Thailand Escapes Financial Meltdown

[john69]

"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, I think this is correct. It means that they loan out 90 baht for every 100 baht the have on deposit. By comparison, some banks in the West have loaned out up to 30 dollars for every one dollar on deposit. That is the problem. They loaned out money they themselves borrowed. At least that is who I understand it - some other reader may correct me.

[Boghead]

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

Most banks lend far more than they have on deposit. It's called fractional reserve banking where at least 10x the deposit is lent and then the loans are used as "reserves" allowing them all to be relent again at 10x. The wonderful system of fiat money, sorry counterfeit money that is created out of nothing and has lead to the current situation. Of course you have to pay interest on all these loans even though the bank never had the money to lend you in the first place.

Read "The creature from Jekyll island" for all the details of the greatest scam in history.

[barryofthailand]

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

Strong Baht? The Baht has weakened, and the dollar strengtened. Good for Exports to the U.S.A. for Thai companies.

Barry

[Martin]

The baht cost in other currencies is an interesting topic, especially to those of us who get our pensions from other countries.

But there is another story in the OP, too.

That, to put it bluntly, is: "Let us set up our Eastern financial-stabilising 'insurance company' and move our business away from the American one, the IMF".

In other words, it could be expressed (a bit exaggeratedly) as "Let's start dumping on the idea of a Bretton Woods II".

There has been a lot of serious discussion on 'heavier-weight' blogs about a "Bretton Woods II" this last few days, but this OP effectively suggests that the relations between currencies and the other things that were imposed on the world by America at Bretton Woods, should be decided by a "Shanghai I" Conference.

I am not surprised. America and Britain have been massively belittled by this financial crisis.

For a good article that looks ahead to world leadership returning to the East where it was in the past (Western domination only having really got going 250 years ago, with Newcomen and Watts developmentof the steam engine that 'seeded' the Industrial Revolution), it is possible to google The Journal of Contemporary Asia. The publishers, Routledge, have made one issue downloadable for free as a 'taster', and the article is in that. Sorry, I can't give a link at the moment.

[Pakboong]

"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.

Every time a bank loans money, it considers the amount it loans an asset on their balance sheet.. They then are able to loan again against this new asset. This can go on for quite some time. That is why many call fractional reserve banking, a giant ponzi scheme.

[george]

Update:

BoT says Thailand will escape recession

BANGKOK: -- Fiscal spending and the agriculture sector's continued strength will help prevent Thailand sliding into a recession, according to the Bank of Thailand.

Tarisa Watanagase, the governor of the Bank of Thailand, said yesterday that the global slowdown and domestic political tensions would weigh on Thai economic growth. But she said growth would continue thanks to fiscal stimulus programmes to boost domestic demand to compensate for slowing export growth.

Unemployment rates remain relatively low at just 1.2%, while the agricultural sector continues to support growth.

The Bank of Thailand earlier this month cut its growth forecasts to between 3.8% and 5% for 2009 and between 4.3% and 5% for this year.

But Dr Tarisa said global market volatility made it hard to make projections.

''We cannot say whether growth will be higher or lower than the forecast range,'' she said. ''But in any case, even with slowing economic growth, Thailand will not enter into a recession.''

Dr Tarisa said monetary policy also had room to loosen to support growth.

The central bank earlier this month left its one-day repurchase policy rate unchanged at 3.75%. Most analysts expect rates to decline over the next few quarters as growth and inflationary pressure fall.

Even so, Dr Tarisa repeated that financial markets face no liquidity pressure, a contrary stance to Finance Minister Suchart Thada-Thamrongvech.

Dr Tarisa said local banks had as much as 500 billion baht in excess liquidity on hand and invested in central bank bonds.

But local banks have already begun scaling back loan growth plans for the next few quarters in anticipation of lower economic growth and rising credit risk.

Dr Tarisa said she understood the position taken by local banks to safeguard the asset quality of their loan portfolios.

Regulators have begun holding talks on how to minimise the impact of greater risk aversion by the financial sector on small companies. One option would be for government agencies to offer co-guarantees for loans offered by state and private banks to ensure companies could still access the credit markets.

-- Bangkok Post 2008-10-25

[Kaojai]

Therefore the comments are misplaced and thus absurd, Thailand will not escape a meltdown, the new tourist figures will speak for itself. Banks cannot even find customers for their credit nowadays that is even worse.

Undoubtedly Thailand will be impacted by lower number of tourists, but the story was about the banking system and in any event the economy (if your perspective is not based in a Beach Rd Bar Beer) is likely to be far more impacted by a decline in exports.

"The banks here are surprisingly solid given what is happening in other markets," said Vincent Milton, managing director of Fitch Ratings Thailand.

If the ratings agencies like Fitch say the banks are surprisingly solid, and a gaggle of farang gurus on Thai Visa have conflicting information, who is one to believe.? The rating agencies have certainly fallen asleep at the switch in some cases, but somehow I think they may have a more reliable base of information that the legion of Thai bashers who lurk here.

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

90% is quite reasonable and it could easily exceed 100% since banks have other sources of funds than deposits. One of the many reasons some financial institutions have had problems lately is that they've used short term debt to augment long term investments/loans. This leveraging has come back to hit them when the sources of funding have either ceased to exist or become more expensive than the income derived from the loans/investments.

As usual, the TV panel of "experts" assumes that their farang-itude makes them wiser than Thais who run banks or other businesses or serve the government. In this case, even a foreign-based, internationally recognized rating agency is dismissed in the glaring light of Thai Visa members' omniscience.

It's especially interesting that in this case, since the economic meltdown is exposing the reckless, fraudulent banking practices in the US and Europe, that American and European posters (with no apparent expertise or experience in finance or economics) still feel they are in a position to label statements by Thai officials as absurd. I guess the nice term for that is chutzpah.

[Seneque]

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

Strong Baht? The Baht has weakened, and the dollar strengtened. Good for Exports to the U.S.A. for Thai companies.

Barry

Is there only the THB and the USD on earth ... The Korean currency collapsed completely (??), the AUD and NZD (Australia & New Zealand) collapsed totally, the EUR (euro) is not pretty looking ... etc .... and these currencies are coming from real strong economies ...

I am still amazed to see people who believe the Thai Baht is 'actually' weakening ...

The BOT is strongly selling the USD (their main reserve currency) to maintain the Baht ... until when ??!!

The USD is swallowing all the current debts ... and then it will be a free fall ...

What is happening now is simply the result of ultimate greed and criminal financial activities by bankers and to think that they are being freely bailed out without any blink of an eye shows how far and how deep this goes as they are hand in hand with extremely corrupted politicians.

I agree that when bankers start telling we are fine .... (as Mrs. Tarisa also mentonned last week) you ought not to be believing them ... when they closed 56 or so finance companies in 1997 ... the money was frozen for 4 years ... so dont be too relax holding yr cash in thai banks ... why would Thailand be the only country in the world immune ? ... They never paid back the IMF loan (just diverted it) ... how about the shark loans, which do not appear on any book, ... etc...

Thailand is heavily in debt with an economy which relies on tourism and low value added exports ... how can they be immune ... beats me.

[Thai at Heart]

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

Strong Baht? The Baht has weakened, and the dollar strengtened. Good for Exports to the U.S.A. for Thai companies.

Barry

Is there only the THB and the USD on earth ... The Korean currency collapsed completely (??), the AUD and NZD (Australia & New Zealand) collapsed totally, the EUR (euro) is not pretty looking ... etc .... and these currencies are coming from real strong economies ...

I am still amazed to see people who believe the Thai Baht is 'actually' weakening ...

The BOT is strongly selling the USD (their main reserve currency) to maintain the Baht ... until when ??!!

The USD is swallowing all the current debts ... and then it will be a free fall ...

What is happening now is simply the result of ultimate greed and criminal financial activities by bankers and to think that they are being freely bailed out without any blink of an eye shows how far and how deep this goes as they are hand in hand with extremely corrupted politicians.

I agree that when bankers start telling we are fine .... (as Mrs. Tarisa also mentonned last week) you ought not to be believing them ... when they closed 56 or so finance companies in 1997 ... the money was frozen for 4 years ... so dont be too relax holding yr cash in thai banks ... why would Thailand be the only country in the world immune ? ... They never paid back the IMF loan (just diverted it) ... how about the shark loans, which do not appear on any book, ... etc...

Thailand is heavily in debt with an economy which relies on tourism and low value added exports ... how can they be immune ... beats me.

It won't be immune, but the relatively conservative corporate and mortgage lending practices of the banks here to corporates and individuals will help it some. A friend in banking in Korea told me it could be meltdown over there. Many of the chaebol are very heavily borrowed in USD. The stock market is 80% foreign owned and they are dumping shares. He reckons 6 months from now over there it could be a awful situation it the won keeps dropping like this. I don't know about all Thai corporates, but the bigger blue chips I believe learnt a massive lesson in 97 and do a lot more of their borrowing in baht than they did ten years ago.

9 to 1 lending rates would make banking practices pretty conservative, but then again you also have to pay 300 baht to get a printed statement.

[ray23]

Just a few comments:

Dr. Tarisa is also the person who believes they loss in export can be replaced by tourist revenue. I serioulsy doubt that, one with the baht rate it is more expensive to stay here. Secondly people don't have the money to vacation they did before.

Loa Poa is correct the baht has weakened adn intervention has held in the 34 range.

The monetary fund great idea, but we are talking about a lot of countries needing help. China has the mney but they are not known for making bad decesions. Trust would be a huge factor is such a plan, that is not in large commodity in the region. There is long way between thought and reality So we will see.

Brits you are now feeling what we Americans began feeling a few years back, Thing change it takes time. But, the pound and Euro will gain strenth. It just won't be tomorrow. I had to rethink my life here adn adjust. Thas really not that hard just scarey.

Expats you have to accept that we are not part of the equation, for the most part we buy a home in our wives name and generally support our local communities. However we don't spend our time normally hanging out in five star hotels. The people who make the decesions are the ones who own those five star hotels. They don't own the talot down the street where we spend our money. We don't count might as well adjust to that. They don't want the people who bring in a million a year for years. They want the one who spends it in a week and leaves.

Personally I think they are overlooking the obvious, baby boomer are retiring right and left. They have not open a market for them a other countries have. will tha cost them, yes but they will never realize it.

In the end I have learned to unddersatnd this and I'm happy here most of the time so I won't be going anywhere unless I have to. For most of is coming here changing our lives completly took a driving desire. If you have the desire you will find a way. Good luck to all.

[Seneque]

conservative corporate and mortgage lending practices of the banks here to corportae and individuals will help it some.

Shark loans have been on an exponantial rise since a few years due to this bank lending conservatism ... and this is not accounted into the 'real' economy ... so where does this lead the local economy, debt wise ??

Besides the local stock market (even manipulated as it is) dived down ... so no immunity there ...

I wish them well but overconfidence in times like this is rather disturbing.

[animatic]

"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.

Every time a bank loans money, it considers the amount it loans an asset on their balance sheet.. They then are able to loan again against this new asset. This can go on for quite some time. That is why many call fractional reserve banking, a giant ponzi scheme.

Ditto

[albertsproggins]

Oh dear.

yet again the Thai's seem blissfully unaware that they are not immune from the current financial uproar that is going on.

As has been said''The I.M.F. debt was restructured by refinancing'' to the benefit of Thaksin and his meglomanic acolytes in the poularity stakes.

Also (as already said) those funds are not accessible to Thai passport holders or Thai nationals either.The truth would indeed hurt.fact is that Thailand is mired in international debt and will be so for many years to come.

Note the headlines in one of todays papaers regarding 80 billion dollars as a cushion for banks in A.S.E.A.N..

Does this indicate financial security or insecurity I wonder ?

Thai banks are reknowned for ''creative accounting practices.''

Along with the pork barrel politics rest assured Thailand your masters will sell you down the river and laugh all the way to the bank whilst Somchai and Porn beg for food on the street from the Merceds and B.M.W. drivers.

Edited October 25, 2008 by albertsproggins

[Thai at Heart]

conservative corporate and mortgage lending practices of the banks here to corportae and individuals will help it some.

Shark loans have been on an exponantial rise since a few years due to this bank lending conservatism ... and this is not accounted into the 'real' economy ... so where does this lead the local economy, debt wise ??

Besides the local stock market (even manipulated as it is) dived down ... so no immunity there ...

I wish them well but overconfidence in times like this is rather disturbing.

The question is will it collapse or slow down, the baht devalue to 38 to 42 to the USD or will there be an absolute implosion and very long deep recession as there may be in the US and Europe? Exports will slow because of weakness in US and EU but then a weakened THB will help. Nowhere is immune, but the OP was concerning lessons learnt for 97 that may help to prevent a meltdown. In 97 major business was borrowing in USD because of the perceived peg. Two years ago today the THB was 38 to the USD. Little before that it was over 40. I understand that the majority of large corporate borrowing is done domestically today. That is a huge difference and in contrast to Korea as I mentioned in my previous post.

Will the banks go to the wall like Europe and the US? They lend for mortgages relatively conservatively, just ask them. Will people who bought off plan 10mn baht apartments hoping to flick them take a hit, yes. Are these construction companies leveraged in USD? Maybe but I understand massively less than 10 years ago. Car lending is very badly checked here, big problem, just look at the 3 year old BMW's on the car lots that were sold at 0% for 3 years. Are the major blue chip companies as exposed to USD movement through their borrowing as they were. I understand not. So the Thai economy isn't in the best shape in the world, but will all countries be effected equally by this financial turmoil, of course not.

[hansnl]

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.

And the PPP does not do anything for their Chinese Friends?

[chickencurry]

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.

I agree with all that - and it's not just GBP (for the UK bashers). AUD is down, Euros down. We have German retired friends who are teetering on the edge. Our income has gone way, way down - not on the edge yet but who knows how much worse it's gonna get.

[Cuban]

FWIW, the USA has imported less from Thailand year on year for the past five years (only data I can see), Japan is Thailand's best export market and the value of the Baht vs Yen is returning to 2004/5 levels - might promote more business in this region?

As for tourists, from the west there will probably be less with money to spend - within the region might be a different story? A different 'type' of tourist maybe?

[Martin]

For 'Seneque', re post #38:

You said:

"What is happening now is simply the result of ultimate greed and criminal financial activities by bankers and to think that they are being freely bailed out without any blink of an eye shows how far and how deep this goes as they are hand in hand with extremely corrupted politicians."

I think that that is an excellent, succinct exegesis, and will 'adopt' it, if that is OK by you.

[robbo1]

For 'Seneque', re post #38:

You said:

"What is happening now is simply the result of ultimate greed and criminal financial activities by bankers and to think that they are being freely bailed out without any blink of an eye shows how far and how deep this goes as they are hand in hand with extremely corrupted politicians."

I think that that is an excellent, succinct exegesis, and will 'adopt' it, if that is OK by you.

Whats the aussie dollar worth to thai baht

[Martin]

For 'albertsproggins', re post # 43:

You said: "Along with the pork barrel politics rest assured Thailand your masters will sell you down the river and laugh all the way to the bank whilst Somchai and Porn beg for food on the street from the Merceds and B.M.W. drivers."

Whilst I agree that Thailand's upper classes and its emergent middle class have been unconcerned about the plight of the urban poor and the rural poor, I think it is possible to envisage a more optimistic scenario that goes like this:

"Somchai and Porn will be invited by their rural relatives to come and 'kin khao' in the village. the villages need more population as there is now a labour shortage, even for the harvesting of the 'plantation' crops that have been introduced as they are not labour-intensive like rainfall rice.

"But the collapse of manufacture-for-export when the orders stop coming from the formerly consumerist West, and the collapse of incoming long-haul tourist arrivals, will put many of the urban middle class into redundancy and on the path to hunger. So they, too, will head for Ban Nork.

"The formerly-urban middle class will champion the rural power (of whom they will be a part) with momentous potential change for social (economic, political and cultural) change in Thailand."

I did my MA thesis on this. Anybody who would like an electronic copy of my journal article that describes my research is welcome to PM me, giving me their e-mail address.

[BEENTHEREDONETHAT]

Someone else posted this video a day or two ago. It shows where the money comes from and how the banks magicly conjure it up from nothing.

It is easy to watch, and to understand, the downside it last 47 minutes. Well worth the time IMHO

http://video.google.com/videoplay?docid=-9050474362583451279

[wensiensheng]

" QUOTE (Trichiliocosm @ 2008-10-24 23:55:46)

"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%. "

As many have intimated, lending out 90% of a banks deposits is very low. The modern world learned to live off leverage. By definition, that means lending out MORE than you have on deposit. In the case of some US banks, 30 times more.

Thailand has escaped this particular crisis because of a) the high propensity of the poor and middle class to save what they can. Individually it's peanuts, collectively it insulates a bank from a run; slow decision making and domestic focus meant they never got caught up in the sexy instruments peddled by the Capital Market divisions of foreign banks.

The econmic problem for Thailand is going to be living with others mistakes. Slower FDI, less tourists, relatively strong baht. 2009 is not going to be fun economically, but other developed countries will suffer more

[Soutpeel]

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.

Do you really believe they give a sh*t about British Expats or any other expats for that matter..??

[Baccusboy]

You guys should feel fortunate.

I'm teaching in Korea, and our salaries have been cut by about $800 US on average (for those sending money back to the states).

If the average teacher newbie here were earning 2.3 million won per month, then this past summer (950 to 1), they grossed $2,421 per month.

Right now, they are earning $1,625 per month (around 1450 to 1 or so -- it varies). The salary has dropped nearly $800 per month.

If the won goes to 1600 to 1 US dollar, as predictions are saying, then they're looking at $1,437. That's a loss of $1,000 per month!

Edited October 25, 2008 by Baccusboy

[Bengt]

Read this.....any comments?

Read more at this link:

http://thaicrisis.wordpress.com/

Edited October 25, 2008 by Bengt

[Richie1971]

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.

Do you really believe they give a sh*t about British Expats or any other expats for that matter..??

Of course they don't because they know something that we all know deep down, there is no place in SE Asia like Thailand. All the posters who keep saying, 'that its, I'm off to Laos, Vietnam, Cambodia etc' really have no grasp of what living there long term is like. I am currently based in Hanoi and although I earn two salaries and live in a good standard of accommodation daily life is still a grind. One day the cable TV doesnt work, next day the internet does'nt work or is fantastically slow, the next day the supermarkets across the city run out of orange juice and tomato ketchup. No 7-11, restaraunts close about 10, rip off taxis all the time (bar one company). This is in a country that has a more advanced infrastructure that Laos or Cambodia.

I can say from experience that living in Thailand on $2000 per month is alot better than living in Hanoi on $4000 per month.

Think carefully before you pack those bags.

[SomchaiCNX]

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.

Taksin was in the government in 97 (that's what Pascal2000 wanted to say instead of 87).

He got inside information before the Bath went down and used it. (Chevalit)

And, Yes it is the same bunch of Thai- Chinese cronies who are in charge now.

The $ versus Bath is unrealistic, but it will help these cronies to sell their products (they are business people after all) to the USA.

[BlackJack]

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

Most banks lend far more than they have on deposit. It's called fractional reserve banking where at least 10x the deposit is lent and then the loans are used as "reserves" allowing them all to be relent again at 10x. The wonderful system of fiat money, sorry counterfeit money that is created out of nothing and has lead to the current situation. Of course you have to pay interest on all these loans even though the bank never had the money to lend you in the first place.

Read "The creature from Jekyll island" for all the details of the greatest scam in history.

Supertramps crime of the century comes to mind

[GomerPyle]

Thai banks are awash with cash.

Of course. They are big launderettes for the dirty money generated by all illegal activities in this country .

How many times have I seen people depositing several million Bahts in cash at the local bank, with no questions asked...

[Seneque]

For 'Seneque', re post #38:

You said:

"What is happening now is simply the result of ultimate greed and criminal financial activities by bankers and to think that they are being freely bailed out without any blink of an eye shows how far and how deep this goes as they are hand in hand with extremely corrupted politicians."

I think that that is an excellent, succinct exegesis, and will 'adopt' it, if that is OK by you.

Be my guest ... as we r in this for the long haul !