BOT’s measures under fire for soft loan and bond proposals

The Bank of Thailand (BOT) is under fire as economists and past BOT officials, led by former chairman and former deputy prime minister Veerapong Ramangkun, file an open letter against their plans to provide direct soft loans and buy corporate bonds using a budget of 900 billion baht.

Veerapong once again repeated his allegations on Monday morning in an interview on MCOT HD.

As part of the government’s third economic relief package worth 1.9 trillion baht, the BOT will utilize an emergency decree to provide direct soft loans to SMEs with a budget of 500 billion baht.

The BOT will provide soft loans at 0.01 per cent interest rate per annum to financial institutions for two years. Financial institutions will then on-lend to SMEs at a concessional rate of 2 per cent per annum. Listed companies are ineligible for the scheme. The initial estimation is that around 1.7 million businesses will be eligible for the soft loan.

Another emergency decree that has been approved will allow the BOT to set up a Corporate Bond Liquidity Stabilization Fund (BSF) with a budget of 400 billion baht which will allow the central bank to buy private bonds with a credit rating no less than an investment grade.

The plan is to add more liquidity into the private bond market in order to help stabilize it amid volatilities in the global and Thai financial markets. At the same time, the central bank is also worrying about companies’ ability to roll over bonds that are reaching maturity when liquidity is drying up. 

Veerapong, along with other prominent names such as former deputy prime minister Olan Chaiprawat, Bangkok Life Assurance’s chairman of the board of directors Siri Ganjarerndee, and former finance minister Thirachai Phuvanatnaranubala had penned an open letter last week that the BOT should not be giving out direct soft loans as the measure could be done via state-owned banks and special financial institutions (SFIs). They reasoned that the central bank should stick to their principles and that the central bank should only be the government’s bank. They should only act as a lender of last resort for commercial banks.

The group said that the move to buy private bonds directly via the amendment of the law could lead to the central bank aiding some private companies without any transparency in the future. 

“The law allows the Bank of Thailand to use its discretion in helping some companies but not others based on credit ratings that are being given by credit rating companies,” they wrote. “If there is a lawsuit, the BOT will have to sue private companies and that will destroy the image and the credibility of the central bank.”

The group proposed that instead of changing the laws, the BOT should provide policies for government financial institutions to give out soft loans and buy up private bonds instead of doing it themselves since the current regulations and existing laws are already adequate.

Veerapong said on Monday that similar moves under the Sarit Thanarat government over half a century ago resulted in massive debts and problems for the country. It was a result of these moves that laws restricting what the BOT can or cannot do were passed. The laws existed to protect the country, he said.

“The rules are in place for a reason and if the BOT makes these moves, it places unnecessary pressure and complications on the government,” Veerapong said in his interview.

“It also exposes the bank to political pressure.”

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