State banks still await cash injection

Deputy Finance Minister Pruttichai Damrongrat yesterday said the Finance Ministry had not yet been able to allocate new capital to state-owned banks, as the government was waiting for approval of the decree, which would enable it raise funds.

As commercial banks have been reluctant to lend, the government has tried to push state-owned banks into taking a leading role by promising to increase their capital.

The government earlier announced a plan to inject a combined Bt14.9 billion into the Export-Import Bank of Thailand (Exim Bank), the Small and Medium Enterprise Development Bank of Thailand and the Small Business Credit Guarantee Corp. The amount forms part of the second stimulus package, worth B1.4 trillion.

The government wants to raise Bt400 billion from the domestic market in the first round of borrowing.

The plan, however, has been disrupted since the opposition Pheu Thai Party asked the Constitution Court to review the executive decree, arguing the government was trying to avoid scrutiny by Parliament by not providing details of what the money would be used for. The first hearing begins today.

Exim Bank president Apichai Boontherawara yesterday said if the government could inject another Bt5 billion, the bank could expand its lending and its export-credit guarantee business. The bank hopes to expand its export-credit insurance by up to Bt100 billion of export value, he said.

It has used Bt2.3 billion of its reserves earmarked for this business, while its export-credit insurance has totalled Bt12 billion.

He said demand for coverage from food exporters had expanded in such categories as tuna-canning, which was doing well amid the global recession.

Exim Bank yesterday expanded its credit-insurance services by signing a cooperation agreement with the Islamic Bank of Thailand (ibank).

Dheerasak Suwannayos, president of ibank, said customers exporting to South Africa and Sudan wanted to buy insurance from Exim Bank. The insurance covers losses incurred if importers fail to pay for their Thai orders.

Dheerasak said food exports to Africa and Eastern Europe showed promise, as new orders were coming in.

He said ibank also needed more capital from the government in order to expand its lending.

Meanwhile, Korn has had to cut short his vacation in London and fly back, in order to defend the executive decree today.

Officials said the minister would give the court details of the government's projects that were in urgent need of fresh funding. The government is seeking to steer the country towards a recovery, following economic growth in the first quarter contracting by 7.1 per cent year on year.

The projects in need of funding cover water-resource development, transportation, education, healthcare and investment in villages. Each sector needs Bt50 billion to Bt60 billion in the first round of investment. The combined cost is estimated to be between Bt230 billion and Bt280 billion.

The government hopes it can quickly raise Bt200 billion to finance these projects.

The Finance Ministry is confident the court will rule in favour of the government, enabling it to press ahead with public investment, which policy-makers believe is the most important factor that could turn the economy around.