M.L. Nattakorn Devakula on
changes strengthening independence
of the Bank of Thailand
and bank supervision role
By Jon Fernquest |
In his weekly column at the Bangkok Post M.L. Nattakorn Devakula discusses the changes taking place at the Bangkok of Thailand (BOT).
The interim National Legislative Assembly (NLA) passed a lot of new laws.
A revised Bank of Thailand Act will strengthen the independence of Thailand's central bank.
A new Financial Institutions Act strengthens the BOT's hand in the area of commercial bank regulation.
Here is the column in full:
ANCHORMAN
Changes to BoT will bring about improvements
M L NATTAKORN DEVAKULA(Thursday March 06, 2008)
Here are some changes the country's investment and business community should be aware of.
The Bank of Thailand is about to change. Don't worry, it is not by much. Some of these changes are, however, to make this often-hated banking supervisory institution better.
Here are items that everyone needs to be aware of in the newly revised Bank of Thailand Act, an accomplishment of the recently dissolved junta-appointed legislature.
* No longer will the Finance Minister or Prime Minister select the governor of the Bank of Thailand. The selection process will be lengthier and less interventionist in the political sense.
A committee of seven former senior officials will be selected by the incumbent finance minister. That committee will then propose two candidates to the cabinet in power. The cabinet would then make final the selection. The seven on the selection committee must at one time have held one of the following titles:
- Permanent-Secretary for Finance
- Permanent-Secretary for Commerce
- Permanent Secretary for Industry
- Secretary-General of NESDB
- Secretary-General of SEC
- Director of the Budget Bureau
- Director of the Fiscal Policy Office
- Governor of the Bank of Thailand
The governor can only be dismissed if there is proven gross negligence of duty or if there is a serious mishandling of the tasks assigned to the role of the central bank.
He or she can also be dismissed if adequate harm is done to the economy, banks, or the institution of the BoT. There must, however, be evidence of these actions and the decision for dismissal would be left to the cabinet.
Previously the finance minister or the prime minister could, to all intents and purposes, remove the governor at will.
* The internal management of the Bank of Thailand will be divided into four committees. The Court of Directors will no longer be chaired by the governor. It will be chaired by an outside, well-respected, impartial senior wise-man. There will still be, of course, the all-important Monetary Policy Committee (MPC). The independence of the MPC will, by practical reasoning, increase because of the process of appointing the governor. A third committee will be charge of policy-formulations for financial institutions and a fourth will be in charge of overseeing commercial banks' financial transactions.
It should be further noted that aside from the BoT, the Financial Institutions Act was also passed by the now defunct National Legislative Assembly. It enables the central bank to use a wider array of tools to monitor and control commercial banks. Some have been harshly criticised, such as loopholes that would allow the BoT to play too influential a role in screening executive appointments of privately-owned banks. Another is the set of punishments that could be dealt out to bank executives who are found responsible for damages done to their commercial banks and to shareholders.
If found guilty after having been prosecuted for some of these charges, a commercial bank executive could face a maximum jail sentence of three years and/or a maximum fine of 300,000 baht.
Yet there are some liberating aspects of the revised Financial Institutions Act. These include the novelty of individual shareholders being able to own up to 10% of a bank, not just 5%. There is also the novelty that foreign companies can venture to buy no more than 49% of a bank in Thailand. The maximum, with many exceptions, used to be 25%.
Elements of control still override other aspects of the new law. The BoT can assume semi-managerial control of a commercial banking entity and begin restructuring once the capital adequacy ratios of these banks reach below 8.5%. That restructuring plan must be submitted to the central bank within 30 days of the ratio breach.
Other new laws for the financial/business community include the revised Securities and Exchange Commission Act and the Currency Act.
Oh wait, the SEC Act was passed but that crucial Currency Act was not. It was pulled at the last minute and failed to see the light because the previous Finance Minister became chicken after some media-linked monks went to protest at Parliament House. We will see whether Dr Surapong Suebwonglee has the guts to put this one through again.
Some of the changes mentioned in this article are indeed vital for the successful operation of the Bank of Thailand. They are also vital for the guidance that unfortunately is still needed for our commercial banking system. There are points that perhaps need fine-tuning, but overall look for some of these new alterations to bring about some real improvements down the road.
ML Nattakorn Devakula is a news analyst
(Source: Bangkok Post, op-ed section, 06-03-08, M.L. Nattakorn Devakula, temp-link)
Vocabulary:
strengthen its hand - makes more powerful
interventionist - having a tendency to get involved in problems or crises which do not concern you directly
less interventionist - allowing others to act more independently, without your interference
dismissed - job taken from employee, employee leaves job and company
negligence - making mistakes, failing to do what you should have done (causing accidents that could have been prevented)
gross negligence - making very big blameworthy mistakes (for example, running a red light or driving on the wrong side of the road, driving a motorcycle on a sidewalk)
mishandling of the tasks - did the tasks incorrectly
could, to all intents and purposes Y - could effectively do this, although didn't have the official power
X can do Y at will - X is free to make the decision to Y by themselves without consulting others (they can do what they want, it's up to them)
impartial - not directly involved in a situation, will not gain or lose from what happens, therefore able to make a fair decision or have a fair opinion about the situation
a wise-man - an expert, a person who has a lot of experience and therefore knowledge about a subject (a "pundit" in the ancient Indian sense, not modern internet sense)
now defunct - no longer exists, has stopped operating
loopholes - imperfections in a law that allow legal experts to avoid and go around the law (See glossary)
screen X - examine or investigate X to make sure X is acceptable
screening executive appointments - investigating executives before appointment to make sure they are acceptable
punishments dealt out to Y - Y was punished
liberating - freeing, creating new freedoms, removing restrictions
novelty of Y - Y is new and therefore interesting
X overrides Y - X is more important than, cancels, and replaces Y
the Capital Adequacy Ratio (CAR) of a bank - a ratio of a bank's capital to riskiness of its loans, bank regulators track a bank's CAR to make sure that it can absorb a reasonable amount of loss (See Wikipedia)
became chicken - became cowardly, lacks bravery
media-linked monks - monks who can mobilise public opinion through TV and newspaper coverage (the who monk collected gold after the 1997 economic crisis and then was dissatisfied with the use that this gold was put after which the government had to answer to him)
has the guts to Y - is brave enough to Y
put this one through [parliament] - do what is necessary to have parliament consider and pass a bill
vital for X - important and necessary for X
Y needs fine-tuning - Y needs some additional small and precise changes to operate most efficiently
bring about some real improvements down the road - will lead to improvements in the future, but not immediately or right away
