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BOT to allow banks limited involvement in property joint ventures

Saturday, 09 August 2008

The Nation August 4, 2008 The Bank of Thailand (BOT) will allow commercial banks to cooperate with property developers in setting up joint ventures, to develop any remaining non-performing assets (NPAs). The relaxation in regulations will enable the banks to unload their NPAs, currently amounting to about Bt300 billion, from their balance sheets more easily, thus helping reduce non-performing loans (NPLs) to the central bank's target of 2-3 per cent of total loans by 2013. Financial Institutions Policy Group director Somboon Chitphentom said the bank of Thailand (BOT) would restrict the banks' stakes in the joint ventures to less than 50 per cent. It wants to prevent them from concentrating too much on the property sector. The joint ventures will be permitted to operate only unfinished building developments like single-detached houses. They will be prohibited from developing any new land-bank projects, because that would cause banks to become too involved in real estate. "This model is like South Korea's. The relaxation will not help reduce NPLs rapidly, but rather will pave the way for the banks to have another channel for selling off the assets," he said. Somboon said the developers possessed expertise in property development that the banks did not. The developers can control costs and handle marketing efficiently, while the banks have assets that need to be developed. "We're matching the strengths of the two entities and hoping the developed NPAs can be sold," he said. At present, the BOT allows asset-management companies to coordinate fully with developers in improving asset quality, but only a few banks own asset-management companies. If the jointly developed projects ask for loans, the banks will be required to consider the requests in accordance with their standard criteria. No special consideration will be permitted. Somboon said the limited investment, lending and duration of NPA development would curb the banks' risk. The balance sheets of the joint ventures will not be consolidated with those of the banks, because the banks must own less than half of any joint venture. In addition, the BOT will push forward an amendment to the Credit Bureau Act requiring creditors to supply further information to the National Credit Bureau (NCB), including the financial background of guarantors, guaranteed assets and data in fraudulent loans. The additional information will strengthen creditors' efficiency in lending. The NCB will also be authorised to do credit scoring in a bid to enable itself to determine debtors' risk appropriately and creditably. Somboon said the central bank would also encourage speeding up the legal process for asset foreclosure.

 

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