By IPS Correspondents
BANGKOK, Jul 21 1996 (IPS)

A bad loans crisis at the privately owned Bangkok Bank of Commerce has raised concern in fiunancial circles about the health of other Thai financial institutions, most of which are family-run.

Owned by Thailand’s prominent Sino-Thai Indradhoot family and headed for a long time by well known Thai statesman Kukrit Pramoj, the Bangkok Bank of Commerce has more than once in the past several years been in the news for accumulating bad debts.

But it was not till May that severity of the crisis was revealed in parliament by the Thai Opposition which produced evidence showing the bank had more than 77 billion bahts (3.2 billion dollars) worth of bad and “doubtful” debts.

The revelations provoked a panic run by depositors as the authorities brought charges of fraud and embezzlement against five bank officials.

Officials from the Bank of Thailand (BOT) which has since taken control of the bank estimate that it will require more than a two billion dollar cash injection to put the Bank of Commerce back on its feet.

“This is a scam of par with the collapse of the British-owned Baring Bank last year,” said an analyst with a securities firm in Bangkok. The prestigious 600-year-old Baring Bank had folded up due to billions of dollars of losses incurred in speculative trading by Nick Leeson, a Baring employee based in Singapore.

Public confidence has been shaken, particularly by the list of names on the bank roll with bad debts.

Among the beneficiaries of unpaid loans, which the records have shown were usually given without adequate collateral, are a group of politicians from Thailand’s ruling chart Thai Party, as well as prominent foreign and domestic businessmen and bank employees.

It is alleged that the bulk of bad loans, more than 60 billion bahts (2.5 billion dollars), had been siphoned off by front companies owned by bank chairman, Krirkkiat Jalichandra and his treasury adviser Rakesh Saxena. QAlthough the scale of money involved in the Bangkok Bank of Commerce is unprecedented by Thai standards, bank collapses are nothing new in this fast developing South-east Asian nation.

The first incident was in 1984 when the Asia Trust Bank Co., owned by the Sino-Thai Tarnvanichkul family, collapsed due to excessive lending of funds to people close to the management. After Asia Trust chairman Wallop Tarnvanichkul fled to Hong Kong to escape prosecution, the bank was taken over by the government and subsequently merged with the state-owned Krung Tahi Bank.

The second case occurred in 1986 when the First Bangkok City Bank Co., faced bankruptcy due to its funds being used for speculation in Hong Kong’s foreign currency market.

Also during the past decade, disputes and scandals have broken out in several other small and medium-sized family run banks including the Siam City Bank, Union Bank of Bangkok and Laemthong Bank that have rocked the Thai financial system.

According to a report prepared by Moodys — the U.S. based credit rating agency — the transparency of financial statements issued by Thai Banks is “generally poor”.

Mostly set up during the first half of the 20th century by immigrant Chinese entrepreneurs, there are at present 15 domestic banks operating in Thailand.

With political patronage playing a crucial role in their growth, the ‘Big Four’ — the Bangkok Bank, Siam Commercial Bank, Krung Thai Bank and Thai Farmers — are estimated to hold 70 per cent of fee income and market share for banking business in the country.

This, in turn, analysts say, has forced smaller banks to look for other means to remain profitable.

In the wake of the Bangkok Bank of Commerce scam, the Bank of Thailand (BOT), which overlooks monetary policy in the country, has asked for greater powers to tackle problems thrown up by Thailand’s rapidly growing economy.

But analysts say the problem is not one of the BOT needing more powers.

“The issue is not legal but one concerning the integrity of those who administer financial institutions in the country,” said Rangsan Thanapornpan, economics lecturer at Bangkok’s well known Thammasat University.

Though Bangkok Bank of Commerce executives have been charged with embezzlement and fraud and their assets seized, Opposition parliamentarians have publicly made their doubts known that given the political connections of those under investigation, it is doubtful they would face harsh punishment if convicted.

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