VZCZCXRO9253
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2885/01 2671016
ZNR UUUUU ZZH
P 231016Z SEP 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4445
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 5660
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
UNCLAS SECTION 01 OF 02 BANGKOK 002885
STATE FOR EAP/MLS AND EB
STATE PASS TO USTR
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA
SINGAPORE FOR FINATT BAKER
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: Financial Turmoil: Limited Impact on Thailand
BANGKOK 00002885 001.2 OF 002
Sensitive But Unclassified. For Official Use Only.
REFS: A) BANGKOK 2782 B) BANGKOK 2810
1. (SBU) Summary: The financial turmoil in the United States has
had a limited impact on the Thai economy, most notably on share
prices in the Thai stock market. The Thai banking sector's exposure
to Lehman Brothers was not significant and thus its solvency is not
in question. AIG (through AIA) is the largest life insurer in
Thailand, thereby making the USG loan facility welcome news
throughout the business and financial community. Newly-confirmed
Prime Minister Somchai (and others) made early efforts to calm Thais
about the state of the economy. While the banking and insurance
sectors remain on solid ground, the turmoil's impact on the export
and tourism sectors may drag down GDP growth, just as the domestic
political uncertainty continues to do. As such, continued USG
efforts to address the crisis would be well received. End Summary.
2. (SBU) The turmoil in the U.S. financial system has taken a
limited yet predictable toll on the Thai economy, particularly in
the moribund stock market. Share prices had already been falling
over the past year, in large part due to domestic political
uncertainty (ref a) The U.S. financial turmoil has exacerbated that
trend. The Stock Exchange of Thailand (SET) Index, which had been
valued at approximately 900 points about a year ago and 680 at the
end of August, has been valued at between 600 and 625 points since
September 16 (as of September 23, the SET Index is down almost 10
percent over one month, approximately 20 percent over three months,
and 28 percent over one year). Continued uncertainty in the U.S.
market will not alleviate this negative trend.
3. (SBU) News of the collapse of Lehman Brothers and buyout of
Merrill Lynch dominated the business headlines of Thailand's leading
newspapers the week of September 15. Newly-confirmed Prime Minister
Somchai (ref b) responded promptly, telling the press on September
17 that he would address the financial turmoil in consultation with
the Bank of Thailand. Nevertheless, in a series of meetings since
September 16, financial industry and business leaders, as well as
RTG economic experts, have noted that despite fearful headlines,
there should be limited fallout in Thailand from the U.S. financial
turmoil.
Insulated Banks Feel Limited Impact of Lehman Collapse
--------------------------------------------- ---------
4. (SBU) Lehman Brothers held approximately $1.5 billion in assets
in Thailand, $1.2 billion invested in property and $300 million in
lending. While property agencies believe Lehman's property assets
in Thailand will drop between 20 percent and 30 percent in value,
similar assets in Thailand should not be affected as demand for
property is growing (especially for residential homes, office
buildings, retail and hotels).
5. (SBU) More importantly, the exposure of Thai banks to Lehman
Brothers was not significant. Bangkok Bank had the most exposure
with approximately $102 million in Lehman debt, an amount equal to 2
percent of its equity. According to a foreign investment bank, the
three other Thai banks holding Lehman debt are TISCO Bank with $38
million (11 percent of equity), Siam City Bank with $29 million (3
percent of equity) and Kasikorn Bank with $9 million (less than 1
percent of equity). As such, the Bank of Thailand (BOT) and
financial industry leaders state the impact of the Lehman collapse
will be limited. They are quick to point out the solvency of Thai
banks is not in question, only their 2008 profit forecasts. Along
those lines, Bangkok Bank's executive vice president explained to
the press that while the bank's profits may be down, it will not be
enough to create a net loss given profits from other operations.
6. (SBU) Other officials explained that Thai banks are, in general,
relatively insulated from the global market. The head of the Thai
Banking Association noted that the 17 foreign banks in Thailand own
only about 10 percent of market shares. In terms of exposure to
foreign debt securities, Bangkok Bank appears to be the most exposed
with 14 percent of its equity in foreign debt, of which only 40
percent are in government debt. While other banks also hold foreign
securities, most of this debt is in the form of safer government
bonds.
Welcome Response to USG Loan Facility for AIG (AIA)
--------------------------------------------- -----
7. (SBU) American International Assurance (AIA) is the largest life
insurer in Thailand with combined assets of over $11 billion and $8
BANGKOK 00002885 002.2 OF 002
billion in reserve capital. (Note: AIA's assets in Thailand
reportedly amount to just over one percent of AIG's total assets.
End note). It holds a market share of more than 50 percent, with
approximately 4.8 million policies in force.
8. (SBU) Given the importance of AIA in Thailand, business and
finance leaders roundly welcomed the USG's loan facility to AIG.
Many, including the managing director of a foreign bank in Thailand
and the president of an asset management company, pointed out that
the loan facility had a direct positive impact in Thailand. The
move shored up general investor confidence (as evidenced by a brief
up-tick in the Thai stock exchange) and, at least temporarily,
calmed the mood in the local business and financial community. Some
opined that despite the cost to American taxpayers, the absence of
action by the USG could have been disastrous.
9. (SBU) Other RTG officials, in an effort to calm Thai citizens
concerned about their insured assets prior to the news of the USG
loan facility, noted in the press that Thailand's strict regulation
of the insurance industry helped to insulate the industry from
external shocks. As an example, the Secretary of Thailand's Office
of the Insurance Commission (OIC) affirmed that Thai law allows the
OIC to order firms to increase their capital base, suspend new
policy underwriting, and maintain a major portion of investment
assets in the country.
Still Cause for Concern
-----------------------
10. (SBU) With the banking and insurance sectors on solid ground,
concern regarding the financial turmoil is centered on the impact
that a continued downturn in the U.S economy will have on Thailand.
Specifically, most worry that decreased consumer demand in the
United States, and elsewhere abroad, will translate into fewer Thai
exports and a general business slowdown, particularly in the tourism
sector. Coupled with Thailand's prolonged political instability
(ref a), many expect Thailand's GDP growth rate for the year to be
revised downward. Others note that the turmoil in the United States
has yet to subside and are therefore concerned about a possible
tightening of the global credit market.
11. (SBU) Comment: The USG response to the financial turmoil has
thus far had a positive impact on the health of the Thai economy.
Continued USG efforts to address the crisis, to include the planned
$700 billion comprehensive package to assist the financial industry,
should also have a similar effect, helping to shore up general
economic confidence and reinvigorate the Thai export and tourism
sectors. Ten years after the Asian financial crisis, many Thais
remain quick to claim the USG should have done more to assist them
at that time. While Thailand today remains focused inward on its
unstable political situation, Thais would welcome continued USG
efforts to improve the U.S. economy, such as a robust bailout
package for the financial sector. End comment.