Editorial: Kittiratt Fails To Oversee Banking Sector

[Lite Beer]

EDITORIAL
Kittiratt fails to oversee banking sector
The Nation

BANGKOK: -- While minister lectures BOT, crisis of confidence is growing at state banks

Over the past week, crowds of people rushed to withdraw their money from the troubled Islamic Bank of Thailand (IBank) after it was found that this state-run bank had accumulated high levels of non-performing loans. The financial problems at IBank came on the heels of revelations of bad assets at the Small and Medium Enterprise Development Bank (SME Bank). The Fiscal Policy Office (FPO) has asked the two banks to clear their debts before it decides whether to inject money to help them.

Fortunately, the banks should be able to contain their problems at this point. The operation at IBank is small compared to those of other commercial banks. Nonetheless, the situations at these two banks should serve as a reminder for decision-makers to adopt a prudent approach in the operation of state-run banks.

These specialised state-run banks were established to serve niche demands. SME Bank is aimed at promoting entrepreneurial activity among Thai small and medium-sized business operators, while IBank caters to Muslim customers, operating on Shariah principles.

However, attempts to use these banks to serve political purposes have seen them apply lax loan-approval policies compared to commercial banks. Some loans were approved to serve the government's purposes, and some loans were given to people with political connections. It is no secret that the Yingluck government aims to promote domestic consumption to stimulate economic growth. Easy loan approvals would help support its populist policies.

As of December 31, non-performing loans (NPLs) at IBank were worth Bt24 billion, or 20 per cent of the loan portfolio. The high amount of bad debts prompted the FPO and the State Enterprise Policy Office to work with IBank to structure the debt before the problem gets bad enough to affect confidence at other state-run banks. As of the end of last year, IBank had assets of Bt130.83 billion and liabilities of Bt126.50 billion. Outstanding loans were Bt109.49 billion, of which Bt24.73 billion, or 22 per cent of the portfolio, were NPLs.

Thai commercial banks have so far been successful in running banking businesses by applying cautious and prudent policies, after most of them were hard hit by the financial crisis. Rules and regulations have been strengthened to ensure there will be no repetition of the crisis in 1997, which erupted because of the lack of public confidence in the Thai financial system. That crisis started off with the disclosure of NPLs at some small banks, which caused a loss of public confidence in financial institutions. Eventually, people panicked and rushed to withdraw their money, leading to the haemorrhaging of the entire financial system.

But while commercial banks have learned the lesson, the state-run banks have not. The Finance Ministry should have done a better job of overseeing these specialised banks, which are under its purview.

But over the past few weeks, Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong has instead concentrated on the interest rate decision at the Bank of Thailand and seemingly forgot to look at the operations under his direct supervision. Someone with knowledge and understanding of the issue must be put in charge now in order to prevent public panic.

Kittiratt should have acted to assure the public that the Finance Ministry has a good plan to deal with the financial woes at these two state-run banks, instead of letting Prime Minister Yingluck Shinawatra make confusing statements about the government's role in guaranteeing deposits at the banks.

At this point, the situation at the two state-run banks is unlikely to hurt the entire system. However, if the authorities fail to apply a credible system of oversight, the crisis of confidence could spill over to other state-run banks. Effective action is required before it is too late.

-- The Nation 2013-02-24

[dcutman]

The BAAC is a state run bank. I wonder how those books look?

[siampolee]

Slowly but surely the gradual melt down of the financial sector is starting here in Thailand.

Don't worry though, those with money will make another killing as they did in 1997. Some interesting parallels to the 1997 meltdown, strangely a number of names appear yet again of those involved in that financial mishap which was indeed an extremely profitable fiasco for the insiders who subsequently went abroad post haste after taking their profit who now have returned after statutes of limitations had expired with their bank accounts bulging .

Of course we need to remember that some of the profiteers can't return yet as the statute of limitations is still in force and there are further matters to be considered which will extend even further those statutes of limitations in other areas unless of course the judicial process is changed thus allowing the profiteers to return without fear of prosecution.

However for those who had to pick up the bill which is still being paid despite the account being offloaded to a different financial entity it was and indeed still is a debt burden which looking at the current banking policies is going to grow from a debt burden to a fully grown debt bondage enslaving monster that will be fed from the Thai people who gained nothing but have to pay the bill in full

There is a interesting effluvia emanating from the banking sector garden here in Thailand and it isn't the delightful effluvia of roses either.

Edited February 24, 2013 by siampolee

[geriatrickid]

I have money. Please tell me how I can make a "killing".

[F430murci]

20 % is bad, real bad. I would get my money out of there ASAP. US banks were hitting troubled asset ratios between 10 and 25 percent in 2008/09 and would have failed absent massive TARP infusion, Fed stepping in rerating and buying troubled assets.

[Stradavarius37]

Slowly but surely the gradual melt down of the financial sector is starting here in Thailand.

Don't worry though, those with money will make another killing as they did in 1997. Some interesting parallels to the 1997 meltdown, strangely a number of names appear yet again of those involved in that financial mishap which was indeed an extremely profitable fiasco for the insiders who subsequently went abroad post haste after taking their profit who now have returned after statutes of limitations had expired with their bank accounts bulging .

Of course we need to remember that some of the profiteers can't return yet as the statute of limitations is still in force and there are further matters to be considered which will extend even further those statutes of limitations in other areas unless of course the judicial process is changed thus allowing the profiteers to return without fear of prosecution.

However for those who had to pick up the bill which is still being paid despite the account being offloaded to a different financial entity it was and indeed still is a debt burden which looking at the current banking policies is going to grow from a debt burden to a fully grown debt bondage enslaving monster that will be fed from the Thai people who gained nothing but have to pay the bill in full

There is a interesting effluvia emanating from the banking sector garden here in Thailand and it isn't the delightful effluvia of roses either.

Only killing around here is the rampant hyperbole lol

[dcutman]

At this point, the situation at the two state-run banks is unlikely to
hurt the entire system. However, if the authorities fail to apply a
credible system of oversight, the crisis of confidence could spill over
to other state-run banks. Effective action is required before it is too
late.

According to the article in the other paper March 8, 2012 Bad loans at state banks

Most state banks are in a similar position, as its non-performing loan levels are probably higher than reported.

[GentlemanJim]

I have money. Please tell me how I can make a "killing".

Short the Thai Baht.....(Just like Thaksin did last time the Baht when thunk! ).

[Pib]

20 % is bad, real bad. I would get my money out of there ASAP. US banks were hitting troubled asset ratios between 10 and 25 percent in 2008/09 and would have failed absent massive TARP infusion, Fed stepping in rerating and buying troubled assets.

20% is definitely bad, bad. I'd be pulling my money also.

According to the U.S. Federal Reserve Bank of St Louis, even during the very recent Great Rescission/financial crisis which many are still trying to recover from, U.S. non-performing loans (no loan payments made in at least 90 days) peaked at a little under 6% and normally runs around 1 to 4%. See this Link for a historical graph of U.S. non-performing loans.

Maybe it's just the fine difference in definition of trouble assets and non-performing loans.

Definition of 'Troubled Asset'

Assets for which banks have overpaid such as loans that are made to borrowers who cannot afford to pay these loans back. Troubled assets are often secured by collateral that is valued less than the value of the loan itself. These personal or commercial loans were made to borrowers to cover the cost of homes, automobiles, equipment or various other items of value.

Definition of 'Nonperforming Loan - NPL'

A sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to be substantially lower. If the debtor starts making payments again on a nonperforming loan, it becomes a reperforming loan, even if the debtor has not caught up on all the missed payments.

[GentlemanJim]

I imagine in Thailand there is a great opportunity for the wealthy to 'buy' troubled assets from the bank at a grossly discounted price and then cash in on the collateral.

[jbrain]

I have money. Please tell me how I can make a "killing".

Buy a gun ?

[jbrain]

At this point, the situation at the two state-run banks is unlikely to

hurt the entire system. However, if the authorities fail to apply a

credible system of oversight, the crisis of confidence could spill over

to other state-run banks. Effective action is required before it is too

late.

According to the article in the other paper March 8, 2012 Bad loans at state banks

Most state banks are in a similar position, as its non-performing loan levels are probably higher than reported.

Probably they are, but

That crisis started off with the disclosure of NPLs at some small banks, which caused a loss of public confidence in financial institutions.

So this time the denial will be so predominated that at the time the sh*t hits the fan is will be much worse than 1997.

[F430murci]

20 % is bad, real bad. I would get my money out of there ASAP. US banks were hitting troubled asset ratios between 10 and 25 percent in 2008/09 and would have failed absent massive TARP infusion, Fed stepping in rerating and buying troubled assets.

20% is definitely bad, bad. I'd be pulling my money also.

According to the U.S. Federal Reserve Bank of St Louis, even during the very recent Great Rescission/financial crisis which many are still trying to recover from, U.S. non-performing loans (no loan payments made in at least 90 days) peaked at a little under 6% and normally runs around 1 to 4%. See this Link for a historical graph of U.S. non-performing loans.

Maybe it's just the fine difference in definition of trouble assets and non-performing loans.

Definition of 'Troubled Asset'

Assets for which banks have overpaid such as loans that are made to borrowers who cannot afford to pay these loans back. Troubled assets are often secured by collateral that is valued less than the value of the loan itself. These personal or commercial loans were made to borrowers to cover the cost of homes, automobiles, equipment or various other items of value.

Definition of 'Nonperforming Loan - NPL'

A sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to be substantially lower. If the debtor starts making payments again on a nonperforming loan, it becomes a reperforming loan, even if the debtor has not caught up on all the missed payments.

Your numbers are accurate. I threw out such a big spread because I was too lazy to look up precise numbers. 20 % might not sound bad to some, but it is down right alarming perhaps to those that understand or work in banking or financial industry.

[smedly]

First car scheme - can I have a loan over 5 years please, of course because the government sanctioned it, one year down the line the 100k is being paid out and used to support the payments for a few months, once that 100k dries up then we will see the sh%t hit the fan

[Pimay1]

First car scheme - can I have a loan over 5 years please, of course because the government sanctioned it, one year down the line the 100k is being paid out and used to support the payments for a few months, once that 100k dries up then we will see the sh%t hit the fan

Not to worry PTP has it covered. Never let a crisis go to waste.

The Finance Ministry will "accommodate" first-time car buyers who cannot make

their payments, says Deputy Minister Tanusak Lek-uthai.

Edited February 24, 2013 by Pimay1

[arthurboy]

Some loans were given to people with political connections.

What?

Care to explain the Nation?

[geriatrickid]

Correct me if the law has changed, but my understanding is that there is no "Voluntary" bankruptcy in Thailand. In The USA and Canada, it is relatively to declare bankruptcy and just walk away from debt. It is not so easy for a debor to escape from financial obligations in Thailand. Everything gets seized. It is even worse for many debtors because the usually have cosigners, which means the cosigner is subject to having assets seized as well.

According to Thai Bankruptcy Act B.E. 2483 (A.D..1 940), any debtor who is faced with financial difficulties cannot file a petition for bankruptcy. Instead, he or she has to wait for a creditor or creditors to file a bankruptcy petition against him or her, Individual debtors who do not have their creditors file a bankruptcy charge against them cannot take advantage of section 81 / 1 of the Act. Proceedings for reorganizing the business of a debtor under Chapter 3/1 apply only to the debtor who is a limited company, a public limited company or other juristic persons as provided in the ministerial regulations. The individual debtor cannot utilize the provisions in
Chapter 3/ 1. Therefore, Thai individual debtors do not have the chance to begin a `fresh start' voluntarily. When a debtor is placed under the receivership order, all of his or her assets save necessary items will be seized and he or she cannot perform any juristic acts. If the debtor is a government official when the court declares him or her a bankrupt, then that individual has to quit his or her job.

I never knew how harsh it could be. You can't really run away from debt in Thailand as the laws favour the debt holder.

[GentlemanJim]

Correct me if the law has changed, but my understanding is that there is no "Voluntary" bankruptcy in Thailand. In The USA and Canada, it is relatively to declare bankruptcy and just walk away from debt. It is not so easy for a debor to escape from financial obligations in Thailand. Everything gets seized. It is even worse for many debtors because the usually have cosigners, which means the cosigner is subject to having assets seized as well.

According to Thai Bankruptcy Act B.E. 2483 (A.D..1 940), any debtor who is faced with financial difficulties cannot file a petition for bankruptcy. Instead, he or she has to wait for a creditor or creditors to file a bankruptcy petition against him or her, Individual debtors who do not have their creditors file a bankruptcy charge against them cannot take advantage of section 81 / 1 of the Act. Proceedings for reorganizing the business of a debtor under Chapter 3/1 apply only to the debtor who is a limited company, a public limited company or other juristic persons as provided in the ministerial regulations. The individual debtor cannot utilize the provisions in

Chapter 3/ 1. Therefore, Thai individual debtors do not have the chance to begin a `fresh start' voluntarily. When a debtor is placed under the receivership order, all of his or her assets save necessary items will be seized and he or she cannot perform any juristic acts. If the debtor is a government official when the court declares him or her a bankrupt, then that individual has to quit his or her job.

I never knew how harsh it could be. You can't really run away from debt in Thailand as the laws favour the debt holder.

It's as bad as it gets here GK. If you own say a USD 200k property here and have a loan/mortgage for USD 80 K against it, if you default the bank will take absolutely everything. In the UK the bank would sell the property and once its costs are recovered those in debt would get what is left. In Thailand they will sell your 200K home for 200K to recover the 80K debt and keep the lot. I have also seen people brought to their knees because they became a cosigner for someone. For everyone out there, if you wife/gf/bf/husband is Thai or you have good thai friends, do not let them cosign for anyone. A woman near us lost her house she was aged 62 when a 'relative' with a swish car didn't pay the loan and buggered off, with car of course, leaving her to pay the bill for everything. She is now destined to spend her final years in a tiny one room shack with no hope of recovery and no Government help.

[Locationthailand]

I wonder if there is deposit insurance in this country? If so I doubt the claims would be forthcoming easily.

[smedly]

Correct me if the law has changed, but my understanding is that there is no "Voluntary" bankruptcy in Thailand. In The USA and Canada, it is relatively to declare bankruptcy and just walk away from debt. It is not so easy for a debor to escape from financial obligations in Thailand. Everything gets seized. It is even worse for many debtors because the usually have cosigners, which means the cosigner is subject to having assets seized as well.

According to Thai Bankruptcy Act B.E. 2483 (A.D..1 940), any debtor who is faced with financial difficulties cannot file a petition for bankruptcy. Instead, he or she has to wait for a creditor or creditors to file a bankruptcy petition against him or her, Individual debtors who do not have their creditors file a bankruptcy charge against them cannot take advantage of section 81 / 1 of the Act. Proceedings for reorganizing the business of a debtor under Chapter 3/1 apply only to the debtor who is a limited company, a public limited company or other juristic persons as provided in the ministerial regulations. The individual debtor cannot utilize the provisions in

Chapter 3/ 1. Therefore, Thai individual debtors do not have the chance to begin a `fresh start' voluntarily. When a debtor is placed under the receivership order, all of his or her assets save necessary items will be seized and he or she cannot perform any juristic acts. If the debtor is a government official when the court declares him or her a bankrupt, then that individual has to quit his or her job.

I never knew how harsh it could be. You can't really run away from debt in Thailand as the laws favour the debt holder.

and you think that's a bad thing ?

I've seen people in the west get away with several scams because once they "seemingly" or their company get into trouble they escape with the proceeds only to do it all again with a partner or accomplice, companies not people in the west go bankrupt - it's a scam of the higest order and when the banks get into trouble it's the people that bail out the banks - double wammy

[A_Traveller]

Just to note the present Bankruptcy process is set out by the 1998 Act with subsequent revisions.

Whilst voluntary bankruptcy is still not possible the process is more manageable and for companies even has similarities to Chapter 11 provisions.

As in many jurisdictions the basic rule is to plan and agree with creditors [i.e. agree the position, payment schedules et al] a process prior to appearing in front of the specialist courts.

Personal bankruptcy can be initiated over a debt of 1 million and corporate 2 million.

The basic reason that has been given to me against voluntary bankruptcy is, to be frank, a concern from the business community [this is from Thai business people] that people would intentionally allow themselves to get into extreme debt and then expect to "walk away" with no or minimal penalty. There are similar arguments made about the cost of pensions in developed countries, as to why someone who is thrifty and saves for the future should expect to subsidise via taxation someone who has been profligate in spending and enters retirement expecting [and requiring] state assistance.

[ramrod711]

Kittiratt should have acted to assure the public that the Finance Ministry has a good plan to deal with the financial woes at these two state-run banks, instead of letting Prime Minister Yingluck Shinawatra make confusing statements about the government's role in guaranteeing deposits at the banks.

How is Kittiratt supposed to stop Yingluck from making confusing statements, she's only saying what the "real" prime minister tells her to.

[dcutman]

Correct me if the law has changed, but my understanding is that there is no "Voluntary" bankruptcy in Thailand. In The USA and Canada, it is relatively to declare bankruptcy and just walk away from debt. It is not so easy for a debor to escape from financial obligations in Thailand. Everything gets seized. It is even worse for many debtors because the usually have cosigners, which means the cosigner is subject to having assets seized as well.

According to Thai Bankruptcy Act B.E. 2483 (A.D..1 940), any debtor who is faced with financial difficulties cannot file a petition for bankruptcy. Instead, he or she has to wait for a creditor or creditors to file a bankruptcy petition against him or her, Individual debtors who do not have their creditors file a bankruptcy charge against them cannot take advantage of section 81 / 1 of the Act. Proceedings for reorganizing the business of a debtor under Chapter 3/1 apply only to the debtor who is a limited company, a public limited company or other juristic persons as provided in the ministerial regulations. The individual debtor cannot utilize the provisions in

Chapter 3/ 1. Therefore, Thai individual debtors do not have the chance to begin a `fresh start' voluntarily. When a debtor is placed under the receivership order, all of his or her assets save necessary items will be seized and he or she cannot perform any juristic acts. If the debtor is a government official when the court declares him or her a bankrupt, then that individual has to quit his or her job.

I never knew how harsh it could be. You can't really run away from debt in Thailand as the laws favour the debt holder.

It's as bad as it gets here GK. If you own say a USD 200k property here and have a loan/mortgage for USD 80 K against it, if you default the bank will take absolutely everything. In the UK the bank would sell the property and once its costs are recovered those in debt would get what is left. In Thailand they will sell your 200K home for 200K to recover the 80K debt and keep the lot. I have also seen people brought to their knees because they became a cosigner for someone. For everyone out there, if you wife/gf/bf/husband is Thai or you have good thai friends, do not let them cosign for anyone. A woman near us lost her house she was aged 62 when a 'relative' with a swish car didn't pay the loan and buggered off, with car of course, leaving her to pay the bill for everything. She is now destined to spend her final years in a tiny one room shack with no hope of recovery and no Government help.

As with everything in Thailand nothing is standard, or maybe it takes forever for things to happen.

3 years ago my wife and I attempted to buy a bank owned home and property. It was not a problem buying all the property from the bank, the problem was the people that owned the land, still lived on the land, and occupied several home built on the property. for five years the bank had been trying to get the people off the property, but for what ever reason was unable to. At least the bank did warn us, that we would be responsible for removing the people from the property. So we did not buy it. About a month ago we drove buy this property, the bank sign was still posted and is still on the bank website, and the same people where still sitting on the front porch. It now has been 8 years since going into foreclosure.

[Orac]

"Some loans were approved to serve the government's purposes"

One of the aims of the SME Bank is to provide loans to support government policy. The figures they give in the last published annual report at the end of 2011 show that 61% of their total loans were government policy loans. Given that these cover loans to SMEs in times of crisis and also loans to SMEs who cannot access funds through normal means, it is hardly surprising that they have a higher proportion of NPLs than a normal bank.

[waza]

another economic fail, more PTP economic miracles

[Bluespunk]

Repeat

Edited February 24, 2013 by Bluespunk

[Bluespunk]

Is this the same guy who thinks lieing about financial numbers is ok? Hmm

[Pimay1]

another economic fail, more PTP economic miracles

They need to bring in Chavalit as an advisor. After he has first hand experience of economics dating back to 1997. Maybe my pension would be worth a lot more after that.

[jaidam]

I have money. Please tell me how I can make a "killing".

Short the Thai Baht.....(Just like Thaksin did last time the Baht when thunk! ).

This works much better when you are the serving deputy finance minister with insider knowledge that the baht will be devalued, by how much, on what date, as Thaksin was back in '97.

Zero risk, and as much reward as you want.

[dcutman]

I wonder if there is deposit insurance in this country? If so I doubt the claims would be forthcoming easily.

There is deposit insurance in private banks but not in government banks. At the moment it is up to Bt 50 mill. It will be reduced to 25 mill in 2015 and then to Bt 1 mill in 2016.

Edited February 24, 2013 by dcutman