Pridiyathorn said he had wanted these specialised banks to adopt international standards for a long time. They need to be supervised with higher standards as the Kingdom enters the Financial Sector Assess-ment Program (FSAP), a joint International Monetary Fund and World Bank effort to promote sound financial systems. The FSAP will be implemented next year.

At the beginning of 2007, FSAP representatives will probe the Thai banking sector - not only commercial banks but also specialised banks - to decide whether the country's banking system is up to international standards.

"I have waited for a long time to cover special financial institutions and when we enter under FSAP standards, we must tighten regulations rapidly," said the outgoing governor of the Bank of Thailand (BOT).

Currently, specialised banks consist of six banks and four companies, including the Government Savings Bank (GSB), the Government Housing Bank (GHB), and the Bank for Agriculture and Agricultural Cooperatives (BAAC).

Pridiyathorn said that tightening supervision over state-owned specialised banks would adversely affect their operating results and they will need to raise more capital if their non-performing loans NPLs shoot up under the international standards.

"They must face the truth," he said.

The Finance Ministry had earlier asked the BOT to secretly scrutinise specialised financial institutions under international standards. But, the ministry far has not adopted the higher standards of supervision over these outfits. For example, some specialised banks do not consider loans that have not been paid in three months as NPLs like commercial banks do.

State-owned specialised banks as government arms have for a long time been used to implement populist policies. They were widely criticised for providing credit to serve the Thaksin government's grassroots policies, which have resulted in a huge amount of bad loans.

Pridiyathorn said he would also push the new Cabinet to approves drafts of a financial institutions act and a Bank of Thailand act, after some senators objected to adding to the legislation amendments mandating a fixed-rate spread in the banking sector.

The outgoing governor said the Financial Institutions Development Fund would be shut down after 2011 because it had to wait for the Thai Asset Management Corporation to liquidate and close down in 2010.

The fund will also sell its majority stakes in three banks - Krung Thai Bank, Siam City Bank (SCIB), and BankThai (BT) - when market prices are reasonable enough.

 "The fund will sell them when the market is bullish enough. I believe it will be able to sell out. SCIB has higher capital than BT, so it has no need to find any new partner," Pridiyathorn said.

Meanwhile, he declined to disclose his successor at BOT because he has to wait for Royal endorsement. But he said that the candidate should have virtue and expertise both in monetary policy and financial institutions.

"In Thailand, financial regulation is still more important than monetary policy," he said.

Speculation has centred on Tarisa Wattanagase who has the highest seniority among three deputy governors, to become the next BOT governor.

Anoma Srisukkasem

The Nation