Clear heads need to prevail in banking crisis

What is the suggestion from the Bank of Thailand to the State Bank of Vietnam (SBV) on interest management direction?

I asked Thailand commercial banks which are operating in Vietnam about their problems and how the Vietnamese economy is. They said everything was going fine, the gross domestic product (GDP) was growing, but interest rates were very high.

I remembered during the crisis in 1997 the International Monetary Fund (IMF) forced banks in Thailand to increase interest rates. The IMF felt that if we increased the interest rate then it would support foreign exchange rate as at that moment, investors did not have confidence in the baht – Thailand’s currency - then foreign investors would put more money in the baht.

This was not true as it was very bad for the private sector during the crisis. The sale was not good, the financial cost became higher so the private sector could not do their business.

Therefore, high interest rate loans cannot help capital flow into your country. The interest rate in Thailand is very low at around 2.75 per cent and the deposit rate is 3 per cent, but money is still pouring into Thailand as investors feel the economic performance of the country is good enough.
 Investors have few places in the world to put their money in. They cannot put money in dollars or euros which are risky at the moment. Now they have come to Asia for opportunities.

And in my own opinion, another solution is increasing the liquidity like in the US and Europe. When a crisis occurs, banks stop lending, liquidity dries out, and only the government has the liquidity to pump into the system.

The SBV is trying to keep the exchange rate stable in 2012 and it is also the directive in 2013. Do you concur with this direction?

From Thailand’s experience, when the foreign exchange rate increases, the domestic currency depreciates and it can be a good opportunity for exporters. But unfortunately, now exports to the US and EU are decreasing.

I think the best solution is trying to drop and stabilise interest rates. If  interest rates move up again, the private sector cannot afford increased financing costs. I see Vietnam as the ideal destination for many investors like Thai companies. But with such high financing costs in your country, they have to borrow from their head office in Thailand and money is sent to Vietnam as the lending rate in lower.

In addition, besides depreciating your domestic currency, a solution to boost exports is more trade among neighbours. In Thailand, exports to neighbouring countries in Asia is equal to a quarter of exports to the US. Even if exports to the US and Europe drop, we do not need to depend too much on those markets as we compensate by exporting to China and to neighbouring countries.

One of the Vietnamese banking system’s current problems is high non-performing loans (NPLs). Do you have any recommendations for banks?

In Thailand, the banking system is in good health and we are trying to apply Basel III. The experience from Thai banks is we try improve risk management. Banks should make full provision for NPLs. The central bank of Thailand encourages banks to make provisions even when the customers are not bad. As banks in Thailand are making very high profits, we even ask them to set aside additional provisions for current loans in case the economy slows down and the customers face bankruptcy.

Do Thailand banks have any plans to invest more in Vietnam in 2013?

 We have lots of bank branches and representative offices in Vietnam already, so I do not think we will open more branches and subsidiaries. But Thailand’s private sector is coming to invest much in Vietnam. I hope the interest rate in Vietnam will soon be down to encourage more investors to your country.