Post-Crisis Changes in Banking and Corporate Landscapes - The Case of Thailand

Margit Molnar (OECD Working paper, 2003)

A paper that provides background on the non-performing loans and credit crunch (= loans were difficult to obtain) that followed the 1997 Asian Economic Crisis. Follow link above for freely downloadable pdf file.

Abstract: "This study investigates the relative importance of factors shaping banking and corporate landscapes in Thailand after 1997 through an empirical analysis of micro-data of Thai banks and firms. The results of the analysis of the bank data show that the deceleration of bank credit growth is mainly attributable to the fallout from the Asian crisis and post-crisis regulatory changes. While high non-performing loans (NPLs) and foreclosed assets on balance sheets hinder the resumption of lending, those banks that were well capitalised, larger or domestic could resume lending faster. The analysis also showed that big, domestic, well-capitalised banks with higher NPLs are more prone to diversify into securities investments. The analysis of the firm sample indicates that Thai firms have diversified their sources of financing over the period of 1997-2000, which is reflected in the rise of the share of debt securities and trade financing. As a conclusion from the above analyses, the diversification of banks’ asset portfolios and firms’ financing sources per se can be considered a good direction. Nevertheless if banks respond to decreasing profits and capital adequacy requirements merely by venturing into new activities and gaining new customer segments, and do not adequately address their NPLs, it will offset the positive risk-sharing effect of portfolio diversification. Therefore, a rigorous plan to resolve the NPL problem and financial reforms to ensure the availability of alternative ways of financing for businesses should be implemented simultaneously."