Thailand Escapes Financial Meltdown

[rampo]

Thailand Escapes Financial Meltdown

Past Lessons Helped Nation Lessen Risk

BANGKOK: -- Thailand has escaped the global financial panic with only minor immediate damage, in part because of an ethic of financial caution that it learned in the 1997 financial crisis, which almost stopped its economy.

The country today has little or no direct exposure to risky asset-backed securities and is awash with liquidity from a high and rising savings rate. The worst damage so far is $125 million of losses from the collapse of Lehman Brothers.

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

High liquidity and reliance on deposits as a source of cash have protected Thai banks from the vagaries of the stalled interbank lending market. "The banks here are surprisingly solid given what is happening in other markets," said Vincent Milton, managing director of Fitch Ratings Thailand.

But if Thailand has been protected from the primary fallout, it is worried about secondary damage that the global slowdown is likely to inflict on an economy that for years has been driven by export growth. "The most important issue is what will become the engine of growth going forward," said Kosit, who was a deputy prime minister in 2006-07.

For the last three years, Thailand has been mired in a drawn-out political conflict. Huge anti-government demonstrations led to a peaceful military coup in 2006, but the return to civilian rule at the end of last year has failed to end the paralysis. Few analysts expect the current government to last much longer.

The political uncertainty has dented investor confidence and government planning, but it has had one unexpected benefit: It has prevented the building of the sort of asset price bubbles that have amplified problems elsewhere in the world.

Looking to find ways to defend against future crises, Thailand is preparing to propose setting up a regional financial institution that would be an Asian hybrid of the International Monetary Fund and the World Bank.

"The first step would be a kind of Asian IMF," Thailand's finance minister, Suchart Thada-Thamrongvech, said in an interview Thursday. "So if we are in trouble, we could get some help from this multilateral organization." And in normal times, the institution would "have money in the system and it could act as a kind of development bank, like the World Bank."

"If we had this kind of organization, Chinese reserves could be used to finance rural roads in Thailand rather than buying U.S. government bonds," Suchart said.

He said the size of the fund was not the point: "I think the figure is not important at the moment. It is the concept that is important."

His comments came after Thai Deputy Prime Minister Olarn Chaipravat suggested that Asian nations should pool 10 percent of their foreign exchange holdings, about $350 billion, into a superfund that could protect the region from effects of the global economic crisis.

Suchart stressed that the negotiations are at a very early stage. But he said that when he met senior Chinese and Philippine officials in Washington last month, there had been support for expanding the Chiang Mai Initiative, a framework of bilateral agreements that many Asian nations formed after the 1997 financial crisis to support each other's currencies if they again came under attack by speculators.

Ministers from the 10 member countries of the Association of Southeast Asian Nations, along with China, South Korea and Japan -- the so-called ASEAN Plus Three -- are set to meet in Beijing on Saturday after attending the Asia-Europe Meeting this week. Thailand currently chairs ASEAN.

Philippine President Gloria Macapagal Arroyo this month said the World Bank had agreed to contribute $10 billion to a fund to assist Asian countries should they run into liquidity problems. The bank has denied it made such a commitment.

-- Washington Post 2008-10-24

[wrecker]

Interesting story, while the PAD is melting down Thailand to such an extent that no freedom and no wealth is left (Except for their Chinese friends of course).

Thailand's economy will be virtually wiped out if 2% of the population will continue (with support of the highest people) to hold the country randsom. Therefore the comments are misplaced and thus absurd, Thailand will not escape a meltdown, the new tourist figures will speak for itself. The new investment figures will tell all of the story. Banks cannot even find customers for their credit nowadays that is even worse.

[Trichiliocosm]

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

Only 90 percent? Since when is 90 percent not much? Perhaps he meant to say "only 10 percent..."

[Seizhin]

Thais were once in debt of the INF and it's said that even the great grandson of the Thais are unable to pay for the debt.

But everything went backward and the debt was paid in 2 years, it showed how capable the Thai can actually be.

Anyways, stock's still falling despite the strong condition, SET had falls for more than 400 from 850.

I'm just not too worried as long as the Banks in Thailand still continues to report profit, even if it's declining.

Next year would be the real challenge for investors.

[animatic]

You really can't blame PAD for every international interaction with Thailand's economy.

They have not stopped the ministries from working on existing policies.

They have only ridden heard on New Ministers setting new policies,

not permanent staff running old ones. Chalerm's makes you happy he doesn't have full sway...

The Permanent staff just keep moving ahead with existing policy till told a new course.

Oil costs have had exponentially greater negative affects on Thailands economy,

than ANY PAD actions or statements.

Government proclamations have done more to sour investor confidence than PAD proclamations.

Kuhn Tharisa has made the markets plotz 10 to 1 vs the WORST PAD connected commentary.

Plane fares have done more damage to tourism than ANY fear of disorder.

Freedom and wealth... excuse me, where have you been stopped from going.

Wealth is more affected by weak or strong baht dollar ratios and Import / Export flows.

Those have been affected by again OIL and transport and credit crunch ABROAD.

Most of the business world not DIRECTLY INVESTING into Thailand could care less about PAD.

They want to know :

If I place and order for 50,000 Basketball bladders, will they arrive by Xmas?

The BIG players like a Toyota are more concerned if their factory is competitve

Not if there are rally's in Government house. Or if Somchai tours without protests.

Banks rarely extend credit to little farangs, so it's all moot till you are a BIG player.

Either way exchange rates and IM/EX go on, not matter WHAT PAD says.

No matter who is PM, no matter what.

The 30% Government bank withholding on foreign investment for 6 months

did more damage in one stroke to investor confidence than ALL proclamation or actions by PAD.

We just can't look at them through red colored glasses and blame all ineptitudes or bad luck on them.

It defies business logic.

Confidense in SET is not strong, as is the case with MOST bourses worldwide right now.

It will eventually recover from herd panic mentality, but maybe with more realistic valuations.

The rules on valuing for CURRENT market may need a look see. If the market says things are very low,

when it's only percieved low and fundamentals are still strong, then the stocks are very undervalued,

and makes borrowing properly more difficult and this affects perceptions, and liquidity control options.

The trick has been look at book, look at market, and look at return.

If market is artificially high people think they should pay too much,

If market is artificially low as now, people will not necessarily grab bargins, but maintain panic states.

And the actual value based on return and stability of return is blythly ignored

because market volitillity scares too many.

Herd mentality has broken many an investor.

Edited October 24, 2008 by animatic

[Journalist]

Simple explanation for their non-failiure....... Thai banks were too dumb to buy Lehman Brothers CDOs

(Even though Ek Anong Phanachet tried her hardest to sell them to the Thai banks while she was in Lehman)

[malcolmswaine]

I would say the resulting strong Baht isn't helping exports too much

[lannarebirth]

I would say the resulting strong Baht isn't helping exports too much

I hear that a lot. The fact is, the Baht has been weakening for many months now.

http://finance.yahoo.com/q/bc?s=USDTHB=X&a...l&q=l&c=

[parryhandy]

there is only 1 currency in the world and that is TRUST. The $ is like a huge whirlpool at the moment sucking everthing in before it becomes NOTHING

[andyc2006]

Only 90 percent? Since when is 90 percent not much?

For about 200 years now. See http://en.wikipedia.org/wiki/Fractional_reserve_banking

What do you think caused this whole credit mess? Banks make money borrowing money cheaply and lending it out at higher rates.

Bankers realized their profits were limited by:

1. The number of credit-worthy borrowers.

2. The amount of money they had to loan.

Fractional reserve banking removes limit #2. Ignoring all common sense and loaning money to people who can't pay it back removes limit #1.

Poof! Eternal motion.

Central bankers convinced ignorant elected officials that this was all a good idea, since it "grew" the economy and "created jobs."

Poof! Gates of hel_l opened. Welcome to 2008.

[bartender100]

Personally i would not want to have any money in a Thai bank, they cannot be immune to whats going on in the world, possibly papering over the cracks as they appear, such as an article in the OP.

S.Korea Indonesia Turkey Parkistan and many more emerging markets are in deep trouble, don't expect a hand out from any Thai bank if they foreclose

[PoorSucker]

I would say the resulting strong Baht isn't helping exports too much

I hear that a lot. The fact is, the Baht has been weakening for many months now.

http://finance.yahoo.com/q/bc?s=USDTHB=X&a...l&q=l&c=

And there are only two currencies in the world, USD and THB?

[WISteve]

"Thailand Escapes Financial Meltdown"

That's probably a fair statement. But they certainly won't be immune to the global recession. They weren't exposed to the mortgage backed security problem to a great extent, but declining orders for equipment, electronics and apparel throughout the world will have a big effect on the economy. Tourism for a whole raft of different reasons will decline again in 2008 and 2009, and the biggest reasons are beyond their control.

With half the jobs in Thailand still tied to agriculture and static growth in export-focused manufacturing the Thai consumer won't be riding to the rescue. As is the usual pattern, the lowest paid and most vulnerable workers will bear the brunt of it.

Whether you credit it to good banking practices or dumb luck the financial sector should weather this storm better than most countries. But that's not to say there won't be some suffering and belt tightening done by the citizens of Thailand.

~WISteve

[lannarebirth]

I would say the resulting strong Baht isn't helping exports too much

I hear that a lot. The fact is, the Baht has been weakening for many months now.

http://finance.yahoo.com/q/bc?s=USDTHB=X&a...l&q=l&c=

And there are only two currencies in the world, USD and THB?

Something like that. The $USD is the only major western currency the baht trades against with any kind of liquidity. I think some forex brokers will break it down to smaller niche pairs, but they're not very liquid.

http://www.forexmarket.co.za/currency_pairs.asp

[parryhandy]

With half the jobs in Thailand still tied to agriculture and static growth in export-focused manufacturing the Thai consumer won't be riding to the rescue. As is the usual pattern, the lowest paid and most vulnerable workers will bear the brunt of it.

They wont even notice . Thailand is /was /always has been a "communist" country apart from the ELITE .

Edited October 24, 2008 by parryhandy

[andyptrav]

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

Only 90 percent? Since when is 90 percent not much? Perhaps he meant to say "only 10 percent..."

No 90% will be correct. Welcome to the world of fractional reserve banking where in the USA it is now around 98%. So, say some depositors lined up on Monday to take just 3% of the total, the bank is bust. Here in Thailand it needs 10% before the government and central bank have to print some new money to bail out the bank.

[noelani]

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

Only 90 percent? Since when is 90 percent not much? Perhaps he meant to say "only 10 percent..."

Banks are allowed to lend out ten times the amount of money deposited, so 90% would be a very low figure.

[pascal2000]

Interesting story, while the PAD is melting down Thailand to such an extent that no freedom and no wealth is left (Except for their Chinese friends of course).

Thailand's economy will be virtually wiped out if 2% of the population will continue (with support of the highest people) to hold the country randsom. Therefore the comments are misplaced and thus absurd, Thailand will not escape a meltdown, the new tourist figures will speak for itself. The new investment figures will tell all of the story. Banks cannot even find customers for their credit nowadays that is even worse.

THis is not a very intelligent statement. Thaksin and his cronies are the core of the Thai-Chinese businessmen who brought this country to ruin 1987 and are at again.

[Los78]

Interesting story, while the PAD is melting down Thailand to such an extent that no freedom and no wealth is left (Except for their Chinese friends of course).

Thailand's economy will be virtually wiped out if 2% of the population will continue (with support of the highest people) to hold the country randsom. Therefore the comments are misplaced and thus absurd, Thailand will not escape a meltdown, the new tourist figures will speak for itself. The new investment figures will tell all of the story. Banks cannot even find customers for their credit nowadays that is even worse.

THis is not a very intelligent statement. Thaksin and his cronies are the core of the Thai-Chinese businessmen who brought this country to ruin 1987 and are at again.

1987 WHAT??? Was Thaksin in power during that period... hmm I dont think so the Democrates were in power in those days. Get your facts right before you make stupid comments like that. Taksin was in power from 2001 - 2006 by the way. Way off PADISTA.

[sawasdee2549]

Interesting story, while the PAD is melting down Thailand to such an extent that no freedom and no wealth is left (Except for their Chinese friends of course).

Thailand's economy will be virtually wiped out if 2% of the population will continue (with support of the highest people) to hold the country randsom. Therefore the comments are misplaced and thus absurd, Thailand will not escape a meltdown, the new tourist figures will speak for itself. The new investment figures will tell all of the story. Banks cannot even find customers for their credit nowadays that is even worse.

THis is not a very intelligent statement. Thaksin and his cronies are the core of the Thai-Chinese businessmen who brought this country to ruin 1987 and are at again.

1987 WHAT??? Was Thaksin in power during that period... hmm I dont think so the Democrates were in power in those days. Get your facts right before you make stupid comments like that. Taksin was in power from 2001 - 2006 by the way. Way off PADISTA.

NOW would be a very good time for Thailand to rethink it's bullshit rules and regulations towards foreigners.

Long term "farangs" are leaving!! cash cow on the way out.

Wake up Thailand, what you have to offer is becoming a waste of time and money. Many other Asian countries offer better, and without a Thai national of no money, signing for you.

Duh, someone earns 150 baht a day is considered guarentee? yet I CANNOT SIGN MYSELF as a farang, piss off 60,000 a week!! Sorry your farang. duh???

This bullshit has to stop soon as there are too many countries that offer long term visa AND self sign.

Have lived here 8 years already, tired of the bullshit, time to go to Laos or somewhere, better than here with the shit.Visa for what? pay 25,000 a year for nothing, just to live here. <deleted>

[Lindern]

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

Only 90 percent? Since when is 90 percent not much? Perhaps he meant to say "only 10 percent..."

From BOT:

Commercial banks are required to maintain liquid assets no less than 6% of the reserve base (deposits, foreign borrowing maturing within 1 year, other borrowing with index linked returns or embedded financial derivatives.)

The current required reserves ratio in the US is 10%.

[ThaiPauly]

For us Brits 13 pounds used to buy you 1,000 Baht, now the same 1,000 baht cost us 17 pounds, thats a mighty big difference !!

This is going to force a lot of retirees out of LOS, or put many who thought they could retire here off.

Unless they want to lose the income from the British Ex-pats they are really gonna have to do some kind of re-think on this.

Everyone that I know (myself included) are taking really big hits on their savings offshore...and it could get a lot lot worse IMHO

Some that retired here early will have no choice but to go back and replensih their funds by working, so thats a lot of baht they won't be spending here anytime soon.

[henryalleman]

Thailand Escapes Financial Meltdown

Past Lessons Helped Nation Lessen Risk

BANGKOK: -- Thailand has escaped the global financial panic with only minor immediate damage, in part because of an ethic of financial caution that it learned in the 1997 financial crisis, which almost stopped its economy.

The country today has little or no direct exposure to risky asset-backed securities and is awash with liquidity from a high and rising savings rate. The worst damage so far is $125 million of losses from the collapse of Lehman Brothers.

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

High liquidity and reliance on deposits as a source of cash have protected Thai banks from the vagaries of the stalled interbank lending market. "The banks here are surprisingly solid given what is happening in other markets," said Vincent Milton, managing director of Fitch Ratings Thailand.

But if Thailand has been protected from the primary fallout, it is worried about secondary damage that the global slowdown is likely to inflict on an economy that for years has been driven by export growth. "The most important issue is what will become the engine of growth going forward," said Kosit, who was a deputy prime minister in 2006-07.

For the last three years, Thailand has been mired in a drawn-out political conflict. Huge anti-government demonstrations led to a peaceful military coup in 2006, but the return to civilian rule at the end of last year has failed to end the paralysis. Few analysts expect the current government to last much longer.

The political uncertainty has dented investor confidence and government planning, but it has had one unexpected benefit: It has prevented the building of the sort of asset price bubbles that have amplified problems elsewhere in the world.

Looking to find ways to defend against future crises, Thailand is preparing to propose setting up a regional financial institution that would be an Asian hybrid of the International Monetary Fund and the World Bank.

"The first step would be a kind of Asian IMF," Thailand's finance minister, Suchart Thada-Thamrongvech, said in an interview Thursday. "So if we are in trouble, we could get some help from this multilateral organization." And in normal times, the institution would "have money in the system and it could act as a kind of development bank, like the World Bank."

"If we had this kind of organization, Chinese reserves could be used to finance rural roads in Thailand rather than buying U.S. government bonds," Suchart said.

He said the size of the fund was not the point: "I think the figure is not important at the moment. It is the concept that is important."

His comments came after Thai Deputy Prime Minister Olarn Chaipravat suggested that Asian nations should pool 10 percent of their foreign exchange holdings, about $350 billion, into a superfund that could protect the region from effects of the global economic crisis.

Suchart stressed that the negotiations are at a very early stage. But he said that when he met senior Chinese and Philippine officials in Washington last month, there had been support for expanding the Chiang Mai Initiative, a framework of bilateral agreements that many Asian nations formed after the 1997 financial crisis to support each other's currencies if they again came under attack by speculators.

Ministers from the 10 member countries of the Association of Southeast Asian Nations, along with China, South Korea and Japan -- the so-called ASEAN Plus Three -- are set to meet in Beijing on Saturday after attending the Asia-Europe Meeting this week. Thailand currently chairs ASEAN.

Philippine President Gloria Macapagal Arroyo this month said the World Bank had agreed to contribute $10 billion to a fund to assist Asian countries should they run into liquidity problems. The bank has denied it made such a commitment.

-- Washington Post 2008-10-24

The international financial crisis teach us one thing. The moment that an CEO of a bank start to assure the people that their will no problem, we should take caution.

[nikster]

Personally i would not want to have any money in a Thai bank, they cannot be immune to whats going on in the world, possibly papering over the cracks as they appear, such as an article in the OP.

Yes.... this reads like any property related articles in the BKK post - a nice fluff piece. Rather meaningless. If there was a Thai banking crisis, we'd hear about on the morning the ATMs stayed closed.

As for the banks being too dumb to buy highly leveraged investments they didn't really understand - that used to be called smart. If you don't understand it, don't buy it. Warren Buffet said as much.

[Heng]

I would say the resulting strong Baht isn't helping exports too much

I would say that 34+ Baht per dollar is hella' fat.

[BEENTHEREDONETHAT]

I think you should be complaining about the UK causing your pound to fall not Thailand. It was the other countries including UK that mismanaged everything and made it all go to he-ll, LOS is not really the problem here.

[brahmburgers]

Brits who used to take 1,500 baht gals will now have to settle for 700 baht gals - tough times ahead.

[peekint]

Thais were once in debt of the INF and it's said that even the great grandson of the Thais are unable to pay for the debt.

But everything went backward and the debt was paid in 2 years, it showed how capable the Thai can actually be...

I can't resist from commenting on this fallacy. The truth about the IMF loan is that, yes, the IMF was paid off, but only by creating some very (very) low grade bonds which pay 10% and more over 30 years - and are interest only. And, by the way, not all these bonds are sold. If you want to buy some, go to any large bank in HK or Sinagpore and ask. But, they have a bizarre restriction - they cannot be sold to, or even discussed with, Thai passport holders.

So, in fact, the situation is this: The low-interest IMF loans were repaid by issuing high interest bonds with no principle payments for 30 years. The BOT is paying off the interest, but in 30 years, the original IMF debt will come due again (just be owed to someone else). Of course, with inflation and growth, the thinking is, the amount will seem much smaller then. But at what cost to a fragile economic system in the mean time?

Nice to know the Thai government learned so much about finance during the 97 crisis. They now have all the same tricks as George Bush, Lehmann Bros and AIG!

[PeaceBlondie]

i took lannarebirth's Yahoo Finance chart of the USD versus the THB, and added a comparison of the Japanese yen versus the baht. The JPY is very strong against the USD now. The comparison chart shows that in the past year, the baht has lost more value against the yen than it did against the dollar. But the euro and British pound, which had been strong, have weakened, at least against the dollar. The baht is only losing value against the USD gradually because the Bank of Thailand intervenes in the exchange market. Otherwise, the dollar would be closer to 40, which may be where it goes in the next six months.

[HAL9000]

"I think 1997 made us very aware of the role that risk management has to play," said Kosit Panpiemras, executive chairman of Bangkok Bank, speaking of Thai banks in general. "I think we have also been very careful about liquidity, particularly here at Bangkok Bank. Our loan-to-deposit ratio is something like 90 percent -- only 90 percent of our deposits have been lent out."

Only 90 percent? Since when is 90 percent not much? Perhaps he meant to say "only 10 percent..."

90 is quite high. The US investment bank failures were caused by leverage ratios ranging 30 to 1. 90% is still 9 to 1. Conservative managers only go 3 or 4 to one.