Bank Of Thailand Wants Details On Debt-Transfer Plan

[webfact]

BANK OF THAILAND

BOT wants details on debt-transfer plan

The Nation

The Bank of Thailand (BOT) will ask the government to clarify its proposal to transfer public debts left over from the 1997 Asian financial crisis to the central bank.

The issue needs further discussion and the central bank is ready to clarify its position on the matter should the government request it, BOT Governor Prasarn Trairatvorakul said.

Prasarn said the central bank had already clarified its position on the issue to the Finance Ministry once, and would insist that the FIDF debt does not belong to the central bank. The debt was incurred as the result of a Cabinet resolution during the bailout of financial institutions following the 1997 crisis.

Transferring the debt to the central bank, which already has negative equity of Bt400 billion, could affect the bank's credibility, Prasarn said, adding that if the central bank receives the debt, its equity will be negative Bt1.5 trillion, which could harm confidence.

Prasarn said it was quite strange that the government had not discussed the debt transfer officially with the central bank before bringing the issue to the Cabinet, adding that the move could raise a question on the BOT's ability to continue to run monetary policy independently.

Responding to the Cabinet's rejection of the BOT's proposed 2012 inflation target, Prasarn asserted that the central bank would continue to use the existing target for core inflation of between 0.5-3.0 per cent.

The new target focuses on headline inflation, rather than core inflation, at a rate of 3 per cent, plus or minus 1.5 percentage points.

The Cabinet's rejection of the BOT's target would have no impact on monetary policy, but could affect the financial markets if foreign investors question which inflation target will be used for Thailand, Prasarn said.

After receiving clear details from the Finance Ministry, the central bank will take the issue to its Monetary Policy Committee, which will convene on January 25.

Regarding the proposal to extend Bt300 billion in soft loans, the government will announce details soon, Prasarn said. The soft-loan plan, which is now before the State Council, is expected to start in early 2012.

Deputy Prime Minister Kittiratt Na-Ranong pondered the issuance of a law, to enforce the transfer of Financial Institutions Development Fund (FIDF)’s debts from the Finance Ministry to the Bank of Thailand.

Yesterday, he insisted that the central bank is financially strong enough to handle the Bt1.14 trillion debts on its own.

The Cabinet on Tuesday endorsed the proposed transfer. Kittiratt is tasked to discuss the plan in detail with the Finance Ministry, Bank of Thailand, Budget Bureau, the National Economic and Social Development Board and the Council of State.

He noted that if the central bank still refuses to take care of the debts, a law would be issued to force such transfer.

-- The Nation 2011-12-29

[Pib]

Clarify!? What's to clarify? The govt wants to pass a debt to another portion of the govt (BOT) which allows the govt to play a shell game in how much debt Thailand owes.

I read in another Nation article today that the BOT offered a couple of other possible options to help with the govt debt and one was and to quote: " The other is that the Deposit Protection Agency's fund, collected from the deposit base, could be borrowed for interest payments, which are estimated at Bt45 billion a year. Banks now contribute about Bt39 billion annually to the DPA." End quote.

Is this DPA fund the money that insures deposits in Thai banks? An insurance amount that tapers-off to Bt1 million per person per bank as of 11 Aug 12 (the insured coverage is a little higher right now as the programs moves toward the Bt1 million baseline/goal set by law). You know, like deposits you may have in Bangkok Bank, SCB, K-Bank, and all the other retail banks. If so, if the money is borrowed effectively depleting the fund then does that mean there is really no money insuring deposits other than the good faith of the govt, who has too much debt right now.

I also hear on the TV news this morning that the BOT Governor said the proposed debt transfer scheme could end-up in causing the baht to devalue and possible rating downgrade because other countries would have less faith in Thailand's financial stability. Well, I"m all for getting more baht per USD I bring into the country, but I'm not sure this would be the best way to get more baht per dollar since inflation would probably be driven up of offset any exchange gain.

Oh well, this issue is well above my brain's ability to understand...I'll just set back and watch this soap opera play-out. Happy Holidays to All.

[Arkady]

Clarify!? What's to clarify? The govt wants to pass a debt to another portion of the govt (BOT) which allows the govt to play a shell game in how much debt Thailand owes.

I read in another Nation article today that the BOT offered a couple of other possible options to help with the govt debt and one was and to quote: " The other is that the Deposit Protection Agency's fund, collected from the deposit base, could be borrowed for interest payments, which are estimated at Bt45 billion a year. Banks now contribute about Bt39 billion annually to the DPA." End quote.

Is this DPA fund the money that insures deposits in Thai banks? An insurance amount that tapers-off to Bt1 million per person per bank as of 11 Aug 12 (the insured coverage is a little higher right now as the programs moves toward the Bt1 million baseline/goal set by law). You know, like deposits you may have in Bangkok Bank, SCB, K-Bank, and all the other retail banks. If so, if the money is borrowed effectively depleting the fund then does that mean there is really no money insuring deposits other than the good faith of the govt, who has too much debt right now.

I also hear on the TV news this morning that the BOT Governor said the proposed debt transfer scheme could end-up in causing the baht to devalue and possible rating downgrade because other countries would have less faith in Thailand's financial stability. Well, I"m all for getting more baht per USD I bring into the country, but I'm not sure this would be the best way to get more baht per dollar since inflation would probably be driven up of offset any exchange gain.

Oh well, this issue is well above my brain's ability to understand...I'll just set back and watch this soap opera play-out. Happy Holidays to All.

The suggestion re the Deposit Protection Agency's fund is despicable. Tirachai suggests that the payments made by banks for this purpose should effectively be diverted so that there are indirectly used to pay for the government's wasteful populist measures, so the government will take the full hit in the next financial crisis without any fund to lessen the blow. While the amount of deposit insurance to depositors has now been technically reduced, as it was before the sub-prime crisis, we all know that the government will be forced to raise it to 100% of all deposits, as they did last time and as Ireland, the UK and others did to avoid a sudden collapse of the banking system. From his stance when he was governor of the BoT it is obvious that Tirachai would never have agreed with this then. Now that he is a lackey of Thaksin enjoying his reward for helping his family over the Shin Corp transactions, principles have suddenly been chucked out of the window.

[Pib]

I just looked at the USD-THB exchange rate on Bloomberg and it's had a big jump to 31.77 Baht/USD for a 0.6176% rise at this second in time. Maybe the FX market has just heard about the Thai govt plan to play a shell game with its debt by passing some of it to the BOT.

I also see PM Yingluck said today it's not a done deal; just something they are looking at. Maybe the govt is getting/seeing serious feedback this may not be a good idea.

But hey, I just may check the Visa exchange rate tomorrow and if its up significantly go do a healthy size ATM withdrawal from my U.S. bank account using my no-charge/zero percent foreign transaction fee debit cards. Might as well get some baht while the exchange rate is favorable.

[macjin]

Money printing is on the way and so is inflation, its built in. they can pay it all off by printing slowly. And since there has been billions of USD flowing into Th from US banks, BOT had to print baht to buy all the USD thats going for the high interest rates. Inflation is a given. but i think some things like real estate is going to pop its bubble. so watch out.

[Pib]

I just looked at the USD-THB exchange rate on Bloomberg and it's had a big jump to 31.77 Baht/USD for a 0.6176% rise at this second in time. Maybe the FX market has just heard about the Thai govt plan to play a shell game with its debt by passing some of it to the BOT.

I also see PM Yingluck said today it's not a done deal; just something they are looking at. Maybe the govt is getting/seeing serious feedback this may not be a good idea.

But hey, I just may check the Visa exchange rate tomorrow and if its up significantly go do a healthy size ATM withdrawal from my U.S. bank account using my no-charge/zero percent foreign transaction fee debit cards. Might as well get some baht while the exchange rate is favorable.

Yeap, I see ThaiVisa is reporting a 31.61 TT Buying Rate this morning and Bloomberg currency FX page was reporting 31.74...this is about the norm for difference in the Thai bank TT Buying Rate being approx 0.15 Baht lower than the FX rate. Right now the Visa exchange rate page is still reporting 29 Dec rate since it's still 29 Dec in the U.S. and Visa is quoting a rate of 31.41. Hopefully in a few more hours when the clock clicks to 30 Dec in the U.S. and Visa hopefully adjusts its rates to reflect current FX-related trading (minus Visa's cut), the Visa rate will be around 31.60 give or take a little since the Visa rate is usually right around the going TT Buying Rate, give or take a little. Will need to check again after lunch.

Also see Bloomberg has a news article titled, "Thai Central Bank May Be Saddled With Debt." A key quote from the article follows:

"The baht yesterday fell the most in two months to 31.76 per dollar, the weakest level since Aug. 16, 2010, according to data compiled by Bloomberg. The benchmark SET Index (SET) has dropped 1.8 percent over the past six days, the worst performer in Asia after Vietnam in that time."

Edited December 30, 2011 by Pib

[Pib]

Visa has its 30 Dec rates posted now....30.53 Baht/USD...this will end up being the weekend rate also. Usaully the Visa rate is closer to the TT Buying Rate than this, but maybe Visa is playing it safe going into the holiday weekend and they are concerned this may be a brief FX spike.

[Naam]

Also see Bloomberg has a news article titled, "Thai Central Bank May Be Saddled With Debt." A key quote from the article follows:

"The baht yesterday fell the most in two months to 31.76 per dollar, the weakest level since Aug. 16, 2010, according to data compiled by Bloomberg. The benchmark SET Index (SET) has dropped 1.8 percent over the past six days, the worst performer in Asia after Vietnam in that time."

Bloomie sensation journalism at its best! "SET = worst performer past six days" seems to be more relevant than the fact "SET = outstanding best performance among all Asia-Pacific stockmarkets".

oh well...

[Pib]

According to this Bloomberg news article titled, "Thailand's Government Scraps to Transfer Legacy Debt to Central Bank", the scheme to play a shell game with debt has been scarped.

I also see on the Bloomberg FX page that the USD-TBD rate has dropped to 30.56 or a -0.5828% probably due to the proposed scheme being scarped. I expect the Visa exchange rate to drop to around 30.3 to 30.4 come Monday but should remain 30.53 through the weekend....and I see the Thai bank TT Buying Rate has already dropped to 30.41. I used a Visa debit card today to withdrew 30,000 baht at around 1pm from an AEON ATM and got a 30.53 rate just as the Visa page reflected.

Oh well, the govt's proposed scheme did cause an FX spike for about a half a day...hopefully some folks wire transfers arrived at the right time to get the higher TT Buying Rate during the earlier part of they day. And for ATM withdrawals the higher rate should last till Monday since the Visa Friday rate usually remains unchanged for weekends.

But according to the Bloomberg article the govt did decide to take almost all of the funds commerical banks pay into the Deposit Protection Plan to help pay down the debt. I guess this means no real money will be in the Deposit Protection Program and folks will have to rely on the good faith of the government in covering deposits.

Now, we just need to stand by for the govt's next proposed money scheme which may cause a spike or long term rise (i.e., more baht per USD).

Edited December 30, 2011 by Pib

[JimGant]

I expect the Visa exchange rate to drop to around 31.3 to 31.4 [i inflated your figures ] come Monday but should remain 31.53 through the weekend....and I see the Thai bank TT Buying Rate has already dropped to 31.41. I used a Visa debit card today to withdrew 30,000 baht at around 1pm from an AEON ATM and got a 31.53 rate just as the Visa page reflected.

Pib, normally Visa does a predictive Monday rate, published noon Thai time on Saturday. Thus, you'll get the same rate Saturday afternoon, Sunday, and Monday. And, I bet your 31.3 to 31.4 prediction will be pretty close (but, this will first appear Saturday, not Monday).

Interestingly, I ACHed $10k Wednesday evening, Thai time, to my Bangkok Bank acct. It arrived on Friday. And like all my ACH transactions to BB, it got logged in around 9:00 AM. Fortunately, the TT rate had not yet come off its morning high of 31.61, so that's what I got (and not the closing 31.41!!).

Curiously, my effective rate, after accounting for front and back end fees, was the same as your 31.53 with your Schwab Visa card. Obviously, a little serendipity due to an FX churn....and normally I'd use Schwab for my walking around money -- but I don't do multiple ATM hits when a larger chunk of change is needed, so normally I pay a little more for going this route.

[Pib]

Well, according to this 31 Dec 11/Saturday The Nation news article, "Ministers Face Off Over Debt", the idea of transferring the $45 billion FIDF debt to the BOT may not be a dead issue yet, especially based on this partial quote from the article: " Despite the finance minister's statement, Kittiratt, who heads the Yingluck government's economic team, insisted yesterday that the government's policy is to have the central bank take responsibility for both principal debt and interest expenses of the FIDF."

[Pib]

Interestingly, I ACHed $10k Wednesday evening, Thai time, to my Bangkok Bank acct. It arrived on Friday. And like all my ACH transactions to BB, it got logged in around 9:00 AM. Fortunately, the TT rate had not yet come off its morning high of 31.61, so that's what I got (and not the closing 31.41!!).

Curiously, my effective rate, after accounting for front and back end fees, was the same as your 31.53 with your Schwab Visa card. Obviously, a little serendipity due to an FX churn....and normally I'd use Schwab for my walking around money -- but I don't do multiple ATM hits when a larger chunk of change is needed, so normally I pay a little more for going this route.

Jim,

Just as conversation/FYI, I've done dozens of ACH transactions to BB over the years (like you) and to the best of my knowledge I've always got Update 1. As you know, Update 1 is actually the starting TT Buying Rate for the day...I don't know why the call it Update 1 since it's really the opening/starting rate for the day; maybe they mean this is the 1st Update from yesterday's closing rate. And these ACH transfers have been from different U.S. banks.

Anyway, even when I get the BB SMS notice in the mid afternoon, say around 2pm, that X-amount of USD completed transfer/posted to my BB account, it was the Update 1/opening rate for the day. And of course when I get the SMS notice earlier in the day, like around 10am, it's been the Update 1 rate also. And as you know, the exchange rate can change numerous times during the business day; heck, on some days I've seen over a half-a-dozen update changes on the BB exchange rate; for 30 Dec I see that had 4 updates/rates changes, but for most days there are only 2 to 3 updates...and on some days when the FX rates are stable there is only one update (i.e., the opening/starting rate) for the day.

Yeap, in my case and to the best of my memory I've always got the opening rate of the day for ACH transfers even if the money gets posted to my account late in the day and they are up to Update 2, 3, 4, etc., already when I get the SMS. I've done one or two SWIFT transfers for big chunks of money when I was buying my house a little over 3 years ago and can't remember if I got Update 1 for the SWIFT transfers and don't really know what time of day they were posted to my account as I was in the U.S. at the time and couldn't get those BB SMS notices. It ain't now big deal whether I get Update 1 or Update X as I know I can't control the exact time of day (or even exact day) that my ACH competes the transfer. And the answer could be as simple as the date/time differential between my U.S. bank and Thailand made the ACH transfer complete early in the morning Thailand time since there is that approx half day time zone difference between most U.S. locations and Thailand. That is, the U.S. bank transmits late in the business day which is early in the next business day in Thailand when Update 1 is probably in effect.

Plus, in just as many cases as not, the Update 1 rate has been higher than the closing update for the day....it all depends on the FX market variations during the day and how fast the bank reacts to them. Just as long as it don't appear BB is holding the posting of the money to my account because they know a lower rate is coming out shortly...and I've never seen anything to suggest that occurs. BB is a very good bank IMHO.

I've pretty much got out of the ACHing/SWIFTing of money of day-to-day cash expenses since I've got some U.S. debit cards which don't charge any foreign transaction fee (a Schwab Visa debit card like you have and also a State Farm Bank Visa debit card). I'm kinda fortunate in that there is an AEON ATM and Bangkok Bank branch with deposit machine at my nearby Lotus...the AEON ATM and bank branch are only about 40 steps apart. I use the AEON ATM only to avoid the 150 baht foreign card fee although my banks will reimburse this fee. I'll withdraw up to 30K baht (approx USD 1000) using each of my debit cards for 60K baht total, take about 40 steps to the BB deposit machine and deposit the money. All of ATM withdrawing and bank depositing usually takes 5-10 minutes depending on if there is a line at the deposit machine...usaully there is not or I'm the next in line to use it. I guess I could possibly speed this process up to less than minutes by withdrawing from the BB ATM right next to the BB Deposit machine, which would save me the steps and time from the AEON ATM...but as I mentioned I try to avoid Schwab/State Farm having to reimburse me for the 150 baht foreign card fee....I don't want to cook the golden goose if I can avoid it easily. But if that AEON ATM ever disappears from my nearby Lotus, I will be definitely just be using the BB ATM next to the BB Deposit machine.

Preaching to the choir I know...Heck, I'm preaching to one of the head experts on money transfers/exchange rates.

Cheers and Happy New Year,

Pib