Central bank soothes investors, saying new measures aim to avoid a repeat of 1997

[Trillian]

6 minutes ago, Cake Monster said:

It was my understanding ( rightly  or wrongly ) that a mechanism was in place to prevent the Banks lending more than 80% GDP on unsecured Loans to stop another 1997 crash from happening, where Money was being lent , but with inadequate security.

There are at present several reports that NPL is running at 8% of borrowed money on the Banks books, and this is starting to worry Investors.

It is also obviously starting to worry BOT, or they would not be sounding out like this 

 

I've not heard of that rule but that's not to say there isn't one. Although 80% of GDP on unsecured lending by commercial  banks is a phenomenal amount, that's 12.5 trillion Baht! And unsecured usually means credit card debt and similar so it seems very improbable, most commercial lending is secured by something or other.

 

Regarding 8% NPL's: Poster @expatoilworker posted the BOT NPL's data sheet which as I recall shows 3%. But if special mention loans are included the number does jump although technically those are not NPL's yet. I'm pretty sure that the number will exceed in 8%, in due course, sadly.

 

Finally, references to the 1997 crash keep appearing which I know is a tempting reference for many people. But that crash was the result of a hard pegged Baht and excessive foreign currency loans, combined with iliquid foreign currency reserves, none of those things are relevant today.

[Cake Monster]

6 hours ago, Trillian said:

I've not heard of that rule but that's not to say there isn't one. Although 80% of GDP on unsecured lending by commercial  banks is a phenomenal amount, that's 12.5 trillion Baht! And unsecured usually means credit card debt and similar so it seems very improbable, most commercial lending is secured by something or other.

 

Regarding 8% NPL's: Poster @expatoilworker posted the BOT NPL's data sheet which as I recall shows 3%. But if special mention loans are included the number does jump although technically those are not NPL's yet. I'm pretty sure that the number will exceed in 8%, in due course, sadly.

 

Finally, references to the 1997 crash keep appearing which I know is a tempting reference for many people. But that crash was the result of a hard pegged Baht and excessive foreign currency loans, combined with iliquid foreign currency reserves, none of those things are relevant today.

The 1997 crash was primarily caused by banks lending too much Money against assets that were not worth the value of the loans.

Now the BOT are asking the banks to assess the Loan to Value ratios on their books.

[Trillian]

14 minutes ago, Cake Monster said:

The 1997 crash was primarily caused by banks lending too much Money against assets that were not worth the value of the loans.

Now the BOT are asking the banks to assess the Loan to Value ratios on their books.

Only in part is that true plus it misses the key element. The core problem was the Baht was hard pegged to USD which gave a low exchange rate of 25, it made the Baht seem more valuable than it really was. A huge segment of Thai loans were offshore in USD, when the peg was finally released and the Baht was floated the Baht spiked over 50 but settled briefly at 45 per USD. THailand was effectively bankrupt before that point however.

 

https://en.wikipedia.org/wiki/1997_Asian_financial_crisis