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06BANGKOK3828 CREDIT TIGHTENTING IN THAILAND

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“69626”,”6/28/2006 10:55″,”06BANGKOK3828″,

 

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,”

“,”VZCZCXRO2977

RR RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #3828/01 1791055

ZNR UUUUU ZZH

R 281055Z JUN 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 9755

INFO RUCNASE/ASEAN MEMBER COLLECTIVE

RUEHCHI/AMCONSUL CHIANG MAI 2036

RUCPDOC/DEPT OF COMMERCE WASHDC

RUEATRS/DEPT OF TREASURY WASHINGTON DC”,

“UNCLAS SECTION 01 OF 02 BANGKOK 003828

 

SIPDIS

 

SENSITIVE

 

SIPDIS

 

DEPT FOR EAP/MLS AND EB

TREASURY FOR OASIA

COMMERCE FOR 4430/EAP/MAC/OKSA

STATE PASS TO USTR FOR WEISEL

 

E.O. 12958: N/A

TAGS: ECON, ETRD, EFIN, TH

SUBJECT: CREDIT TIGHTENTING IN THAILAND

 

REF: A) BANGKOK 1665 (POLITICAL PROBLEMS EFFCT THAI ECONOMY);

 

B) BANGKOK 2360 (THAI ECONOMY REACTS TO POLITICAL UNCERTAINTY);

C) BANGKOK 2978 (THAILAND: INVESTMENT SLOWDOWN)

 

BANGKOK 00003828 001.2 OF 002

 

1. (U) Summary. Deputy Prime Minister and Commerce Minister Somkid

will be visiting the US July 9-14 to fly the Thai flag for

investment. The slowing of the Thai economy is being exacerbated in

the short term by a reduction in credit availability and lack of

liquidity in the stock exchange. Because of the government\’s

caretaker status, programs to ameliorate these problems are of

limited effectiveness. End Summary.

 

2. (SBU) On-going political uncertainty combined with rising

interest rates and high energy prices continue to depress the Thai

economy. Government and private consumption and capital expenditure

are both in general decline. Record high imports (US$11.5 billion)

in May reportedly were largely the result of importers taking

advantage of a strong baht which they expected to decline following

aggressive business lobbying of the Bank of Thailand (to date, there

is no indication that the business community was successful in

seeking exchange rate relief from the central bankers with the baht

holding steady at 38-39/1US$). Although Q1 GDP grew 6 percent from

last year, this was off a low base affected by the December 2004

tsunami and unusually high oil imports.

 

SIPDIS

 

3. (U) While the banking system is quite liquid, access to capital

is becoming more difficult for many. Banks have tightened their

lending standards, rejecting mortgage applications they would have

approved a year ago, lending a maximum of 70 percent of value (vs.

100 percent a year ago) and generally applying much more stringent

lending practices in advance of what they perceive as a general

decline in consumer and corporate cash flow. A major property

developer told us that banks will simply not lend except against 100

percent collateral. With credit card late payments increasing to

about 3.5 percent of outstanding credits, card issuers are also

becoming more selective in granting increases in credit lines.

 

4. (U) Credit tightening is also reflected in a declining bank

loan/deposit ratio which stood at 91 percent at the end of December

2005 and fell to 86.4 percent in April, the lowest level since

November 2003. New loan growth is estimated at 8 percent so far this

year, however several analysts have said that the majority of these

\”new loans\” are to other financial institutions in the form of US$

deposits, seeking to earn the spread between bank cost of funds (1.7

percent) and 3 month US$ deposits (5.55 percent). Three month baht

deposits earn a maximum 5.39 percent. This spread between US$ and

baht interest rates is one reason that many expect the Bank of

Thailand to continue raising rates so long as the US Federal Reserve

does so.

 

5. (U) In an effort to stimulate the economy in the face of rising

rates, expenses, and declining consumer and investor confidence – or

at least support small businesspersons and farmers – the RTG has

instructed the specialized financial institutions (SFIs) that it

controls (Bank of Agriculture and Agricultural Cooperatives-BAAC,

Government Savings Bank-GSB, Government Housing Bank, GHB, Small and

Medium Enterprise Bank-SME Bank) to lend at below market rates and

help their existing customers cope with rising expenses. Examples of

these programs include GHB cutting its margin on new mortgages by 50

basis points and BAAC reducing interest charges to borrowers of less

than 100,000 baht (US$2600) by 1 percent. GHB is offering 6 month to

one year of interest-only payments to some customers and the SME

Bank is also helping to restructure the loans of many of its

customers (although with an NPL rate of around 19 percent, they

don\’t have much choice).

 

6. (U) To pay for these programs, the SFIs have asked for additional

deposits from the Ministry of Finance to reduce their cost of funds.

They are also seeking permission to pay no interest on these

deposits. While many existing borrowers are taking advantage of

these SFI programs, few new loans are being extended as the general

reluctance to spend and invest seen in the overall economy is

reflected in the micro and SME sectors. These SFI programs are seen

largely as a public relations effort with little effect on SFI

operations or the economy.

 

7. (SBU) Thailand\’s alternative to bank finance, the Stock Exchange

of Thailand, has had only five IPOs since February and trading

volume over the last few weeks has been so low that there is danger

of some of the smaller brokers going out of business despite a fixed

commission system. Foreigners were net buyers of US$7.3 billion of

Thai equities from November 2004 through May 9, 2006. Since then,

foreign investors have sold US$1.4 billion of their position

 

BANGKOK 00003828 002.2 OF 002

 

although little of this has left the country as evidenced by the

continuing strength of the baht. The President of the Stock Exchange

told us that increased volume and an upturn in equity offerings is

unlikely until the political scene stabilizes.

 

8. (SBU) Comment: With FDI remaining low (see reftel C) and domestic

confidence down, Deputy Prime Minister Somkid intends to use his

mid-July visit to the US to try and reassure current and potential

investors that Thailand remains open for business despite the

continuing political uncertainty. He is scheduled to meet with USTR

and Department of Commerce in addition to Ford (which is considering

additional investment in Thailand) and AIG. With the economy in the

doldrums, no ability to proceed with bilateral trade negotiations,

American business concerned about tenuousness of continued RTG

support for the Treaty of Amity and Economic Relations (which

governs our bilateral investment relationship), and the general

inability of this caretaker government to undertake any policy

initiatives, Somkid\’s task is a difficult one.

ARVIZU

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Written by thaicables

July 12, 2011 at 4:57 am

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