Minimal Thai bank exposure to American financial meltdown
By Jon Fernquest |
Hold on to your seats. The roller coaster of the American economy seems about to dive head first into the recession that everyone has been talking about for years.
Lehman Brothers, one of America's largest financial services companies, founded in 1850, filed for bankruptcy yesterday, the largest bankruptcy in US history.
Self-sufficiency, self-reliance, suffiency economy, are all words that most Thais will be happy they have been thinking about all along.
Despite the temptations to completely open the Thai economy and financial sector to the world, there were good reasons not to, as this week's events clearly demonstrate.
Today's Bangkok Post looks at the potential impact of recent events on Thailand's financial sector.
(See photo below of news reporters gathering outside of Lehman Brothers headquarters in New York last night to report on the largest bankruptcy in US history.)
Here is the article in full:
Thai bank losses 'minor'
POST REPORTERSTuesday September 16, 2008
Thailand's 14 commercial banks have outstanding loan exposure totalling 4.3 billion baht to the failed US investment bank Lehman Brothers.
Bandid Nijathaworn, a deputy governor of the Bank of Thailand, said Thai banks had another 5.3 billion baht worth of foreign-exchange contracts with Lehman.
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He said the overall impact of Lehman's bankruptcy on the Thai financial sector would be minor, considering the small amount of total exposure of local banks.
Foreign investments by Thai banks overall are 102 billion baht, or just 1.3% of total assets in the banking sector.
But Dr Bandid acknowledged that Thailand would feel an indirect impact from the turmoil on Wall Street, as the slowing US economy and global credit crunch could affect Thai exports.
"The total damage for Thai banks will come from loans made to Lehman or Lehman debentures held by local banks, which totals 4.3 billion baht," he said.
"We will have to see what Lehman's assets are valued at and whether there is anything to settle outstanding claims."
Dr Bandid said that for the foreign exchange contracts, total losses for Thai counterparties were unlikely to exceed 100 million baht, as the principal value of the contracts remained intact and any losses limited to interest on the forward contracts.
Lehman first opened an office in Bangkok in 1989, and later played a key role during the 1997-98 crisis as an adviser and investor in distressed assets sold off from the 56 failed finance companies by the Financial Sector Restructuring Authority.
In 2003, Lehman sold off its local office, Global Thai Finance, to local professionals in a management buyout. The company continues to have property and asset management interests in Thailand, and maintains an office at the Abdul Rahim Building.
Meanwhile, American International Assurance (AIA), a wholly owned subsidiary of AIG and the largest insurer in Thailand, has brushed aside any concerns over its US parent's financial stability.
A company spokeswoman said AIA was controlled under Thai laws and regulations, and had the industry's largest insurance reserves at 271.814 billion baht as of Dec 31. Total assets were 380.3 billion baht at the end of 2007.
As of June, AIG had consolidated assets of US$1.05 trillion and shareholders' equity worth $78.09 billion.
Vocabulary:
Lehman Brothers - one of America's largest investment banks and financial services firms, founded in 1850, filed for bankruptcy yesterday, the largest bankruptcy in US history (See Wikipedia)
investment bank - "a company that helps other companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt), as well as providing advice on transactions such as mergers and acquisitions" (See Wikipedia)
bankruptcy - when a company makes an official legal declaration that they can no longer pay back the money they (pay their creditors), a court case will then sell off the company's assets to pay creditors (See Wikipedia)
a meltdown - a sudden and complete failure
a financial meltdown - the suddden and complete failure of the financial sector of an economy
credit crunch - when businesses and households can't get loans anymore, banks suddenly stop lending and bond market liquidity disappear after investors and holders of capital seek to avoid risk (See glossary)
global credit crunch
turmoil - a state of disorder (accompanied by worry and confusion)
a roller coaster - a popular ride in amusement parks, a train that rolls down steep hills to frighten passengers, sometimes even turning upside down (See Wikipedia)
dive head first - jump into the water with your head going first (before your body enters the water)
suffiency economy - the official name of the Thai economic philosophy based on the speeches of His Majesty the King
exposure - the risk of losing money on an investment or an asset
minimal exposure, minor exposure - a very small amount of risk and possible losses
local banks - banks in this country, Thai banks
minor exposure of local banks
outstanding - still remaining, still existing, has not been settled and closed yet (See glossary)
outstanding loans - loans that are still being paid back by borrowers
outstanding loan exposure - the risk of losing money on loans (that you hold as assets on your company's balance sheet)
a claim - (formal) a legal right to receive money from someone
outstanding claims - (formal) money that is still owed to people
settle outstanding claims - (formal) pay back the money that is still owed to people
foreign-exchange - foreign currency (for example, British pounds or dollars)
foreign-exchange contracts - a contract to exchange the money (currency) of one country for another (for example, exchange Thai baht for British Pounds)
a counterparty - one of the people or companies involved in a contract or business
counterparties to foreign-exchange contracts - the people or companies involved in a foreign exchange contract
the overall impact - the impact on the whole financial system
debentures - an unsecured long-term debt, "a long-term debt instrument used by governments and large companies to obtain funds, a debt secured only by the debtor’s earning power, not by a lien on any specific asset" (See Wikipedia)
principal - the original amount of money in the transaction, without any interest added (See glossary)
the principal value of the contracts remained intact - the original amount of money in the foreign exchange transaction is still in the account and has not been used (note: legal implications here not clear)
interest on the forward contracts -
management buyout - when the management of a company joins together and buys a controlling interest in the company
American International Assurance (AIA) - a large Asian insurance company, "an insurance company based in Hong Kong. It has offices in Asia-Pacific region including China, Australia, New Zealand, Japan, India, Malaysia, Macau, South Korea, Thailand, Singapore and Vietnam. It is a member of American International Group (AIG)." (See Wikipedia)
American International Group (AIG) - a major American insurance corporation based in New York City (See Wikipedia)
a concern - a situation or fact that makes you worry
brushed aside any concerns - no need to worry, they believed
