Central bank at ease over commercial banks seeking loans in US dollars
The Bank of Thailand is not too concerned that some commercial banks are seeking US dollar-denominated loans, and allows private entities to seek short-term loans abroad, even for the purpose of extending long-term loans, as long as the loans could be ref
According to the Bank of Thailand, Thai commercial banks' outstanding loans for overseas activities are worth around Bt500 billion.
Salinee Wangtal, assistant governor for financial institutions, said yesterday that banks should inspect projects thoroughly before extending loans to them, despite no signs of missed loan payments. The central bank is confident that banks are cautious in lending.
Based on the recent issuance of short-term debt instruments abroad by Thai banks to obtain funds to extend business loans, the Bank of Thailand is not concerned about such activities to support local companies engaged in international business or overseas investment.
This has no bearing on the exchange rate, since the banks secure the loans in US dollars and extended the loans to private entities in US dollars, she added.
Local companies are doing more international business and investing abroad, especially in Asean countries and China.
These firms seek long-term US dollar loans. Such loans are not being converted into baht, so there is no impact on the exchange rate.
Large corporations seek project financing loans to support their long-term investment plans overseas.
Since Thai banks have low US dollar deposits, they have to seek short-term (three- to six-month) foreign currency loans to lend out as long-term (five-year) loans to Thai companies, Salinee said.
The banks must combine private customers’ loans and issue long-term debentures to pay the banks’ short-term debts – loans that the banks sourced to extend to the private firms.
The Bank of Thailand prohibits a bank from extending foreign-currency loans that exceed 15 per cent of its capital. This figure is currently around 5 per cent, so the central bank is not worried about the sourcing of short-term loans to finance term loans, the official said.
Thai banks’ solid financial status means they can obtain funds to refinance their short-term debt obligations without any problems.
Japanese banks are still the leading lender of US dollar loans to Thai banks.
The central bank stressed the importance of being punctual in loan repayments, as risks associated with project financing are quite high, especially in the early stage of a project.
