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Night of long knives looks extended at KTB

 

OVER the past week the Krung Thai Bank has become a battle ground for the two Nimmanahaeminda brothers. Both Tarrin Nimmanahaeminda, the finance minister, and his younger brother, Sirin, who is the former president of the state-controlled bank, have been cornered and trapped in political intrigue. Their political enemies are going for the kill, hoping to achieve the broader political objective of ousting the government.

This turbulent episode was triggered by a leak at a Senate chamber of a damaging PricewaterhouseCoopers' internal review of the KTB's loan portfolio and the outcome of its merger with First Bangkok City Bank. The report was designed to help management determine KTB's provisional requirements. Chirayuth Vasurat, a senate strongman, presided over a carefully orchestrated hearing at which Mechai Viravaidya, the KTB's chairman, as well as Singh Tangtaswas, the president and other senior bank officials, who were summoned to testify over the problems at the bank.

During the economic crisis, Chirayuth has established his political profile, almost overnight claiming expertise of the IMF programme and of the government's economic stabilisation policies. At one point last year, he called for Tarrin's resignation, blaming the finance minister for failing to cure the ailing economy.

Mechai came to the hearing, fully prepared to answer any queries. The senate subcommittee would like to know the extent of the damage incurred at the bank, which would stand to get another fresh injection from the government of Bt108 billion. The subcommittee wanted to know who would take responsibility for the sky-high losses of the bank if its NPLs really reached more than 80 per cent of total loans. Mechai also let other officials testify before the subcommittee, and it appeared that Singh, the former president of the Stock Exchange of Thailand, had a difficult time getting his turn to speak. When his turn did come, he said: ''Finally, it's my turn to speak....'' This signalled that his relationship with Chairman Mechai was not built on solid ground from the outset.

Chirayudh and other Senate subcommittee members were already armed with the PricewaterhouseCoopers' report, which was supposed to be confidential to the bank. Revelation of a bank's internal report was said to be in breach of the Commercial Banking Act. However, at one point, Chirayudh tried to confirm the authenticity of the PricewaterhouseCoopers' copy he had. Mechai produced his own copy for comparison. They were the same.

During the hearing a reporter of a mass circulation daily was said to be present all the time, while reporters from other news organisations were left waiting outside the chamber. Soon the PricewaterhouseCoopers' report, which blamed the bank's management of unsound banking practices, found its way to the press. The mismanagement at the bank, as revealed in the report, ''sent shivers down the spine,'' said Chirayudh.

By implication, based on the PricewaterhouseCoopers' report, Chirayu was blaming the former management headed by Sirin. That blew the potential scandal into the open.

One will never know to what extent Mechai had been involved in the politicisation of the KTB. But the socially minded Mechai had been frequently a subject of attack in the local dailies for conflict within the Bt1-trillion banking organisation, which had been facing a leadership crisis for several months before it made a desperate bid for Singh to succeed Sirin. Moreover, Mechai could have sensed a Finance Ministry threat to remove him. Now that Sirin was in hot water, it would be impossible for Tarrin to move against Mechai at this point.

Then followed a political chorus to crucify the two brothers. The event was plotted almost as a parody of the Bangkok Bank of Commerce scandal of 1996 during which the Democrat demolished the Group of 16 political factions and exposed the weakness of banking regulation under former central bank governor Vijit Supinit. Chuan Leekpai, the prime minister, immediately sensed the political intrigue to destroy the credibility of his government in handling the financial institutions. He instructed Tarrin to handle the issue with care and promised to have the matter settled without prejudice.

Tarrin also came out to augment the prime minister's directive, while his secretary Juti Krairisksh warned that the politicisation of the bank could trigger a run on its deposits.

On Friday Sirin showed up at a news conference of the Customs Department, using the venue to defend his honesty and integrity.

If Sirin were not Tarrin's brother, what would have been Tarrin's reaction? Probably nothing. Tarrin had never run the bank, nor does supervising the KTB lies within his authority. It is the Bank of Thailand, which has the regulatory authority over KTB -- not the Finance Ministry although the Finance Ministry is a shareholder of more than 90 per cent. Besides, the Auditor-General's Office routinely audits the bank's books, given its status as a state enterprise.

However, the Opposition, who would like to accelerate parliament dissolution, had a field day. Over the weekend, Snoh Thienthong's economic advisers came out to assert that if KTB's bad debts reached more than 80 per cent, the bank would need another Bt300 billion to recapitalise -- not Bt108 billion. Chavalit Yongchaiyudh, the Opposition leader, claimed that he would be revealing more damaging details surrounding the KTB scandal and called for Chuan to resign. By then the KTB mess was out of individual's control.

How can Tarrin get off the back of the KTB bandwagon without creating any further political damage? For Chuan and other coalition partners, parliamentary dissolution due to this KTB affair is almost out of the question at this point as the 2000 fiscal budget is up to a debate. For the politicians in the government wing, it's carve-up time and nobody would like to spoil the cake. Besides, the Democrat alone are taking all the blame themselves and are at risk from falling support in the next election under the new constitution.

Understandingly, a committee, headed by Chaktip Nitibhon, the assistant central bank governor and manager of the Financial Institution Development Fund was formed to investigate into the leak of the PricewaterhouseCoopers' report. It was the executive board of the KTB who hired PricewaterhouseCoopers to do the internal audit. It should be presumed that since the KTB's board members had a copy and PricewaterhouseCoopers must also have had copies, the leak could only come from these two sources. The purpose of the leak is still unknown, but all the enemies of Tarrin and the Democrat have benefitted from this scandal.

In fact, PricewaterhouseCoopers simply did a routine review into the KTB's loan book and its merger with FBCB, without any intention to discredit the former management. It sampled 42 per cent of KTB's total loans by value and 60 per cent of FBCB's total loans by value before reaching a conclusion that non-performing loans at the bank represented 84 per cent of total loans. This would require KTB to set aside provisions of between Bt364 billion to Bt394 billion. But this report was only preliminary and could not be judged as conclusive since it only represented a basis for discussion between the US consultant firm and the executive board over how to deal with the NPLs.

However, Sirin, who is still a director of the bank, would find it difficult to distance himself from the responsibility, given the damage at KTB in this scale and even though all the other banks are facing similar high levels of non-performing loans.

Tarrin may defuse this political time-bomb by passing the matter back to the Bank of Thailand. For it is the central bank which directly has authority over the bank. The matter could be settled there, but the massive NPLs of the bank d still need to be resolved. With this huge problem -- not to mention the NPLs at other banks -- Tarrin could only hope for a miracle.

BY THANONG KHANTHONG

 

 

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