general increase arising from the gradual pace of the economic recovery.

The bank's net interest income rose 16.4% to 9.87 billion baht in FY16 from 8.48 billion baht in FY15, resulting from a 21.8% decrease in interest expenses.

The cost to income ratio also improved to 57.4% in FY16 compared with 58.3% in 2015 as a result of better cost management and increased income. Net interest margin over earning assets stood at 3.77% in FY16 from 3.27% in FY15, thanks to more efficient funding cost management.

As at Dec 31, 2016, total gross loans (inclusive of loans guaranteed by other banks and loans to financial institutions) stood at 206.4 billion baht, up 3.7% from a year ago.

Gross NPL stood at 12.7 billion baht, with an equivalent gross NPL ratio of 6.1%. This is an increase from 3.1% as at Dec 31, 2015 due to slower repayment ability from borrowers in certain sizeable corporate accounts.

"Taking into consideration the NPL sale completed in early January 2017, CIMB Thai's pro forma gross NPL ratio and loan loss coverage ratio as at Dec 31, 2016 would be 4.8% and 86.4% respectively," said CIMB Thai.

Meanwhile, the rights offer, approved by its board yesterday, will raise the bank's equity capital 22% to 15.14 billion baht, according to CIMB Thai.

Under the offer, CIMB Thai's shareholders can apply for two rights shares for every nine existing CIMB Thai shares at one baht a share. The bank will call an extraordinary shareholders meeting to seek approval for the plan on Feb 24.

Kittiphun said at the end of last year, the bank's Bank of International Settlement (BIS) ratio and Tier-1 capital at 16.1% and 10.7% respectively were well above regulatory requirement. "With the proposed rights offering, our BIS ratio will strengthen to 18.5% — thus further reinforcing the bank's capital position and balance sheet going into 2017," he added.

Kittiphun also noted that the bank's strategic priorities for 2017 are anchored on the 5 C's — customer, culture, compliance, cost and capital — and targets a modest loan growth of 5–10% amid a recovering economy.

"Given the gradual pace of economic recovery in Thailand and challenging operating conditions, CIMB Thai recorded elevated loan provisions in the fourth quarter of FY16," CIMB Group chief executive Tengku Datuk Seri Zafrul Aziz said in a statement today.

"We are confident, however, that CIMB Thai can return to profitability in 2017 and we are fully supportive of CIMB Thai's business plans, including the rights issue announced today," he added.

Tengku Zafrul said the bank remains a strategic platform for CIMB Group to enhance and facilitate cross-border trade flows within the Asean region.

At 3.29pm, CIMB Thai's stock was down 3.62% at 1.33 baht per share today, valuing it at 32.95 billion baht.