Thai weathers storm as run on deposits eases

Thai weathers storm as run on deposits eases

BANGKOK (Reuter): Thailand appeared yesterday to be weathering its financial storm with a run on deposits at troubled finance firms slowing and the IMF expressing confidence in Thai authorities' handling of the economy.

Financial markets steadied after a week of turmoil marked by nervous customer withdrawals of billions of baht from finance companies, and analysts applauded harsh measures to rescue the ailing finance sector, saying they would help in the long term.

"The market seems to have calmed down and investors have come to realize that the measures imposed by the Bank of Thailand will eventually strengthen the sector," a central bank official told Reuters.

A run on deposits this week from the troubled finance firms slowed to about 3.5 billion baht in withdrawals on Thursday compared with a total of 15 billion baht cleared on Tuesday and Wednesday, he said.

The stock market broke for lunch up 5.15 points at 681.80 after falling almost five percent just this week on the news, brokers said. The baht firmed to 25.940/945 against the dollar in the afternoon from 25.948/25.950 early on Friday.

The market also interpreted a statement by International Monetary Fund (IMF) managing director Michel Camdessus on Friday as a vote of confidence in Thai authorities' measures.

"I see them taking steps to address one of the vulnerabilities of the Thai economy...I am confident that the measures and the program for the future will have the potential to carry the economy back on track for sustainable growth," he said.

On Monday, Thai authorities shook up the finance sector by ordering 10 finance firms, hard-hit by a liquidity crunch, to raise capital by a total of 8.25 billion baht ($317 million).

They also told banks and finance companies to raise provisions for sub-standard loans, primarily to the depressed property sector, to 115 percent and 120 percent respectively from 100 percent.

Camdessus' reassurance was "a strong and encouraging statement", an executive at Hong-Kong based Peregrine Investment said.

"I agree that the Thai authorities did exactly what needed to be done. Now what the market is watching is when this measure will produce tangible results," said the executive who declined to be identified.

Analysts said the bitter pills prescribed to financial institutions by the Thai authorizes would be hard to swallow but had potential to cure the maladies affecting the sector.

"The measures, especially on the sub-standard assets will usher a long and painful adjustment period. But at the end, we think the authorities did the right thing," said Suphavudh Saicheau of Phatra Thanakit Plc, one of Thailand's biggest finance and securities firms.

Sub-standard assets are fully-collateralised loans on which the debtors fail to pay interest for between six-12 months.

"Many finance firms might see zero profit for this year and next. And those small companies who cannot meet the requirement will eventually be taken over, leading to a more solid and healthy sector," he said.

Problems in the finance sector stemmed mainly from finance company overexposure to poor quality loans, especially to depressed property sector.

The troubles were exacerbated by slow economic growth and a liquidity crunch caused by the Bank of Thailand's policy of maintaining high interest rates to deter speculation in the baht, which was hit by devaluation rumors last month.