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Tarrin carries the day in tough reform manoeuvres

 

Vatchara Charoonsantikul and Thanong Khanthong look at the behind-the-scenes efforts to carve out a formula for the merger of Thai banks.

FIRST came a JP Morgan formula, then an IMF formula. Finally, Tarrin Nimmanahaeminda, as finance minister and arbitrator, stamped out his own formula. It ended up being an artful, Thai-style bank merger plan that attempted to transcend favouritism and avoid a potential political backlash.

The JP Morgan formula came about because the US investment bank was hired by the Bank of Thailand to advise it on how the four nationalised banks -- Bangkok Bank of Commerce, Bangkok Metropolitan Bank, First Bangkok City Bank and Siam City Bank -- could be efficiently re-privatised. It was not until July and August that JP Morgan seriously began to put the final touches on this project, which was time-consuming because of the due diligence process.

JP Morgan proposed that the four nationalised banks be merged into one and then sold off to a foreign bank. Tarrin did not find the proposal attractive because the merged bank's shareholders' equity would total more than Bt100 billion and its size would make it difficult to attract a foreign buyer.

Then the IMF came up with another formula. The key specialists assigned to draft the Thai banking reform package were two Swedes, Carl-Johan Lindgren and Mats Josefsson. In July 1997, Lindgren produced a comprehensive report, with recommendations for the Bank of Thailand, on how to tackle the insolvent finance sector.

The opinions of banking experts at the World Bank and the Asian Development Bank were also sought. Tarrin told them that he would like to have a banking reform package that was prudent by international standards and at the same time carried a stimulus element in order to revitalise the economy.

The IMF proposed that First Bangkok City Bank and Bangkok Metropolitan Bank be merged with Krung Thai Bank, that Siam City Bank be merged with Siam Commercial Bank, and that Bangkok Bank of Commerce be liquidated. The idea looked good on paper because choosing this option would help Krung Thai Bank and Siam Commercial Bank, which would have been in big trouble without government intervention. Krung Thai Bank is where Sirin Nimmanahaeminda, the finance minister's brother, is president, while Tarrin himself was once in charge of Siam Commercial Bank.

In the meantime, MR Chatu Mongol Sonakul, governor of the Bank of Thailand, wanted to sell off Laem Thong Bank and Union Bank of Bangkok to foreign investors.

After mulling over the various options, Tarrin came up with his final formula and announced it on August 14.

Sirin would have preferred that Krung Thai Bank merge only with First Bangkok City Bank, saying that it was the only bank he could have effectively managed. In the end, he got both First Bangkok City Bank and the good assets belonging to Bangkok Bank of Commerce.

Krung Thai Bank will become a gigantic organisation, with combined shareholder's equity totalling Bt150 billion and assets of more than Bt1.3 trillion.

Bangkok Bank of Commerce, whose licence will be revoked, has become the ''mother of all rogue banks''. It now has good assets of just Bt17 billion, against total deposits of Bt109 billion. More than 90 per cent of its loans represented bad debt.

Meanwhile, Bangkok Metropolitan Bank and Siam City Bank, which stand to gain some Bt50-Bt60 billion in recapitalisation from the government, will be privatised. The banking authorities would like to reduce their almost 100 per cent stakes in both banks to 20 per cent each through the privatisation process in order to make some future capital gains.

Laem Thong Bank and Union Bank of Bangkok have been handed out to Radhanasin Bank and Krung Thai Thanakit Plc, respectively, in a scheme that effectively shares gains and losses.

So, what will happen to the Thai banking sector over the next three to five years, if not earlier, when the reform package has worked its way through the system? A banking analyst, requesting anonymity, looked into his crystal ball and came up with his prediction, which sees only four groups of players in the country's banking sector.

The first group will consist of the tycoon families, who will be scrambling to protect their interests. Sharing a similar culture, Bangkok Bank, run by the Sophonpanich family, Thai Farmers Bank, controlled by the Lamsam family, and Bank of Ayudhya, managed by the Ratanarak family, may merge to form a gigantic banking group that could become a dominant player not only in Thailand but also in Southeast Asia.

The second group will consist of Siam Commercial Bank, in which the Crown Property Bureau holds a 24 per cent stake, and Thai Military Bank, controlled by the military. The two will consider a merger to ensure their future survival.

The third group will see Krung Thai Bank as the government flagship, which will swallow Radhanasin Bank and Krung Thai Thanakit. Doing this will create a government-owned banking group before developing it further in a similar fashion to the Development Bank of Singapore.

The fourth group will comprise foreign banks which will also dominate the Thai banking scene. ABN AMRO Bank of the Netherlands has acquired the Bank of Asia, Development Bank of Singapore has taken over Thai Danu Bank, and Bank of Nova Scotia will acquire Nakornthon Bank. Meanwhile, Citibank NA and Bank of America are considering snapping up one of the Thai banks to expand their presence in Thailand.

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