The Finance Ministry's Fiscal Policy Office (FPO) has proposed the Bank of Thailand take over supervision of specialised financial institutions (SFIs) as part of its reform plan to improve surveillance procedures.
FPO director-general Somchai Sujjapongse said the ministry is required to introduce a specific law to guide SFI reform.
Several SFIs have become saddled with bad loans amounting to 5.11 trillion baht, while their non-performing loans (NPLs) stood at 192 billion or 3.76% of total lending.
Eight SFIs _ the Small and Medium Enterprise Development Bank of Thailand, the Islamic Bank of Thailand, the Government Savings Bank (GSB), the Government Housing Bank, the Bank for Agriculture and Agricultural Cooperatives (BAAC), the Secondary Mortgage Corporation, the Export-Import Bank of Thailand and the Thai Credit Guarantee Corporation _ are under Finance Ministry supervision.
Mr Somchai said while the FPO is in charge of providing policies and supervising the SFIs, its checks and balances may not be sufficient, as each SFI was established under its own law.
The ministry has already asked the central bank for a joint audit of the financial position of the SFIs, but the Bank of Thailand does not have any authority to issue penalties or supervise the SFIs if irregularities are found.
Under this reform plan, the SFIs are required to adjust their roles to match their missions. For example, the GSB must focus on extending retail loans to those who live in cities, while the BAAC must concentrate on lending to those living in rural areas.
A committee will be set up to map out a business direction for the SFIs.
No matter which agency oversees SFIs, commercial bank regulations will still not apply to them, as these state-owned financial institutions are required to extend loans to groups commercial banks avoid.
One exception is SFIs that also accept deposits, as they must comply with similar rules and regulations as commercial banks.
Mr Somchai said the major problems for SFIs are tight liquidity and high NPLs.
To solve the liquidity crunch, the FPO will ask state enterprises to extend their deposit period at these financial institutions to one or two years from one month and allow troubled SFIs to offer long-term bonds to be guaranteed by the ministry.
Some SFIs are negotiating with the state-owned Sukhumvit Asset Management Co (SAM) to purchase their distressed assets under gain and loss-sharing conditions, said Mr Somchai.
Should the bad assets divest to SAM, the NPLs of the SFIs would fall substantially, he said without elaborating.