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THAILAND FINANCE & BANKING 2008

SITUATION

The Financial situation in Thailand is somewhat in the dark at the moment of writing. June 2008 to date there has been speculation on the Thai Baht and with the Government spending on mega projects using Bonds there does not seem to be an alarms ringing. Some Banks have overloaded on their sub primes as this has not been exemplified out yet so Banks are not really saying what their present situation is like. In the meantime construction costs keep rising and there appears to be no slowness in spending or borrowing from Banks



BOT clarifies bank's capital adequacy

The Nation June 14, 2008

Central bank says ratio above the required 8.5%

BankThai's capital adequacy ratio is currently higher than the required level of 8.5 per cent, the Bank of Thailand clarified yesterday, although it is likely to need to increase capital for business expansion in the next few years.


The statement from the central bank, the major shareholder in BankThai (BT), came a day after BT executives said the bank had to urgently sell off about Bt3.8 billion worth of non-performing loans (NPLs) to maintain the required capital adequacy ratio.

Bank of Thailand (BOT) assistant governor Sorasit Soontornkes said yesterday that BT needed fresh funds from a new strategic partner for business expansion, similar to the practice followed in the recapitalisation of other banks, such as TMB Bank.

"The new partner must buy the BT stake from the Financial Institutions Development Fund and must look forward to the bank's business in the future," he said. Sorasit said the potential partner must have competence in management and risk management. Tongurai Limpiti, senior director of the central bank's Fund Operation Department, insisted that BT's capital adequacy ratio was higher than the required 8.5 per cent even before it unloaded the NPLs to Bangkok Commercial Asset Management and Sukhumvit Asset Management.

Under Bank for International Settlements (BIS) guidelines, the ratio underwent up after BT completed the deal with a profit of Bt200 million. The bank set aside a reserve of Bt3.6 billion for the bad assets, but could sell them at Bt3.8 billion, Tongurai said. The reduction in its NPLs meant that BT's risk assets reduced, which increased its ability to provide loans. "The BIS ratio of 8 to 9 per cent limits lending because the risk assets increase, causing the ratio to decline. The selling of NPLs will widen the room for the loan expansion," Tongurai said. BT's capital adequacy ratio was 10 per cent after the Financial Institutions Development Fund injected money in the last round of recapitalisation. However, it declined gradually due to revaluation of the bank's collateralised debt obligations (CDOs) on a mark-to-market basis. Tongurai said BT had already set aside reserves for a 76-per-cent reduction in the CDOs' value, but the securities' price has been steady since April and the bank has received continuous returns from the debt instrument.

Thailand should brace for economic slowdown: KRC

BANGKOK, June 16 (TNA) – Thailand should be prepared for an economic slowdown in the wake of Asian economic setbacks further dampened by surging inflation rates, according to Kasikorn Research Center. The leading think tank said a surge in the prices of oil and commodities in the world market had fueled inflationary pressures and undermined the trade and current account balances of many countries in Asia including Thailand. The economies of these countries appeared to be undergoing 'stagflation'.
So, it is more difficult for the region's central banks -- including the Bank of Thailand -- to implement an easing monetary policy to boost economic growth because there are yet more risks from the price stability. KRC said inflationary pressure had increased significantly in many Asian countries. Inflation rates for almost all countries in the region have surged to highest levels seen in many years.

The trade balance status of many countries had weakened markedly since early this year. It became one of key factors that pressed many regional currencies, particularly the South Korean won, India's rupee, the Philippine peso and Thai baht to weaken during the past three to four months.


Surviving the rough times
source: Bkk Post June 16 2008

As challenges mount, deputy finance minister assures the fundamentals remain strong There's no point in pretending otherwise. Even the deputy finance minister, as experienced a businessman as any in the current cabinet, would think twice before starting a new investment in today's uncertain environment. "If I were a businessman now, and a newcomer to Thailand? Yes, I would probably freeze my investment plans," admitted Pradit Pataraprasit, the deputy finance minister and head of the Ruam Jai Thai Chart Pattana party. "On the other hand, if you are already in Thailand, then there's plenty of opportunity for expansion."

Soaring oil prices, rising inflation and a slowing global economy certainly have increased business risks and put pressure on profit margins over the past several months. But for Mr Pradit, the greatest threat to investor confidence is self-inflicted. "Actually, political tensions shouldn't affect the investment projects that have already been committed. But for those investors who haven't yet started, well, [uncertainties] will lead to missed opportunities," he said. "My greater concern is tourism, particularly at the high end. Political tensions will lead some to just stay away." Political tensions have escalated in recent weeks as members of the People's Alliance for Democracy have set up a micro-community outside of the United Nations Conference Centre to clamour for the government to step down. At the same time, unrest among labour unions, truckers and farmers has also grown in reaction to high fuel and food prices.

Mr Pradit said the government was committed to taking steps at easing the pain felt by the public, and bristled at suggestions that the Samak Sundaravej government had been slow to act over the past several months. "The Finance Ministry will do what it has to do to help the public. Of course, we must balance this with the need to maintain fiscal discipline." The government this year has raised tax deductions for individual taxpayers, reduced tax rates for listed companies and slashed charges for property transactions. Cost of living increases have also been approved for civil service and state enterprise workers. "Actually, it's not the poor who are suffering. Agricultural prices are likely to remain stable as demand worldwide remains strong," Mr Pradit said, and cited reports from the state-owned Bank for Agriculture and Agricultural Co-operatives showing that debt repayments had increased in recent months. "The upper class is also okay. It's the middle class that is being hardest hit [by inflation.]"
But Mr Pradit admitted that moves to raise salaries and reduce taxes offered only modest relief against oil prices that have doubled over the past year.

"The public frankly needs to change their lifestyle, and accept the need to conserve energy. The government simply can't do it all," he said. Pessimism aside, Thailand's economic fundamentals are strong, with tax revenues exceeding targets for the year to date and economic growth a surprisingly strong 6% in the first quarter. Mr Pradit said second-quarter growth would fall due to inflation, political uncertainties and weaker confidence, but insisted that the economy's fundamental strengths remained unchanged. Economic ministers, meanwhile, met every two weeks to brainstorm new measures to offer short-term relief for those most in need, as well as consider longer-term, structural reforms necessary to help the economy adjust to a world of permanently high oil prices."We need to accept reality. If oil prices rise to $200 per barrel, we need to accept the situation and deal with the consequences," Mr Pradit said. The government has announced plans to sharply increase the use of ethanol and biofuels to help reduce the country's demand for oil. Natural gas is also being heavily promoted as an alternative fuel for motorists and transport operators. Mr Pradit said temporary subsidies to help the poorest segments of the country were another option. But authorities must ensure that aid actually goes to those genuinely in need."The Blue Flag programme was well-intentioned, but you see people in Mercedes-Benzes driving up and buying goods," Mr Pradit said, referring to the Commerce Ministry's programme to offer low-cost foods to the public.

At the Finance Ministry, Mr Pradit oversees two major tax departments, the Revenue Department and the Customs Department, as well as state-owned specialised banks. "For the state banks, we're focusing on improving their service quality and adherence to international standards," said Mr Pradit, a former director of several prominent private banks and financial institutions before joining politics a decade ago. "Profits at the Government Housing Bank, for instance, may decline with the adoption of the IAS 39 accounting standard or BIS capital rules, but it's a positive step for the future." Mr Pradit said the public service accounting system also needed to be applied, so that policy-directed operations were separated in the balance sheet to give policymakers a better view of the costs of public programmes compared with core operations."Public banks have a responsibility to carry out public policy, but they need to understand their position and capabilities," he said."The SME Bank is there to support community enterprises, not speculate on structured notes. We're using an MRI machine to examine [these banks]. It's not just an X-ray machine anymore."

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