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SCIB sale needs hard rethink

June 13, 2000

THE Bank of Thailand's failure to privatise Siam City Bank reinforces a harsh reality - foreign banking institutions no longer want to do commercial banking but are more interested in investment banking.

This raises an open question as to whether it remains a prudent course of action for the banking authorities to continue trying to put SCIB on the auction block.

Last week it emerged that the banking authorities were forced to reject Newbridge Capital Inc's bid for SCIB. Based in the US, Newbridge Capital is a fund-management company. It is neither a top-class global bank nor a regional niche player.

 

"With the massive amount of money out there in the world, it is no longer prudent for banks to put their necks on the chopping board by taking deposits and lending the money out for a margin. For, if the lending turns sour, we'll lose our capital and our shirt."

Central bank governor MR Chatu Mongol Sonakul pointed out that the authorities had rejected Newbridge's offer because the US fund is a "pure investor" rather than a banking group. This implies that Newbridge is more interested in making a quick profit from the ailing Thai bank than committing further investment, in capital and technology, to develop SCIB into a stronger banking institution.

In short, Newbridge's approach to SCIB is investment banking - chopping the bank into pieces, restructuring the assets and liquidating them for profits. It is not surprising that GE Capital has also expressed an interest in buying only the problem loans of SCIB. Others are interested in partial good assets of SCIB.

Citibank has also shied away from committing any huge acquisitions. Earlier, it had shown interest in acquiring the now-defunct First Bangkok City Bank.

Only foreign banks with a "colonial past" in Asia, such as ABN Amro Bank of the Netherlands, Standard Chartered Bank of the UK and Hongkong and Shanghai Banking Corporation, are more focused on investing in the Thai banking industry. Development Bank of Singapore and United Overseas Bank of Singapore want to become regional banks.

The whole affair demonstrates a shift away from commercial banking to investment banking with commercial banking licences losing their worth. This is due to the arrival of electronic banking - the Internet - which makes transactions possible across any boundary. This makes it unnecessary for banks to physically set up expensive shops in Thailand because they can operate from a single office through computer networking. The scenario is in sharp contrast to the period before the financial crisis of 1997. Then foreign banks were banging the doors of the Thai banking industry. They would have loved to acquire 25 per cent, 30 per cent and were even willing to pay a premium of 100 to 200 per cent to gain outright control in the Thai banks.

But the dot.com revolution has changed the old mindset in banking. Also, the proliferation of new financial products and the availability of private capital worldwide have made traditional banking a risky business.

Vichai Punpocha, former country manager of Dresdner Bank AG, said: "With the massive amount of money out there in the world, it is no longer prudent for banks to put their necks on the chopping board by taking deposits and lending the money out for a margin. For, if the lending turns sour, we'll lose our capital and our shirt.

"Now banks are moving to doing structured deals, such as securitisation. That is the trend."

It is also not surprising that no US bank has moved to acquire a Thai bank although the US has been in the forefront in pushing for financial services liberalisation. Again, the US or the developed countries are no longer interested in banking liberalisation in the strictest sense. They are interested in other services such as investment banking and the legal, accounting and consulting fields.

With this trend, any further move to privatise SCIB will need to go through a hard rethink.

BY THANONG KHANTHONG and

VATCHARA CHAROONSANTIKUL

 

 

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