This represents 3-4 per cent of both banks' free-float stock on the bourse.

The sale will be a gradual process to avoid any adverse impact on the stock market.

The move is in line with the fund's plan to privatise three state-owned banks, KTB, SCIB and BankThai (BT), at the same time encouraging them to run as efficiently as other private banks. The fund is expected sell all its shares in the three banks before it closes down within the next few years.

Currently, it owns 56.41 per cent of KTB, 47.58 per cent of SCIB and 48.98 per cent of BT.

The FIDF, which is the central bank's rescue fund, is due to close because the Deposit Insurance Agency will soon be established. However, the new agency will not offer a blanket deposit guarantee such as that provided by the FIDF.

The fund is to sell KTB and SCIB shares first. BT shares will follow later, when the FIDF has negotiated a loss/gain sharing contact with the bank, Phairoj said.

 BT was established by a merger of the now-defunct Union Bank of Bangkok and 11 finance firms in the wake of the 1997 financial crisis. Under a new management team, it was hired by the FIDF to manage bad loans from the merged financial institutions under a loss/gain sharing agreement.

 "The prices must be reasonable," Phairoj said, referring to the share sales. "They must compare with their book values and share prices of other private banks of the same size. We want as high a price as possible."

He said the fund could not unload the banks' shares at present. Although the stock prices are higher than they were a few years ago, they are still too low.

On Tuesday the board of the FIDF approved the sale of part of the fund's shares in the banks and instructed staff to unload them on the stock market gradually, to ensure there is no significant effect on market prices. The board will sell additional shares in the banks after the first sale is successful.

"This small lot [300 million KTB shares and 100 million SCIB shares] is aimed to test the market," Phairoj said. "We want to know whether the sale will have a big impact on the market and whether investors are interested in the stakes."

The board has a clear policy of not selling its stakes to foreign banks or specific investors. Earlier, Bank of Thailand Governor MR Pridiyathorn Devakula said he would not allow foreign investors to buy the shares offered by the fund as he wanted the three banks to remain Thai.

The share sales will help reduce the FIDF's burden, the agency having laid out about Bt1.4 trillion as a rescue fund. It will also reduce the government's payments of interest on bonds, since the central bank and the government agreed to take responsibility for the fund's burden by issuing bonds. The former meets principal repayments, and the latter pays for interest.

Anoma Srisukkasem

The Nation