The International Monetary Fund (IMF) is urging the Finance Ministry and the Bank of Thailand to step up regulation and supervision of specialised financial institutions (SFIs) and non-bank financial institutions.
In its annual report released yesterday, the IMF said SFIs can be a source of contingent fiscal liability and heightened financial risk, while non-bank financial institutions are expanding and could pose a risk to financial stability.
Lending by SFIs has risen sharply in recent years, reaching 27% of total banking credit last year from 18% in 2003.
Compared with commercial banks, the quality of SFI assets tends to be weaker, SFIs face higher funding costs and lower lending spreads, and their credit practices are influenced by government policy.
"There is a growing need to enlarge the [Bank of Thailand's] regulatory and supervisory perimeter to include SFIs and credit cooperatives," the report said.
SFIs are under the Finance Ministry's purview, while credit cooperatives are looked after by the Agriculture Ministry.
Thailand has eight SFIs _ the Small and Medium Enterprise Development Bank of Thailand, the Islamic Bank of Thailand, the Government Savings Bank, GH Bank, the Bank for Agriculture and Agricultural Cooperatives, the Secondary Mortgage Cooperation, the Export-Import Bank of Thailand and the Thai Credit Guarantee Cooperation.
The Fiscal Policy Office recently proposed the central bank take over supervision of SFIs as part of efforts to improve surveillance after some SFIs began struggling with hefty bad loans and a liquidity crunch.
The IMF report said loans and assets for savings and credit cooperatives last year grew by 24.8% and 15.6%, respectively, while deposits and shares grew by 0.48% and 11.9%.
Credit cooperatives are becoming more interconnected with the financial sector through the interbank market, while they also lend to each other and invest in other financial institutions, it said.
The report also said growth is expected to recover but at a more gradual pace, with low inflation.
The government is seeking to shift public expenditure from boosting domestic consumption to infrastructure investment.
Planned infrastructure investment should be implemented to enhance competitiveness and promote inclusive growth, said the report.
The government's 2-trillion-baht borrowing bill to finance infrastructure megaprojects, the bulk of which will go towards high-speed railways, is now pending Senate deliberation.