The Bank of Thailand marked a red bottom line on its balance sheet for last year due to massive appreciation of the baht, causing a net loss for the second year in a row.

The BOT recorded an unrealised loss of about Bt300 billion from the valuation of international reserves worth US$60 billion (Bt2.1 trillion) because of the five-baht-per-dollar appreciation: from Bt41 at the beginning of the year to Bt36 at the end of 2006. However, interest income helped lower the loss to below Bt300 billion.

The central bank did not provide exact loss figures.

Deputy governor Atchana Waiquamdee yesterday said the bank could not avoid the loss, as the baht had been stronger than other regional currencies. It appreciated by 17 per cent last year, while the BOT could not seek a very high return from holding international reserves to compensate for the loss of foreign exchange.

Under the law governing the central bank, the BOT is allowed to invest only in secured government bonds issued by certain developed countries like the United States. The low-risk bonds offer low returns for holders compared to other securities.

Atchana said the BOT obtained about 7 per cent of return from its investment portfolio, mostly consisting of dollars, while interest expenses were averaged 5 per cent from issuing bonds to sterilise liquidity in the economy. Although the central bank received a 2-per-cent margin in dollar terms, it took a loss when the margin was converted into baht.

"If we had not intervened in the baht, had not bought the dollar, the baht would have continuously appreciated to an unknown level," said the deputy governor.

Last year, the BOT actively intervened in the foreign-exchange market by buying the greenback, causing baht liquidity to flood into the system. As a result, the central bank has to issue bonds to neutralise or absorb the liquidity back to an appropriate level. This caused the BOT to carry an interest burden for paying its bondholders.

As of February 9, international reserves were recorded at $66.7 billion with a forward position of $8.3 billion.

Atchana said the central bank's loss could not be compared with the losses made by private companies because, unlike them, the BOT could not undertake any hedging. The net loss was an inevitable result of the appreciating baht rather than bad performance on the part of the bank, she added.

The high level of reserves, however, strengthened the Kingdom's external economic stability, indicating a highly valued currency and a good economy.

"A private company's loss means that its performance became weak, but the central bank's loss is due to the strong baht," said Atchana.

A source from the BOT board of directors said the net loss would reduce the central bank's ability to contribute its 90 per cent of profit to the Finance Ministry.

This also brings about an impact on the bank's ability to pay principal for holders of government bonds, which have been issued to compensate the Bt1.4-trillion loss accumulated by the Financial Institutions Development Fund.

In 2005, the BOT posted a net loss of Bt1.74 billion due mainly to an interest burden of Bt26.7 billion and a forex loss of Bt7.9 billion. It received interest income of Bt36.8 billion.

The central bank's balance sheet recorded a net profit of Bt20.8 billion in 2004.

Anoma Srisukkasem

The Nation