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To: Steve Fancy who wrote (6690)	8/15/1998 5:00:00 PM
From: Steve Fancy	Respond to of 22640

Thai Cabinet Clears Landmark Plan To Rescue Banks Through Bond Issue An INTERACTIVE JOURNAL News Roundup The Thai cabinet Friday approved the government's long-awaited plan to restructure and recapitalize the country's struggling financial institutions. Rather than nationalize big banks that have failed to raise new capital, the Thai government intends to try to recapitalize them on the cheap, through an exchange of securities. Deputy Finance Minister Pisit Lee Atham said the government will issue 300 billion baht ($7.2 billion) in bonds to help recapitalize institutions that have not been taken over by the central bank. Financial institutions will submit capital increase plans for eligibility, said Finance Minister Tarrin Nimmanhaeminda. Once a plan is approved, the institution may trade preferred shares with the central bank for government bonds to help them recapitalize. The package could be Thailand's most important since it voted to bring in the International Monetary Fund last August. A year later, Thailand desperately needs to strengthen its banks so they can start lending again, to reverse the economy's spiral into deep recession. Thailand's banks need to raise an estimated $20 billion to $25 billion to replace capital lost by bad loans, analysts say. Two banks have successfully raised capital on their own, two have found foreign strategic partners and six have been taken over by the central bank. The remaining five are in dire need of fresh capital and even the strongest banks will need more capital in the face of mounting non-performing loans. Mr. Tarrin said two of the banks nationalized earlier in the year will be merged with Krung Thai Bank PCL, a state-owned commercial bank. Another two will be strengthened and sold to the private sector. Two banks taken over on Friday morning will be merged with other state-related institutions. The International Monetary Fund said Friday it welcomes the plan. "The announcement recognizes that the recession and the regional economic environment warrant forceful and comprehensive measures," said Shigemitsu Sugisaki, acting managing director of the IMF in a statement. Yet in rescuing the banks, the government risks being charged by opposition parties with bailing out the rich, who led the country into economic crisis. It also must tiptoe around a crucial principle of Thailand's IMF-led economic rescue package -- that private shareholders must have their equity wiped out before the government will step in with its own money. The government will help prop up Tier I capital at financial institutions only after recapitalization plans have been approved and after loan-loss provisions are made under the three-month standard, Mr. Tarrin said. Problem loans were formerly counted as non-performing only after payments had been missed for six months. He said 200 billion baht of the planned non-tradable government bond issue will be used to support Tier I capital with swaps for preferred shares, while 100 billion baht will support Tier II capital with swaps for subordinated bonds issued by financial institutions. Financial institutions also will be allowed to set up asset management corporations to manage non-performing loans, the Finance Ministry said in a statement. Non-performing loans are expected to peak as high as 47% of total loans, according to independent research houses. Krung Thai Bank will take over assets, branches and employees of First Bangkok City Bank PCL, as well as the good assets of Bangkok Bank of Commerce. Under the plan, Bangkok Bank of Commerce will be left only with bad assets and will become and asset management corporation stripped of its banking license. The Bank of Thailand's rescue fund, known as the Financial Institutions Development Fund, has already committed more than 1 trillion baht to support financial institutions, including 56 finance companies that were ordered into liquidation in 1997. Some estimate the cost of the plan will be higher than the 300 billion baht forecast. In a recent report, Paribas Asia Equity Ltd. said the actual costs will be revealed when the public accepts the inevitability of the bailout. Finance Minister Tarrin said the government will earn more in dividends on preferred shares and interest on subordinated bonds than it will be paying on the bonds it issues.