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Olarn failed to recognise signs, leaves as 'fall guy'

 

APRIL 7, 1999 -- UNLIKE the more opportunistic Dr Som Jatusripitak, who left Siam City Bank right before it collapsed on his head, Dr Olarn Chaipravat decided to carry the burden of high office at the Siam Commercial Bank (SCB) until his last hours when he finally got the word to resign.

It was all a question of diplomacy and face-saving for Olarn to leave without creating any public impression of ill-feeling between him and the bank. Yet in what appeared to be a routine board of directors' meeting on a long Monday afternoon, there lurked a difficult manoeuvre for the bank, dominated by major shareholder the Crown Property Bureau, to settle the leadership crisis once and for all.

The matter was made clear. Nobody at SCB was indispensable. For the sake of the institution, Olarn would have to go and take the blame for all the bank's mishaps. As widely expected, Jada Wattanasiritham, the senior executive vice president, was voted in to succeed Olarn, becoming the first Thai woman to head a major commercial bank.

Olarn's departure was inevitable following shareholders' approval the same day of a gigantic recapitalisation plan of Bt65 billion to assure the bank's solvency. Half of this amount will be sold in preferred stocks in a global offering, while the other half will be subscribed by the government's tier-1 capital support programme.

Thailand's fourth largest commercial bank is at a critical juncture. The success of the recapitalisation plan lies in foreign investors' confidence in the SCB leadership. And it is general knowledge that the relationship between Olarn and foreign investors and analysts has been very sour. Since the start of the Thai financial crisis, Olarn had been expressing economic views that several foreign investors and analysts considered to be anti-market, if not blatantly erroneous.

''The foreign investors don't like him. One of the conditions set by the financial advisers for Siam Commercial Bank to mount a road show is that Olarn must not be in the management,'' said one financial source. Another analyst recalled an encounter with Olarn, who, upon being asked about some conditions at the bank, replied, ''I won't tell you because you won't believe me anyway''.

Only three days ahead of SCB's schedule to launch a global offering on three continents, covering Asia, Europe and the United States, Jada quickly took the helm, confirming the speculation in February that she had been earmarked for the top job. Jada, a confidante and at times a speech-writer for Finance Minister Tarrin Nimmanahaeminda, will be representing the bank as its top saleswoman, trying to attract foreign institutional investors to subscribe to the bank's global offering.

The financial source said market talks estimated SCB's offering would fetch Bt21 a share, while Chumpol na Lamlieng, the bank's executive chairman, believed the figure would be about Bt20. This is a premium above the present market value of the bank, which is traded at about Bt18.25 a share.

Apart from making several incorrect economic forecasts, Olarn also misread the true gravity of the financial and banking crises, a mistake that would plunge his banking career into even greater turmoil. In June 1997, he was one of the top candidates to succeed Dr Amnuay Viravan as finance minister. Amnuay's decision to quit stemmed from coalition-party politics, which sought to force his resignation in order to pave the way for the Chat Pattana Party to take over the finance portfolio.

Gen Chavalit Yongchaiyudh, then prime minister, was under tremendous pressure to come up with an internationally-accepted finance minister to handle the country's deteriorating economic and financial state. Less than a fortnight from the date that Thailand would yield to pressure by floating the baht on July 2, 1997, Chavalit extended an invitation to Olarn, who was known to be closer to the now almost-defunct Palang Dharma Party than the New Aspiration Party.

Olarn, who at that time had been heading the SCB for more than four years, faced a dilemma. He realised that the finance portfolio was not an easy job, given all the constraints arising from the volatility of the political condition of the coalition government at that time. Amnuay's difficulties were an evident example. Besides, SCB, like all other Thai banks, was also sliding into poorer financial shape and, looking ahead, would still require his leadership to carry it through the financial turmoil.

In the end, he was persuaded by the major shareholders of the bank to stick to his presidency. He agreed to stay, not realising at the time that he would later regret the critical decision he had made. The finance minister's job went to Dr Thanong Bidaya, the president of the Thai Military Bank, who was the last choice Chavalit had at the time.

In a parallel situation in late October 1997, about two weeks before the fall of the Chavalit regime, Som of the troubled Siam City Bank found the offer from Chavalit to replace Dr Narongchai Akrasanee as commerce minister an excellent opportunity to jump ship. He quickly accepted the invitation and left the bank, hence narrowly escaping the humiliation of experiencing all the weight of the bank's problem loans collapsing on his shoulders some months later. Siam City Bank, along with other troubled banks, was nationalised by the banking regulators, and most people quickly forgot that it used to be headed by Som.

Olarn's decision to stay on at SCB was to become increasingly unpleasant for him. He would face a set of image problems and constraints that would dog his reputation and standing in the Thai banking community.

First, his credibility as Thailand's top economist had been irretrievably tarnished. He was the first economist to predict the golden age of the Thai economy when Thailand took off in a grandiose way in 1987, and he was right on target throughout the boom years.

Olarn's errors started as a result of his failure to recognise in the beginning of the 1990s the sharp build-up of capital inflow, most of which was short-term, to create the financial bubble. By 1994-95, he was predicting that Thailand, which was facing a growing current account deficit, by the turn of the century should turn the corner to become a capital-surplus country due to increased competitiveness of the Thai economy. All other Thai economists also failed to read the high risks created by the inflow of capital, which not only led to asset bubbles but also pushed Thailand into unproductive investments. SCB's diversification into real estate and other businesses would eventually take its toll on the bank.

Second, as a banker, Olarn was seen to be too close to politics, or more specifically the Palang Dharma Party which had earmarked him to become its finance minister if it could get its hands on political power.

Third, Olarn faced the ironic problem of having less liberty as a professional banker to make decisions than his family-supported counterparts, namely Banthoon Lamsam of Thai Farmers Bank or Chartsiri Sophonpanich of the Bangkok Bank.

''To be fair to him, Olarn could not move Siam Commercial Bank to recapitalise fast enough in the face of growing banking distress since 1997 because the shareholders did not have the money. If the bank were to recapitalise, the shareholders' stake would be diluted,'' said a person familiar with the SCB some time ago.

As it turned out, the SCB could only raise Bt379 million in January 1998 by selling stock to the Long-Term Credit Bank of Japan, who would also subscribe a further Bt60 million three months later. Sanwa Bank of Japan stepped in to buy the stock for Bt223.38 million in April 1998, bringing the bank's capital to a mere Bt5.8 billion.

Thai Farmers Bank and Bangkok Bank took more decisive steps with their global offerings in March and April 1998, respectively. Both were successful, taking in about US$1 billion each and ensuring their solvency in the face of the financial crisis. ''After Thai Farmers Bank and Bangkok Bank's offerings, the global market was shut down for Siam Commercial Bank. Why should Thailand need a third bank?'' said an investment analyst from a European investment banking firm last year.

Along with other remaining banks, the SCB's future looked bleak and it would have been one of the candidates for nationalisation if Finance Minister Tarrin had not come up with a comprehensive banking reform package, known as the Aug 14 Banking Restructuring Programme. There were sarcastic remarks made in the market that Tarrin had produced this programme specifically to save the SCB and Krung Thai Bank.

SCB later had to accept the reality that it would need a government bail-out because, to satisfy banking rules on loan-loss provisions and capital adequacy requirements, it would need a fresh capital injection of between Bt40-Bt60 billion.

Late last year, after the bank announced its plan to secure capital support from the government's banking reform package, rumours started to spread in the market of Olarn's impending departure. One of the conditions in the banking reform package is that the government will have a say in changing a bank's management if it deems it necessary to justify the use of public money.

Knowing that his future at the bank was over, Olarn wanted to go. But, as a gentleman, he could not jump ship in the middle of the crisis and leave the impression that he was running away from the problem. Olarn agreed to stay on to ensure a smooth recapitalisation of the bank.

In the meantime, SCB's financial position has become weaker. Now it has set aside only 51 per cent, or Bt28.11 billion, out of the total requirement of Bt54.79 billion, in 100 per cent provisions against loan losses. Its non-performing loans have reached 34 per cent, or Bt190 billion of total loans of Bt550 billion. Due to these huge problems, the bank is under pressure to raise its capital all at once from Bt5.8 billion to Bt70 billion.

By sticking with the SCB to the very end, Olarn has had to leave the bank with humiliation and accept the blame for all its problems. He is paying a dear price for not only his misreading of the macroeconomic situation, but also his personal miscalculation of the full gravity of the banking and financial crises.

BY THANONG KHANTHONG

 

 

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