Supachai asks again for national AMC

September 28, 2000

DEPUTY Prime Minister Supachai Panitchpakdi has asked the Finance Ministry to consider using the remaining Bt200 billion from the August 14th Banking Restructuring Programme to form a national asset management company (AMC) to accelerate the removal of non-performing loans from the banking system.

Supachai's proposal is likely to further accentuate his differences with Finance Minister Tarrin Nimmanahaeminda, who has strongly opposed using additional public money to buy the bad loans.

Tarrin believes that because the bad loans held by private banks have fallen to about 20 per cent of their total outstanding loans, they are in position to work themselves out of trouble by establishing their own private AMCs. He is afraid that creating a national AMC might encourage a greater moral hazard in the banking system.

Deputy Finance Minister Pisit Leeartham reaffirmed the Finance Ministry's stand at the annual World Bank-IMF meeting in Prague yesterday, saying the government would not use new public money to purchase bad loans.

"The government has provided all the necessary support except using public money to directly buy private-sector bad debt," Pisit said. "In this connection, the commercial banks are making full provisioning for the bad assets and have set up their own asset management companies to deal with their non-performing loans."

By insisting on the establishment of a national AMC, Supachai contends that because conditions in the banking sector have improved, the government should step in to lend a hand in fully resolving this critical problem.

Instead of allowing the bank restructuring programme's remaining Bt200 billion to sit idle, it should be used to support the banking system, he said.

The Chuan government established the Bt300-billion programme in 1998 to help private banks recapitalise with government money. But the programme included tough conditions that made commercial banks reluctant to participate. The conditions were later revised, but a surplus remains.

By proposing that the money be used to clear bad debt, Supachai is simply suggesting the government shift its assistance from recapitalisation to asset disposal.

Supachai had earlier suggested that a national AMC would not simply buy out bad debt, but should act as one of several bidders in a transparent, competitive bidding process.

The national AMC could prevent asset prices from collapsing because it would guarantee the existence of a buyer of last resort, he said.

The lack of a secondary market for asset disposal has hindered the banking system's full recovery, according to the US credit rating agency Standard & Poor's. The system will need about US$25 billion (Bt1 trillion) to $30 billion to fully recapitalise after the asset write-offs, it said.

BY NAREERAT WIRIYAPONG and THANONG KHANTHONG