Kriengsak Chareonwongsak Private financial institutions will benefit

Private financial institutions will benefit

Here, the phrase “private financial institutions” includes foreign creditors who are major shareholders in Thai financial institutions.

The first benefit gained by financial institutions is public participation in debt repayment. In other words, public taxes would be used to cover NPL losses. Under provision of the TAMC outlined above, private financial institutions would have to shoulder a maximum of 30% losses on NBV. Hence, up to 70% of losses on NBV could be borne by the TAMC.
Because of this, financial institutions could begin to transfer their worst NPLs – those that cannot be restructured – to the TAMC. Why keep NPLs that – either in their own hands or in the hands of the TAMC – would result in guaranteed losses? Thus, in most likelihood, NPLs that have a high probability of losses greater than 40% would be transferred first. As a result, financial institutions may begin to view the TAMC as an easy way out of heavy financial losses.

Second, by transferring NPLs to TAMC, financial institutions could gain greater stability in the short term. Transferring NPLs to the TAMC would ease pressures on private financial institutions to recapitalize, since – according to the Capital Adequacy Ratio (CAR) established by the previous government – each financial institution was responsible to recapitalize to 11.5% of their assets, a standard higher than the Bank for International Settlement (BIS) standard. Thus, by transferring NPLs, there would be less need to worry about recapitalization over an intermediate period of time.

The last advantage gained by the terms of the TAMC is they can gain better rates of return by treating TAMC interest notes as cash in hand. And how would this be done? Financial institutions that transfer their NPLs to the TAMC are guaranteed interest in the form of interest notes from the TAMC. Because these notes could be viewed as tradable funds, financial institutions could – in a pinch – use their TAMC notes in lieu of cash. As a result, financial institutions have more with which to make a profit. 

Social security for small businesses - losses and gains

Professor Dr Kriengsak Chareonwongsak
Executive Director, Institute of Future Studies for Development (IFD)
kriengsak@kriengsak.com, http://www.ifd.or.th

Kriengsak ChareonwongsakThe government established

Establishing the Thai Asset Management Corporation (TAMC):
Who wins, who loses?

Professor Dr Kriengsak Chareonwongsak
Executive Director, Institute of Future Studies for Development (IFD)
kriengsak@kriengsak.com, http://www.ifd.or.th

 

The government established the Thai Asset Management Corporation (TAMC) in 2001 in order to solve the problem of non-performing loans (NPLs) in the financial institution system. However, even though the NPLs in financial institutions could be reduced drastically, the author argued that the problem itself has not been solved completely because the arrangement was merely to transfer the NPLs from financial institutions to other groups of people.    


The Thai Asset Management Corporation (TAMC) is a mutation of the last government’s Asset Management Corporation (AMC). Its formation comes as the result of many concessions and benefit sharing between private financial institutions and the government. Although the establishment of this institution could bring huge windfalls to Thai and foreign creditors as well as Thai debtors, it would be at the expense of the taxpayers in general.
The government plans to use the TAMC, founded to promote efficient management of non-performing assets and for the minimization of losses, to purchase non-performing loans (NPLs) from both public and private financial institutions. For private banks and private AMCs, transferable NPLs are defined as multiple creditor loans, which are fully provisioned and transferable NPLs pending in court.