Tuesday, July 21, 2009

Thai banks to undergo another stress test

Published on July 22, 2009

Banks could undergo another round of stress tests this year to see if they are ready to counter any difficulties brought on by a further downturn.

"If the economy is worse than expected, the banks must conduct the stress test again," Sorasit Soontornkes, assistant governor of the Bank of Thailand, said yesterday.

A faltering economy could erode borrowers' debtservicing ability, unleashing a surge of non-performing loans.

Commercial banks had earlier passed the stress test under the worstcase scenario of the economy contracting by 4.0 per cent this year, compared to the central bank's baseline scenario of a decrease of 1.53.5 per cent.

However, some economists have predicted GDP could shrink even more, by 45 per cent.

The central bank's latest economic growth projection is due out on Friday. Governor Tarisa Watanagase recently said the new GDP figure was not much different from the current forecast.

The central bank is expected to present its economic outlook to banks on that day when they hold their annual meeting. This is hoped to help smooth the banks' operations.

The central bank has expressed concern over the effects of the global economy, political conflicts and H1N1 flu on the local economy. The influenza outbreak is a factor that commercial banks must address in their operational risk management, he said.

Prime Minister Abhisit Vejjajiva said yesterday he was worried about exports this and next month, which are expected to be the worst in the year, but the government would try its hardest to push up shipments particularly next quarter.

"I need to say that July and August will be the midpoint of the crisis as exports will contract the most compared to last year's figures. For the entire year, the government will try to keep the contraction down as much as possible. For the first seven to eight months, export growth is expected to record a minus 2526 per cent. We will speed it up in the last quarter," he said.

On Monday, the Commerce Ministry reported June exports at US$12.34 billion, or a contraction of 25.9 per cent from last year.

Abhisit said that was in line with the government's forecast. Exports for the first half of this year, at $68.21 billion, were down by 23.5 per cent on year.

Meanwhile, the central bank would meet SMEs around the country by embarking on a roadshow to explain the government's Bt30 billion credit guarantee scheme.

The central bank would ask SMEs about any problems they have encountered and would persuade them to join the scheme.

"We will tell them how the programme can help them and how they can jump into the project," Sorasit said.

Banks planned to extend loans of Bt30 billion to SMEs under this credit guarantee scheme, but only slightly more than Bt1 billion has been used so far.

The oneyear scheme was on schedule, but some SMEs might not know much about how it works, he said.

In the roadshow, SMEs could ask the banks about their loan approval process and could apply for the loans.

Next Tuesday, the central bank will meet with eight SME associations, including those for jewellery, furniture, tourism and hotels, to discuss the scheme. The central bank could ensure they have demand for loans and the guarantees under the scheme.

"We will ask them about obstacles and any suggestions they can provide," he said.

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