FRIDAY, March 29, 2024
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Prasarn wary of property bubble

Prasarn wary of property bubble

FORMER CENTRAL BANK governor Prasarn Trairatvorakul has expressed concern over the potential oversupply of property projects that could trigger the next economic crisis and he was also worried about rising risk in the thrift and the credit cooperatives business.

The property sector bubble 20 years ago played a significant role in creating the Asian financial crisis of 1997, which forced Thailand to seek financial support from the International Monetary Fund and other countries. 
Some people are worried the crisis could repeat itself given that Thailand has experienced slower economic growth in recently years, lagging behind other countries in the region. 
Prasarn said the risk is there and we often do not know when it would happen. However, Thailand has learned its lessons and many policies have been improved. The fixed exchange rate regime has been abandoned and the country has adopted the managed floated regime, which provides automatic adjustment to capital inflows and outflows. 
In the past, the high exchange rate and the high interest rate drew massive capital inflows, as investors sought high returns on investments. A part of the huge inflows ended up in the property sector, leading to a bubble that burst later. 
This time around, central banks around the world have injected massive liquidity into the markets and kept interest rates at a historic low. This creates a spillover effect, causing money inflows into Thailand. The Bank of Thailand (BOT) is also keeping interest rate low to accommodate economic growth.
“Those who have large amounts of cash in hands do not know what to do, so they put it in the property sector,” said Prasarn, who is also an adviser to the Central Group.
So many condominium projects as well as mixed-use property projects comprising living quarters, hotel and shopping centre, are springing up, while demand may not be as expected by developers, said Prasarn.
Veteran bankers are well aware of the risk from lending to the property sector but the young generation of bankers may not be aware of the risk, he said. However, Prasarn is relieved that major commercial banks have a large loan loss reserve. He did not see systemic risks in the financial market. But many thrift and credit cooperatives faced issues of fraud and increasing risk of loan defaults. According to the Cooperative Auditing Department, thrift and credit cooperatives had 3.6 million customers in 2015 with total assets worth Bt Bt2 trillion. 
“The assets of thrift and credit cooperatives have increased sharply, but governance has not improved much and nobody is seriously taking care of this issue,” he lamented. 
He recounted that when he was central bank governor he had urged cooperatives to become members of the National Credit Bureau but only a few of them heeded his advice. As a result, many cooperatives do not have adequate information, increasing the risk of loan defaults.
“To prevent another crisis, this issue must be fixed at an early stage, or nipped in the bud,” he added. 
 

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