THE coalition government of Prime Minister Chuan Leekpai will be seeking a mandate from
Parliament to issue bonds worth at least Bt800 billion to bail out the entire banking
system as it makes a last-ditch effort to save Thai banks from becoming insolvent and keep
the system moving, financial sources said.
The gigantic bond issue will form an integral part of the government's comprehensive
bank restructuring package, which will be unveiled on Friday following a special Cabinet
meeting.
The size of the tax-payers' money to save the banking system is shocking, for this
amount has not included a previous Bt500-billion bill which will have to be set aside from
the national budget every year to cover the carrying costs and the losses of the Financial
Institution Development Fund in its bail-out of the 56 defunct finance companies and four
nationalised banks.
The bonds, which will have a maturity of between 15 to 20 years, will be issued by the
Finance Ministry for two purposes, the financial sources said. First, the Finance Ministry
will use the proceeds to carve out the non-performing loans (NPLs) in the banking system.
Second, the FIDF will share the proceeds to help the troubled banks recapitalise through
Tier 2 capital.
In total, the bail-out of the financial system might eventually cost the tax-payer
about Bt1 trillion, equal to about 20 per cent of the gross domestic product (GDP). The
cost will be borne by the national budget, which will shoulder this heavy burden at least
over the next 20 years.
The move to bail out the banking system will be the most challenging political task
facing the coalition government, putting Thailand's system to a big test as to whether it
will work when it needs to deliver. The whole world is looking at Thailand's banking
reform with great interest.
During the presidency of George Bush, the White House pushed for a US$150-billion
package to bail out the US savings and loans industry. The package went through a national
debate, inside and outside Capitol Hill, through hundreds of emotional hearings and
sessions where experts came over to give their testimonies. In the end, Congress voted to
pass the legislation, which widened the budget deficit and upset the voters. Although Bush
lost the election to Bill Clinton, the banking system was saved and the country was able
to move on.
Chuan and his top lieutenant, Finance Minister Tarrin Nimmanahaeminda, could end up
with egg on their faces with this unpopular banking reform package for they will commit
tax-payers' money to solve the problem that was created by some 20,000 people in the
banking and financial sector. Yet it is a do-or-die package, which must get political
support otherwise Thailand will have no chance of stopping the downward spiral of the
economy.
At this critical juncture, Chuan and Tarrin need all the public support they can get if
the country hopes to ever get back on its feet again.
If the NPLs in the banking system reach 35 per cent this year, it will mean the banks
will bear Bt1.8 trillion in interest-overdue loans on their books. Already, the credit and
billing systems have paralysed the economic system, leading to a culture of defaults. Most
of the banks' customers are no longer servicing their debts, holding the banks at their
mercy.
If the package is delayed, the NPLs will reach 40 per cent of the total loans, at which
point only Bangkok Bank and Thai Farmers Bank will have a positive net worth and the
remaining 13 commercial banks will be insolvent. If it is delayed further, there won't be
any Thai banks left.
BY VATCHARA CHAROONSANTIKUL AND THANONG KHANTHONG