We Learned from Singapore
Dunlop for Asiaweek.
Pornsanong wished he had acted earlier.
Thanks to DBS Bank, Thai Danu Bank has
gotten a fresh start
By JULIAN GEARING Bangkok
Pornsanong Tuchinda vividly remembers the day in 1998 when DBS Bank
CEO John Olds came to visit Bangkok. The Singapore group had bought
70% of Thai Danu Bank, which like other institutions in Thailand was
burdened by non-performing loans. "He beat me up a bit, a lot actually,"
laughs 39-year-old Pornsanong, who is president of the renamed DBS
Thai Danu Bank. "He said: 'Pornsanong, you are young, don't think
like a commercial banker. Thailand is in a meltdown. Some of this
money you will never recover. You must take a haircut.'" Pornsanong
argued back, but Olds eventually got his way. Last month, DBS Thai
Danu sold 30.9 billion baht ($756.8 million) in bad debt at 29 cents
to the dollar.
The young president, who used to work with Citibank, is no longer
arguing against write-downs. "I wished we had done it at the beginning,"
he says. "We would have been out of the woods faster." Thai Danu took
a loss of $284 million on the transaction equal to 75% of the
$367 million DBS Bank had injected to strengthen its acquisition's
capital base. But the sale brought down Thai Danu's non-performing
loan ratio to 10%, from 60% before the takeover. International rating
agency Fitch IBCA estimates that its capital-adequacy ratio will rise
to 16%, the strongest of all Thai banks. "We are ready to move on,"
says Pornsanong. "We are two years ahead of the competition."
Maybe. "DBS Thai Danu is quite a good quality bank right now," says
Kawee Chukijkasem of Capital Nomura Securities. "But the problem of
any hybrid bank is how to expand. They have a small branch network.
Customers in Thailand are not like customers in America who are familiar
with new technologies and products. Thai customers need educating."
Last year, Thai Danu's assets fell 19% to $2.9 billion. It is ranked
No. 324 in the 2000 Asiaweek Financial 500, down 44 notches from 1999.
After closing 35 branches and letting go of 1,350 people, Thai Danu
now has 61 offices and 1,850 staff, much leaner than big local players
like Bangkok Bank (No. 74) and Thai Farmers Bank (No. 112).
It's not easy being acquired. DBS Bank had long-standing business
ties with Thai Danu, but that is different from having the Singapore
bank as the majority owner. "DBS is sensitive, but it means business,"
says Pornsanong. The staff firings were painful and swift.
"You make such major cuts over time or you do it straightaway," says
Pornsanong. "I believe it is better to take the pain at once. We did
it fairly, every level from myself down. I could have been axed."
The leaner operation means individuals have more responsibilities.
Pornsanong himself has taken on line duties for retail banking after
the departure of executive vice president Chaiwat Utaiwan, who left
to become CEO of AIG Finance in Bangkok.
A number of key posts are now occupied by DBS-appointed Singaporean
and Western executives. "Sometimes there is tension," Pornsanong admits,
"but we try to make [the arguments] productive." DBS has been careful
to retain a Thai at the helm, which analysts say is wise for face
and continuity. "On the people side we are ready, on the process side
we are ready, and on the technology side, by next year we will be
moving onto the DBS regional platform," says Pornsanong. "One day
consumers and corporates are going to wake up and find they are banking
with someone relying on a survival strategy with no ability to accommodate
future customer needs. At that point we can take market share." And
discover the real benefits of being acquired.
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