Thai banks began announcing huge profit losses yesterday amid assurances from the central bank that the ailing sector would be fully reformed and restored to health by the year 2000. Financial results for the year to December 1997 showed many banks suffering profit losses worth billions of baht on the previous year.
The Bank of Thailand, the central bank, tried put a positive spin on the miserable results, which analysts said would keep investors away from the stock market in the coming days.
The poor bank results for 1997 will continue to dribble out over the next few days, with most of yesterday revelations coming from smaller institutions.
Two of the biggest declines announced so far came from the middle-sized Bank of Ayudhya and the smaller Nakornthon Bank. The Bank of Ayudhya announced a net profit 1.96 billion baht (£26.4 million) down from a net profit of five billion baht in 1996. Nakornthon Bank registered a net loss of 133.86 million baht after net profits of 701.57 million baht in the previous year.
The central bank's director of financial institutions supervision and development, Ms Tarisa Watanagase said the first step, which the central bank was now taking, was to strengthen the sector by encouraging the banks to seek fresh sources of capital.
"We are keen to encourage the banks to increase capital and complete recapitalisation within the first quarter of this year. Recapitalisation, once complete, will build confidence in the sector," she said. She added that foreign participation was an important factor since new domestic funding, given Thailand's cash-strapped economy, was in short supply.
The bank of Thailand's governor, Mr Chaiyawat Wibulsawasdi has said previously that the recapitalisation exercise, excluding the three major banks, would take some 70 billion baht. Since more than half the country's debt-ridden financial institutions were closed down in December, the government has been urging remaining firms to boost their capital.
Ms Tarisa said that, other reforms, including board changes and regulatory measures, were also necessary She added that the central bank would announce the tightening of loan classification and provision rules.
