What's new in business news: October 25, 2013

State bank non-performing loans main future risk for economy, sugar prices need to move freely & system to reduce volatility from faster stock trading.

Tighter rural credit lending and the price pullback of the government’s rice pledging scheme will contribute to lower spending power for rural communities and low-end consumers, says Mr Maguire head of research and strategy at UBS Thailand. PORNPROM SATTRABHAYA

BANKING 

State bank non-performing loans main risk in future 

Bad loans, shouldered by state-owned specialised financial institutions (SFIs) are the key risk for the Thai economy in 2014, says Raymond Maguire, the head of research and strategy at UBS Thailand. Two SFIs have already needed capital bailouts, but they are small and can be managed. Of concern is small and medium-sized enterprises and SFIs, as cooperative banks have lax lending standards and do not share their data with the National Credit Bureau.

Most of the accumulated debt is associated with low-end consumers. The banks that have been lending aggressively to low-end consumers are government banks or SFIs, and over the last three or four years they were lending to the poor at 25% a year but recently pulled back to 7%. The price pullback of the government's rice pledging scheme may also have a negative effect on rural communities. 

Bank NPLs are expected to increase. The Islamic Bank of Thailand and the Small and Medium Enterprise Development Bank of Thailand are the SFIs struggling with high rates of non-performing loans (NPLs).

[See full atory here ]

AGRICULTURE 

Sugar prices need to float more quickly

As Thai sugar is the cheapest in Asean, millers are repeating their call for the Industry Ministry to float its price.

In Thailand, white refined sugar retails at 23.6 baht, but in other Asean countries prices are much higher. Sugar in Indonesia retails for 33.95 baht , in Singapore for 40.35 baht and in the Philippines 41.2 baht. Outside Asean, prices are even higher  57.09-77.85 baht in China, 66.9 baht in Japan, 49.5 baht in Korea and 59.75 baht in Australia.

Thailand has sufficient domestic supplies now, but almost all of the sugar allocated for exports has already been sold in forward contracts and if domestic sugar is smuggled to other countries, Thailand might face a shortage.  Asean countries are not required to float sugar prices once the AEC is established, but a free flow of goods must be allowed.

A Thailand Development Research Institute (TDRI) study proposed scrapping the domestic price cap in place for three decades. There have already been two cabinet resolutions to implement the TDRI's proposal, but reforms by the Industry Ministry have been slow. The floating of sugar prices would trim state subsidies, but the Cane and Sugar Board prefers a partial float in a set range with the government providing compensation.

[Read full story here ]

STOCK MARKET 

System to reduce volatility that comes with faster stock trading 

The Stock Exchange of Thailand is preparing to use a "circuit breaker" for highly traded stocks to ease the impact of volatility on retail investors. 

The high-frequency trading (HFT) system is an advanced trading platform capable of processing a large number of orders at very fast speeds. Most Stock Exchange of Thailand (SET) stocks trading through HFT are large-cap stocks with high liquidity, mostly listed on the SET50. Since the SET launched HFT late last year, the number of total investors that place orders through SET-registered brokers to trade via HFT has gradually increased to about 10% of total trading value. The speed of the HFT system can contribute to high volatility in the movement of stock prices.  Neither brokers not registered with the SET nor institutional investors can place orders on HFT directly.

There is a concern over a possible 'flash crash' similar to what happened with the Dow Jones Index when it fell by more than 1,000 points in a few minutes in May 2010 due to the rapid speed of HFT. After SET studied other stock markets, it found most set a frame of price movements for each stock they want to control with a gap of 5% or 10% for price movements, with a circuit breaker halting trade for two minutes once it reaches a critical level.

[Read full story here ]

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Writer: Jon Fernquest
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