Financial bubble & crisis warning from Ex-BOT governor

27 มิถุนายน 2560

Real estate speculation & unregulated credit unions could trigger next financial crisis warns former Bank of Thailand governor Prasarn Trairatvorakul.

DEBT, REAL ESTATE & ECONOMIC CRISIS

Economic bubble warning: Ex-BOT governor Prasarn Trairatvorakul

Ex- BoT boss sees crisis potential in co-ops
27/06/2017
Nuntawun Polkuamdee

The real estate sector as well as credit unions and credit cooperatives are points of concern in the current Thai economy.

Both are likely sources of a future financial crisis, if financial regulators do not take precautions, warned former Bank of Thailand (BOT) governor Prasarn Trairatvorakul

Mr Prasarn was speaking at a seminar entitled "20-Year Tom Yum Kung Crisis: Back to the Future."

CREDIT COOPERATIVES: NO ACCESS TO CREDIT RATINGS OR BORROWERS, NO RESERVES

A large number of so-called thrift and credit cooperatives, that operate like banks taking depositors and making loans to borrowers, are not members of the National Credit Bureau and thus do not have access to borrower credit ratings and thus cannot assess their potential borrowers' credit risk.

Such non-members also do not set aside reserves as a buffer against bad loans, also known as non-performing loans (NPLs).

VULNERABLE TO EMBEZZLEMENT OF THE KLONGCHAN-DHAMMAKAYA VARIETY

Imprudent lending and embezzlement at credit unions and thrift and credit cooperatives have stolen the limelight in recent years.

The Klongchan Credit Union Cooperative (KCUC) is reportedly involved in a 13-billion-baht embezzlement scandal with the involvement of the powerful Dhammakaya temple.

The Khehasathan Noppakao Ruamjai Cooperative (KNRC) was ordered closed after a sum of 5.5 billion baht went missing from its accounts.

The Chulalongkorn University Savings Cooperative (CUSC) is estimated to have lost 1.4 billion baht from fraud.

CREDIT UNIONS: HIGHER YIELDS IN LOW-INTEREST RATE ENVIRONMENT BUT NO DEPOSIT INSURANCE

In the current low-interest-rate economic environment both in Thailand and around the world, depositors who hunger for high-yielding deposits park their money at credit unions and cooperatives.

Deposits in these cooperatives are not protected by the deposit insurance that protects ordinary bank accounts provided by the Finance Ministry and the Deposit Protection Agency (DPA).

According to a Bank of Thailand report issued in May, thrift and credit cooperatives' assets accounted for 87% of the total assets of 8,074 cooperatives as of September 2015, while loans extended by 169 large thrift and credit cooperatives swelled to 1.7 trillion baht from almost 1 trillion at the end of 2010.

At present, all cooperatives are regulated by the Agriculture and Cooperatives Ministry.

PROPERTY OVERSUPPLY IN SOME AREAS OF THAILAND

Mr Prasarn also pointed to an oversupply of property in some areas.

"The new crisis can come in new model," he said. "It won't repeat the same problem as it was the past."

Even though the crisis has yet to arrive, all related parties should be cautious and proactive to head off such a crisis, Mr Prasarn said.

LEARNING FROM PAST MISTAKES BACK IN 1997

The 1997 Tom Yum Kung crisis was caused by many factors, he said: "We were too complacent, arbitrary and capricious.

Misunderstanding and thinking that our economy was strong, we took actions that led to imbalance and crisis.

"From the lesson, we've learned our weaknesses and pretty well fixed these points. But a crisis can re-emerge."

RENEWED EFFORTS AT FINANCIAL REGULATION ESSENTIAL

"At this point, we must closely oversee thrift and credit cooperatives, state-owned financial institutions and unbalanced investment in the real estate sector.

"Even though the magnitude of these problems has not spiralled into crisis, we should not be reckless and should solve the problems in the early stage."