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SATURDAY, June 10, 2023
Top Thai business group moves to calm jitters sparked by US and European banks

Top Thai business group moves to calm jitters sparked by US and European banks

THURSDAY, March 16, 2023

Thailand's most powerful business lobby group – the Joint Standing Committee on Commerce, Industry, and Banking – on Thursday said it is confident the Thai banking sector will not be affected by recent bank failures in the United States and liquidity problems at Credit Suisse, but warned that the situation should be closely monitored as it could be the start of a new financial crisis.

The impact on Thailand of Credit Suisse's liquidity problems and the failures of America’s Silicon Valley and Signature banks is not currently a major concern, Kobsak Duangdee, secretary general of the Thai Bankers' Association, told a media briefing on Thursday. The association is a member of the joint standing committee.

The Bank of Thailand (BOT) regulates banks more strictly than it did before the Asian financial crisis of 1997 and most Thai banks have little exposure to the Swiss bank or the two US banks that failed, Kobsak explained.

Although Thailand should be cautious, the country's banking sector remains resilient, with very strong reserves and liquidity, he said.

Another member of the joint standing committee – the Federation of Thai Industries (FTI) – agreed that the Thai banking sector would not be affected but warned of other risks.

While the problems at Credit Suisse and the American banks may not have an impact on the Thai banking sector, they will have an impact on the country's industries if their problems are prolonged, FTI chairman Kriengkrai Thiennukul said.

The psychological effects of the banking problems in the US and Europe could diminish trust in their banking sectors, Kriengkrai said.

People spend less when their confidence is low, and this will eventually reduce consumption, which will reduce demand for Thai exports, he explained.

The FTI previously forecast that export growth this year would be about -1% to 0%. If the banking problems in the United States and Europe last longer than one or two months, Thai exports will most likely shrink further.

(from left) Kobsak Duangdee, Kriengkrai Thiennukul and Saroj Chayavivatkul

Kriengkrai said that he sees the situation as a precursor to a new crisis.

The root of the banking problems is the US Federal Reserve's policy of continuously raising interest rates over the last 12 months to bring down inflation, he said. This raised the cost of investment significantly, he explained.

"We must keep an eye on the Fed's decision on whether or not to continue raising interest rates, which will ultimately make weaker groups more vulnerable. Concerning Credit Suisse, we must watch to see if this has a knock-on effect on other European banks," Kriengkrai said.

Pipat Leungnaruemitchai, chief economist and deputy head of research at Kiatnakin Phatra Securities agreed that the banking problems in the US and Europe will not have a significant impact on the Thai banking sector.

The effect would be limited to those who are exposed to the banks, Pipat said.

Moreover, targeted measures to help depositors at the two US banks as well as liquidity support for Credit Suisse should be enough to calm the market down, he said.

Concerning the Fed's decision, Pipat said that the bank failures will not deter the Fed from raising interest rates further.

The Fed may have more issues to deal with, but its top priority is to keep inflation under control.

He then mentioned the most recent crisis in 2008, when the Fed decided to suspend rate hikes due to an economic recession, which exacerbated the crisis. Those lessons taught the Fed to be tough and stubborn with inflation until it stayed at the 2% Fed target, he said.

The comments were made after intense media focus on the failure of Silicon Valley Bank, the 16th largest bank in the United States, caused many to worry about a repeat of the subprime crisis that occurred in 2008 when Lehman Brothers went bankrupt.

A few days later media attention shifted to Credit Suisse, after the giant investment bank ran into a liquidity crisis and was forced to seek assistance from the Swiss National Bank. This raised more fear that the banking sectors in the US and Europe are weak.