Foreign-ownership limits loom over bankthai sale

The intention of the FIDF is to fully privatise BankThai and to convert its share assets into cash. The FIDF has yet to liquidate its remaining assets in order to settle the account before being closed down, which will be due when the Deposit Insurance Institution is fully established.

I would like to congratulate the FIDF on the successful conclusion of the sale of all BankThai shares in one go at a price which is quite good, as compared to the current book value of BankThai. More importantly, this price of Bt2.1 is higher than the price of 2.08 billion shares that FIDF invested in January this year at an average price of Bt1.36 per share, resulting in a profit of Bt1.5 billion, and not in a loss as alleged by a certain group of ill-intentioned men.

However, at this very moment, the actual share transfer still has to wait until an all conditions precedent is fulfilled. Most of the conditions precedent are routine matters and should not face any obstacles. But there is one condition that needs special approval from the authority: permission must be granted to allow foreign ownership in BankThai of more than 25 per cent of total shares outstanding. The Financial Institution Act normally limits foreign shareholding in any Thai commercial bank to 25 per cent of total shares, except in case of necessity in which the finance minister is empowered to give a waiver to this limit, as mentioned in Clause 5 Benja of the Financial Institution Act which states:  "Shares of a Thai commercial bank must be held by Thai nationals, at least three-fourth of the total shares issued, and the number of directors of Thai nationality must not be less than three quarters of the total number of directors. In case that it is necessary to improve the condition or the operation of any commercial bank, the minister of finance, at the recommendation of the Bank of Thailand, is empowered to allow for the change of the proportion of shares and the proportion of directors, mentioned in this clause. In such allowance, additional conditions can also be set."

From 1998 up to the present day, finance ministers have already exercised the power provided by this clause to allow foreign ownership beyond 25 per cent for four Thai banks, which helped in improving the financial condition of those banks. The banking system, which was very weak in 1998, has improved and strengthened considerably. Medium- and small-sized banks in which foreign institutions have become core shareholders have recovered very fast and these foreign shareholders have not repatriated the profit back to their countries, but kept it here to support the growth of their business in Thailand. The search for a proper core partner for BankThai is a continuation of what was previously implemented and should contribute to the stronger banking system.

The allowance of foreign ownership in BankThai beyond 25 per cent is a necessary condition that needs approval from the finance minister. His statement to the media, after the FIDF announced the conclusion of this deal - "I am not responsible for this sale of BankThai shares" - raised concerns that the minister may not cooperate in granting this foreign ownership waiver.

I would like the Finance Minister to carefully consider this issue. This action of the FIDF was undertaken with the good intentions to fully privatise the bank, which would ensure the improvement of the bank's efficiency and relieve the FIDF of the burden of taking care of weak commercial banks. The FIDF has been in the process of securing a core partner for BankThai for many months. Actions were undertaken openly every step of the way and involved both domestic as well as foreign private financial institutions. There are three representatives of the Finance Ministry on the FIDF board who have agreed with every single process of this sale and the whole process has been conducted during the tenure of the present finance minister. After the conclusion of the deal, CIMB would not be expecting the foreign ownership rule to pose an obstacle since it is in the power of the governor of the Bank of Thailand and the finance minister to grant a waiver, and both of them have been aware of this deal all along.

In the past, it has not been unusual for the finance minister to exercise his power under this clause to allow for over 25 per cent foreign ownership when it is needed to attract foreign financial institutions for solving financial problems of some Thai banks. This time round we need to improve the financial condition of BankThai. If it happens that this foreign ownership restriction is not waived, even though CIMB has offered an attractive price and gone through the bidding process properly, it could not only affect the confidence of this bidder but also foreign investors at large.

Mr Minister! You are a person of good political potential. Acknowledging the good efforts of your colleagues and being broad-minded will help you gain more recognition and more support which will benefit you in your future career.