BOT on defensive over Bt400bn bond-buying scheme
The Bank of Thailand (BOT) has fended off criticism of its move to extend an unprecedented lending facility to support liquidity of businesses affected by the Covid-19 pandemic.
“The central bank is grateful for concerns raised by a former central bank executive over the recently issuance of an Emergency Decree for establishing the Corporate Bond Stabilisation Fund [BSF],” BOT assistant governor Chantavarn Sucharitakul said on Friday (April 10).
She insisted, however, that the fund was needed to support the corporate bond market which is worth Bt3.6 trillion, or about 20 per cent of GDP. The market is an important way of raising funds if part of the financial market gets into trouble, risking a chain reaction across the whole financial system that damages the real economy, she said.
Her comment came after veteran economist Virabongsa Ramangkura and former BOT executives Olarn Chaipravat, Thirachai Phuvanatnaranubala and Siri Karncharoendee warned the BOT not to engage in the BSF plan to buy about Bt400 billion in corporate bonds as they said this could damage the central bank’s role as a “lender of last resort”. They proposed the task should instead be left to state-owned banks. They also suggested the central bank may be influenced by some big businesses and implement the BSF in their favour.
In response, Chantavarn said the central bank has to handle the issue quickly otherwise the problem could get out of control.
State-owned banks have other duties, and bond issuers are not clients of the state-run banks, she said, adding that the BOT is aware of its duties of good governance and independence.
The BSF would be managed by professionals, said Chantavarn. The central bank will also work with the Finance Ministry, Securities and Exchange Commission, commercial banks and independent experts and representatives from state-owed banks.
She said the central bank remained committed to the “lender of last resort” principle, in only giving loans to viable businesses for short-term funding. Corporates must have long-term business plans, which commercial banks have to assess before agreeing to loan them money. Corporate bond issuers would have to raise the larger part of their funding from the market or from financial institutions, before they could ask for help from the BSF. The interest charge would be higher than market rates if bond issuers later suffered a credit rating downgrade, she said.
The central bank also welcomes any constructive criticism as part of its efforts to improve rescue measures, she added.
