Kriengsak Chareonwongsak The government will benefit

The government will benefit

The first advantage gained by the government would be enhanced credibility in the eyes of the international community and domestic interests alike. Establishing the TAMC would fulfill one of the government’s election promises, namely, to establish a national-level AMC to cope with chronic NPL problems.

However, persuading private financial institutions to transfer bad debts to the TAMC may be easier said than done. The success of the TAMC is contingent on the new government’s ability to loosen overly stringent regulations that robbed the previous AMC of success. If the present government holds to its strict criteria in the early stages of establishing its TAMC – such as purchasing NPLs at 10-20% lower than NBV or penalizing only private financial institutions in the case of losses – private financial institutions will be sure to withhold their cooperation. If this happens, the government will be forced to revert to the NPL coping measures used by the previous government, which allowed each bank to operate its own private AMC. This would, in effect, cancel the political benefit obtained by the current government from its Urgent Policy List, considered one of its core economic recovery strategies. 

Second, if the TAMC solution works, the government would shield itself somewhat from accusations of using public taxes to subsidize financial institutions. Creating the TAMC could decrease strain on the budget. Under the old National AMC proposed plan, the government assumed full responsibility for all NPLs within the AMC network. However, under the new TAMC scheme, the government is only partially responsible for private institution NPLs; its responsibility only partially begins when loses on NPLs have reached the 21% mark-of-NBV. Structuring liabilities on NPL losses in such a way places a heavier responsibility on private financial institutions compared with the previous proposed National AMC scheme.

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 Chareonwongsak Non-performing assets

This is no measly sum. Non-performing assets in state financial institutions eligible for transfer to the TAMC are estimated at Bt1.1 trillion. The estimated book value of private sector loans is Bt250 billion (2001). Even though transfer of debts from the Krungthai Bank to Sukhumvit AMC occurred when the loans were worth 80% less than their book value, in the present case they would be transferred to the TAMC at Net Book Value (NBV), that is, 100% of the assessed worth of the collateral. 

Provisions on gain and loss sharing were clearly defined. Future losses of up to 20% NBV would be the responsibility of financial institutions that had transferred the NPLs. Additional losses on the next 20% NBV would be shared evenly between the private financial institution and the TAMC. Further losses would be borne by the TAMC. Future gains on the NBV would be shared in the following manner: gains amounting to 20% NBV would be shared evenly between the private bank and the TAMC, whilst gains thereafter would accrue entirely to the private financial institutions. Settlement of losses and gains would occur sometime between the 5th and 10th year after the establishment of the TAMC. Payment for losses could be made either by cash or stocks of the private financial institution. The TAMC would issue 10 year notes to banks as payment for their NPLs. The TAMC would pay annual interest, calculated from the weighted average of all deposits in the banking system. Interest rates would be adjusted on a monthly basis. 

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.