Insolvency comments draw anger

PUBLISHED : Saturday, 13 September, 1997, 12:00am
UPDATED : Saturday, 13 September, 1997, 12:00am

The senior Moody's analyst who said eight Thai banks might be insolvent resulted in furious reaction in Bangkok yesterday.

Prime Minister Chavalit Yongchaiyudh described comments by Moody's Nicholas Krasno as 'unfair, unfounded and below-the-belt'.

'This sort of talk is just going too far,' he said.

Finance Minister Thanong Bidaya, noting Moody's did not examine smaller Thai banks in detail, said: 'This is alarmist talk. Frankly I am surprised . . . the finance business is a confidence business and this sort of talk doesn't help.' Moody's officials tried to calm Thai nerves by suggesting Mr Krasno may have been misinterpreted.

'The statement meant that by the end of 1998 five or so banks might require public assistance to protect depositors and creditors,' said Jerome Fons in New York.

Many investment analysts in Bangkok said Mr Krasno had merely voiced many people's fears.

'If two-thirds of the 91 finance houses are in such bad shape that the central bank has had to suspend them then it is hard to imagine that none of the commercial banks aren't also in trouble,' one merchant banker said.

'The smaller commercial banks are hardly much bigger than the biggest finance houses after all.' Domestic depositors agree - the flight that saw billions of baht leave the finance houses after the initial suspensions also hurt the smaller of the 15 commercial banks.

The head of research for Vickers Ballas in Bangkok, James Landi, said: 'The liquidity environment is very, very tough for small banks.

'We think many of them may be having to tap the interbank market for funds - yet the rates are in the high 20s. That's a slow death.' Many bank analysts disputed Mr Krasno's assessment.

One said: 'His reasoning might be right but that is far too pessimistic. The banks have historically been quite closely watched by the Bank of Thailand and are in better shape [than the 91 finance houses].' He admitted that one or two of the commercial banks might be 'shaky'.

'Even if non-performing loans are higher than registered capital [making a bank technically insolvent] this is not the end . . . you just manage your way out like Citibank did at the height of the US recession,' he said.