Global Markets and Financial Crises in Asia: Towards a by Haider A. Khan (auth.)

By Haider A. Khan (auth.)

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Sample text

Although the central bank had assured the public in mid-February that no financial institutions under its supervision faced liquidity problems it was suddenly obvious that several of Thailand’s finance companies – including the largest – Finance One – were over-extended in the property and hirepurchase sectors. The Ministry of Finance and the central bank reacted quite rapidly. Finance One was ordered to merge with Thailand’s twelfth largest commercial bank, the Thai Danu Bank. Meanwhile, the Financial Institutions Development Fund (FIDF) injected 40 billion baht into Finance One.

The new loan classification made it almost impossible to save the troubled finance companies. 3 trillion baht, the majority of which were non-performing under the new classification standards, and collectively held US$16 billion in loans from foreign lenders. The new policies were not implemented promptly due to a combination of indecisiveness and government instability. A coalition partner, Chart pattana (CP), exploited Chavalit’s weakness to take over responsibility for economic affairs. CP party leaders were known to have considerable interests in the financial sector, including in some of the suspended finance companies.

State banks, with their cumbersome procedures, were not flexible enough to adjust to the new situation. Bad debts were also the result of a number of malpractices involving various fraud schemes and overall corruption in which credits were extended on the basis of personal contacts and recommendations. Therefore one 40 Global Markets and Financial Crises in Asia needs to be cautious in assessing the role of reforms. However, the problems of poor lending practices in the public sector did not subside after liberalization.

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