Is it better late than never to let the Bangkok Bank of Commerce go under, says Thanong Khanthong.

The banking authorities have committed three unforgivable mistakes in their inept handling of the Bangkok Bank of Commerce debacle. Let's see whether they can come to terms with the scandal that has done much to damage their reputation as supervisors and determiners of public philosophy.

Mistake No. 1: The banking authorities, led by the then governor Vijit Supinit, should have taken decisive action against the Krirk-kiat Jalichandra management of the BBC in 1992 when they first discovered that the bank had been doctoring its financial statements to conceal its mounting bad debts of Bt11 billion. The hands-off approach, and the subsequent cover-up of a rogue bank, was to ultimately cost the public purse dearly.

By 1995, BBC's bad debts had skyrocketed to almost Bt80 billion before the bank collapsed in May last year as a result of a big run on its deposits after depositors went into panic over the bank's shocking financial status.

Mistake No. 2: The banking authorities failed to let BBC go under when they took control of the bank. A compensation package spanning a number of years could have been worked out to return the money to BBC's creditors and depositors by selling off the bank's branches and assets. This would have sent a clear message to the public that just because they have faith that their banks will never go under, they must be more selective in depositing their money. They should choose a bank with a reputable financial status.

With a 100 per cent government guarantee that BBC will always be alive and healthy, the bank attracted new money to give it the same deposit base of around Bt100 billion.

Thai depositors now are also putting their money in some cash-strapped finance companies, which are offering a call rate of 15 to 16 per cent. When a financial institution is paying a deposit rate higher than its lending rate, that indicates it is in big financial trouble. Still, old habits dies hard. Many Thai people think that their money could never evaporate because the government always seems to guarantee every baht of their deposits.

Well, this misconception should be reversed. Certainly, bad finance companies can go broke, and if depositors are not careful with their money, they too can easily lose it. By sticking to this outdated mode of public policy, believing that financial institutions are too big to fail, the banking authorities are digging themselves into quicksand. They have already injected Bt60 billion into BBC; Bt25 billion in fresh liquidity and another Bt35 billion in equity.

Yet BBC is still saddling itself with another Bt60 billion in rotten debts. The banking authorities are negotiating to buy back these debts at a discount, for Bt30 billion. Altogether, bailing out BBC will cost the government the enormous price of Bt90 billion, which is about 10 per cent of the national budget.

Mistake No. 3: When the banking authorities injected fresh funds into the BBC, they should have reduced the capital first, as a punishment to the shareholders who had plundered the bank. At last count, the Fund for Rehabilitation and Development of Financial Institutes, the central bank's bail-out arm, holds 65 per cent of the BBC, against 10 per cent for the Thai Bankers' Association, 1 per cent for the Government Savings Bank, 11 per cent for the Jalichandra family and 4 per cent for the Tantipipatpong family.

In simple terms, how are the banking authorities going to muster political support for a bail-out plan for the BBC when the rescue will benefit the Jalichandra family, who are still the major shareholder and who have broken the back of the bank?

The regulators will face an uphill battle in their attempts to persuade the Democrat Party, which

is now on the Opposition benches, to accept their proposal that BBC should be given another cheque for Bt30 billion in the form of a free donation.

Last week the board of the Industrial Finance Corporation of Thailand agreed to the central bank's offer that it should step in to manage the BBC. The IFCT is caught in a nightmare over the prospect of having to drag a corpse back into the realm of the living dead.

Perhaps it may not be too late to switch off the life-support system for the BBC. Without any income, the bank is losing about Bt8-Bt9 million a day.

Rather, the regulators should auction off the BBC's branches and assets, and the money gained should be dispersed amongst the bank's depositors or creditors. Repayments could be made over an appropriate period of time ­ perhaps 300 years ­ to give all depositors a sense of responsibility for their own money. The most valuable asset of the BBC is its licence, which should fetch a pretty price.