Rapid Assessment for Resilient Recovery and ... - GFDRR

Challenges to Recovery and Reconstruction
Banking and Related Sectors
The Ministry of Finance and the Bank of Thailand should be commended for their rapid
and decisive actions aimed at minimizing the impact of flood-related losses and maximizing
access to new financing when needed. This is particularly important given that so many
of the worst-affected flood victims would not normally have access to formal finance, and
this would add to the tensions linked with perception that the rich in the Central Business
District have escaped the flooding, whilst much of the poor population have not.
The main concern in relation to these measures, putting aside the disaster risk issues
covered in the DRM chapter, is with the design of some of the interventions to give debt
relief to SFI clients, and to try to facilitate new loans through commercial banks. This is
despite the commendable steps that the MOF has already taken to encourage SFIs to respond
more concretely to BOT recommendations, and to stick more closely to their stated
mandates.
In terms of the government measures that are focused on SFIs, it appears clear that SFIs’
liquidity and capital ratio will be severely and negatively impacted, 67 as the monetary
volumes involved are very large, yet the ability of the government to provide the funds to
the SFIs up front is very questionable. Thus, the lion’s share (THB 183 billion) of what the
team estimates to potentially be over THB 240 billion in government-mandated spending
(or loss absorption) related to the financial sector will be bank-rolled, for an undetermined
period of time, by the SFIs. 68 These interventions will also focus a greater proportion of
SFIs’ activities to policy lending or grant-giving, which will make it increasingly difficult to
separately understand and assess SFIs true banking activities from its government subsidy
distribution role. 69 SFIs will be even further than before from a position where they could
be supervised and judged on an equal footing as commercial banks, as recommended in
the 2011 Modular Financial Sector Assessment Program, which focuses on SFIs. Finally,
the advantages granted to SFIs which have not also been offered to commercial loans,
most notably the three-year grace period for all flood-impacted borrowers, further undermines
the competitiveness of commercial banks, as borrowers will be tempted to move
their borrowing to SFIs in the hope of getting a suspension on their loan repayments next
time there is a disaster. All these issues had been raised as concerns at the time of the
last Modular Financial Sector Assessment Program, but they are now more worrisome
than before.
67 The Modular FSAP (2011) on SFIs noted that “The government has responded to the credit contraction from commercial
banks in the first half of 2009 with an increase in the lending target of the SFIs, from THB 625 billion to THB 927 billion,
and by introducing a Portfolio Loan Guarantee Scheme to help offset credit risks carried by lenders. In order to implement
these facilities in a timely manner, the government approved a capital increase of THB 14.5 billion for the SFIs in the financial
year ended 2009 and THB 6 billion in financial year ended 2010”. Nevertheless, SFIs such as the SME Bank are under
the minimum CAR, others maintain significant account receivable pending government reimbursement. This situation also
worsens the situation outlined in the modular FSAP where “holdings of MOF in the financial services industry far exceed
that required for purposes of overcoming market gaps and promoting market development”.
68 The best example of SFIs being short on capital because they have not been reimbursed for past spending on government
programs is BAAC. In 2009, it had (around THB 130 billion in accounts receivable and overdue from the Ministry of
Finance, and off balance sheet, the World Bank’s assessment was that there was around another THB 50 billion overdue
from the government.
69 E.g. the Modular FSAP mentions “Some of the advantages include tax breaks, and differences in treatment and standards
are with regards to supervision, governance, and accounting. This creates an unlevel playing field and may enable
the SFIs to crowd out or deter commercial banks from entering certain market segments.” Another point of contention is
GSB and BAAC being allowed, and no other banks, to offer a lottery scheme as part of some of their deposit products.
THAI FLOOD 2011 RAPID ASSESSMENT FOR RESILIENT RECOVERY AND RECONSTRUCTION PLANNING
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