Thailand Financial Crisis

1

Thailand Financial Crisisวิ�กฤติ�การณ์เศรษฐก�จไทย

2วิ�กฤติ�การณ์เศรษฐก�จไทย : Thailand Financial Crisis s

What’s Thai Crisis?• December 1997, Thai Financial Panic

• Thai stock market crashed – Recession

• The crisis spread quickly to other countries and became “Asian Crisis”


Recession of the stock market


Before the Crisis(the early 1990s)

• Large capital inflow from abroad due to its economic policy

• Financial center of Southeast Asia

• Bangkok International Banking Facility (BIBF)

• Growth rate of GDP and Export


Macroeconomic Indicators

Thailand's Key Economic Indicators1990 1991 1992 1993 1994 1995 1996 1997*

GDP (% change) 17.59 14.80 12.94 11.80 14.70 15.30 10.15 2.64Inflation Consumer Price Index (% change) 5.93 5.70 4.10 3.40 5.01 5.79 5.90 5.60Export (% change) 15.08 23.58 13.78 13.40 22.13 24.80 -(1.90) 3.80Import (% change) 29.76 15.60 6.08 12.30 18.40 31.90 0.57 -(13.42)Trade balance -(9.80) -(9.50) -(7.90) -(8.50) -(8.70) -(14.70) -(16.10) -(4.60)Current account balance (% of GDP) -(8.32) -(7.53) -(5.47) -(4.87) -(5.40) -(7.86) -(7.90) -(2.00)International reserves (billions of US$) 14.30 18.40 21.20 25.40 30.30 37.00 38.70 27.00Balance of payments 3.80 4.20 3.00 3.90 4.20 7.20 2.20 -(10.60)Domestic credit : Included investment (% change) 26.90 15.50 18.00 22.70 28.90 22.90 13.90 34.50Interest rate Fixed deposits (1 yr.) 13.00-15.50 10.50 8.50 7.00 8.25-10.25 10.25-11.00 8.50-9.25 10.00-13.00Exchange rate Baht : US$ average 25.59 25.52 25.40 25.32 25.15 24.92 25.34 31.37

Source: Bank of Thailand (05/19/2006)*Notice Bank of Thailand announced the Thai Bath Devaluation at July, 1997

Before crisis


• Chronic high current account deficit & Inflated property and stock market value

• Rumors about:

– Thai currency devaluation & looming problems in the financial sector (Dec. 1996)

– A change in the exchange rate system (Feb.1997)

Beginning of the Crisis


Problems with the Macro Economic policy• Peg currency policy

– Adverse to be a free financial market– Little control over the Baht currency– Implicitly guaranteed the Baht currency

value

• People borrow money from abroad (short-term) and invest in Thai market through “BIBF”

• Government had to keep Investor’s confidence high


Capitol flows trend


Effects of Economic policy on Financial Institutions

• Money Supply beyond Demand

– Could not compete

– Decreased creditworthiness

• Invested in real estate and construction

– Real Estate price bubble


Market Creditworthiness


Weak Political Regime

• No strict policy to control financial institutions

• Lack of information and transparency to assesses investor’s risk


Attack of Foreign Speculators

• In May 1997, foreign speculators attack the baht.

• Thailand spent 90% of foreign reserves to defend


Recovery Policies

• Peg policy reevaluated

– Peg Policy Abandoned (July 2, 1997)

• Assistance from IMF

– US$17.2 billion (Aug 20. 1997)

– Policy package


Macroeconomic Indicators

After crisis

Thailand's Key Economic Indicators 1997* 1998 1999 2000 2001 2002 2003 2004 2005 2006 p 1/

GDP (% change) 2.64 -(2.24) 0.23 6.20 4.30 6.20 8.80 9.70 9.20 ....Inflation Consumer Price Index (% change) 5.60 8.07 0.31 1.60 1.60 0.70 1.80 2.70 4.50 5.70Export (% change) 3.80 -(6.75) 7.43 19.50 -(7.10) 4.80 18.20 21.60 15.00 17.90Import (% change) -(13.42) -(33.77) 16.90 31.30 -(3.00) 4.60 17.40 25.70 26.00 5.40Trade balance -(4.60) 12.20 9.30 5.50 2.50 2.70 3.80 1.50 -(8.60) -(0.20)Current account balance (% of GDP) -(2.00) 12.70 10.20 7.60 5.40 5.50 5.60 4.20 -(2.10) ....International reserves (billions of US$) 27.00 29.50 34.80 32.70 33.00 38.90 42.10 49.80 52.10 55.30Balance of payments -(10.60) 1.70 4.60 -(1.60) 1.30 4.20 0.10 5.70 5.40 3.00Domestic credit : Included investment (% change) 34.50 -(1.20) -(4.20) -(7.40) -(6.10) 7.80 1.00 6.30 3.20 3.00Interest rate Fixed deposits (1 yr.) 10.00-13.00 6.00 4.00-4.25 3.50 2.75-3.00 2.00 1.00 1.00 2.50-3.50 3.50-4.25Exchange rate Baht : US$ average 31.37 41.37 37.84 40.16 44.48 43.00 41.53 40.27 40.27 39.33

Source: Bank of Thailand (05/19/2006)


The Aftermath

• In July 2003, Thailand paid $1.5B to the IMF which paid off its loan 2 years early.

• At the moment, real GDP growth reached a strong 6.7%, lead by domestic consumption and exports. (5% in 2006)

• Investment growth is recovering, mostly in Real Estate Property development.

• The current account changed from a deficit to a sizeable surplus.


Micro View

• Failure of the financial sector

• Greedy investor in the real estate sector

(Bubble Economy)

• Aftermath effect


Failure of the financial sectors

• Financial system in Thailand– 95 % of financial market is provided by

bank and financial institution– Only 5% of capital market

• Mistaken of corporate policy of financial sector– Short term loan from foreign and borrow

to the high risk business sector– Loosen policy and connection policy

drive to non standard controlling


Loans details


Greedy investor in the real estate sector

• Most investor invest in the real estate sector and even agriculture, which is the main real sector of Thailand, switch to invest in the real sector


Business sector growth

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

GDP (% change) 11.2 8.6 8.1 8.3 9.0 9.2 5.9 -1.4 -10.5 4.4 4.8

1 Agriculture (billion baht) 263.6 282.7 296.3 289.1 303.4 276.6 288.8 286.8 282.6 289.2 309.9

(% change) -4.7 7.3 4.8 -2.4 5.0 4.0 4.4 -0.7 -1.5 2.3 7.2

2 Non-agriculture (billion baht) 1,681.8 1,829.1 1,986.3 2,181.8 2,389.6 2,665.1 2,826.5 2,785.8 2,467.1 2,582.8 2,698.5

(% change) 14.1 8.8 8.6 9.8 9.5 9.8 6.1 -1.4 -11.4 4.7 4.5

3 Export (billion baht) 22.9 28.3 32.2 36.6 44.7 55.7 54.7 56.7 52.9 56.8 67.9

(% change) 15.1 23.6 13.8 13.4 22.1 24.8 -1.9 3.8 -6.8 7.4 19.5

Inflation :CPI (2002=100) 62.8 66.4 69.2 71.5 75.1 79.4 84.1 88.8 96.0 96.2 97.8

(% change) 5.9 5.7 4.1 3.4 5.0 5.8 5.9 5.6 8.1 0.3 1.6

Domestic credit (% change) 26.9 15.5 18.0 22.7 28.9 22.9 13.9 34.5 -1.2 -4.2 -7.4

Source : Bank of Thailand 2006


Greedy investor in the real estate sector• New property development is sharply rising up compared to

household growth causing supply over demand

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%19

90

1991

1992

1993

1994

1995

199

6

199

7

1998

199

9

2000

2001

2002

2003

2004

2005

Household grow thNew property developmentProperty credit outstanding

Source: Bank of Thailand 2005


Greedy investor in the real estate sector

• Property prices are risen up dramatically. Invested money is injected to the real estate causing the bubble economy

Source: Bank of Thailand2005


Aftermath effect

• High NPL due to the collapse of Bath and the economic recession


Aftermath effect• Financial sector go bankruptcy and take over by

foreigner (Financial restructuring)


Aftermath effect• Real estate sector NPL still become high and can’t be

reduced much until now (NPL detail graph)NPLs Outstanding - Classified by Business Sector Year 1999-2005

Sector 1999 2000 2001 2002 2003 2004 2005

% % % % % % %

1. Agriculture, Fishing and Forestry 2.29 3.17 4.40 3.36 3.22 2.77 2.81

2. Mining and Quarrying 0.44 0.73 0.61 0.59 0.42 0.66 0.60

3. Manufacturing 26.36 24.01 17.14 26.05 30.49 31.01 31.38

4. Construction 5.45 6.52 7.19 6.41 5.90 7.05 6.96

5. Wholesale and Retail Trade 15.72 15.70 19.91 18.78 16.71 19.34 18.35

6. Imports 4.60 3.05 2.58 2.94 4.02 1.69 1.90

7. Exports 2.82 2.25 1.90 2.40 3.22 10.13 8.61

8. Banking and Other Financial Business 3.40 2.82 1.31 1.99 1.46 3.27 1.77

9. Real Estate Business 17.58 15.09 11.13 10.27 7.49 8.05 12.84

10. Public Utilities 1.64 1.27 1.47 2.53 2.61 16.04 14.57

11. Services 10.15 10.26 9.81 7.93 7.03 100.00 0.21

12. Personal Consumptions 9.55 15.13 22.54 16.73 17.41 - -

13. Hire-Purchase Business 0.01 - - 0.02 0.02 - -

Grand Total 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Source: Bank of Thailand (04/ 17/ 2005)

2. Radanasin bank previously shown in State-woned bank group, was recategorized as private bank group

since November 1999, due to the private majority of shareholders.

Remarks

1. Since February 1999, BANKTHAI has already integrated with 13 finance companies .


Aftermath effect• Stock market collapse due to the diminishing of the

property market


Suggestion• Government

– Strong monitory system, and adequate supervision due to the premature of the Thai market during the financial liberalization

• Lending money policy• Speculative action monitoring• Loan discipline• Macroeconomic management

– Dynamic policy against the rapid change of the market• Fixed exchange rate policy• Short term loan restriction policy• Monetary policy


Suggestion• Financial sector

– Standardize loan policy• Reserve enough fund against the loan money• Credit and Loan investigation


Q & A

Thailand Financial Crisis

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