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New BOT governor faces historic challenges as Thailand plots recovery path

EconJul 30. 2020Setthaput, an economist

By Wichit Chaitrong
The Nation
Analysis

Key challenges await incoming central bank governor Setthaput Suthiwart-Narueput as the country seeks a path to recovery from an unprecedented global crisis.

The Cabinet on Wednesday (July 29) approved the appointment of Setthaput, an economist, as the next Bank of Thailand (BOT) chief, taking over from Veerathai Santiprabhob whose five-year term expires at the end of September. Setthaput is also economic adviser to Prime Minister Prayut Chan-o-cha.

He will need no introduction to the scale of the task ahead; the Thai economy is reeling as millions are laid off and small and medium-sized businesses go under amid the Covid-19 fallout and flaws in implementing monetary and fiscal policies.

The central bank has already cut interest rates three times this year, to a historic low of 0.5 per cent. In April it launched a soft loan scheme worth Bt500 billion to help businesses survive the virus crisis.

However, a smaller-than-expected Bt100 billion worth of loans have so far been approved, while small and medium-sized businesses continue to shut in large numbers. The challenge to help workers and rescue businesses is thus a steep one.

Meanwhile, despite a sharp slowdown in exports and almost no foreign tourist revenue, the baht remains strong relative to regional currencies. The strong baht is inconsistent with weakening economic fundamentals and has hit Thai exporters and farmers, whose products are less competitive in the global market and earn less money due to the exchange rate.

Veteran economist and ex-finance minister Virabongsa Ramangkura is among many who have criticised the central bank and government for failing to halt the baht’s appreciation.

Next on Setthaput’s list of challenges will be financial stability. 

Most observers expect bad debts in the banking sector to increase significantly post-Covid 19. Veerathai has already asked banks to halt payment of interim dividends and stop share buy-backs, to ensure they have enough capital. The good news is that the financial system was far more solid before coronavirus hit than the shaky state of Thai banks ahead of the 1997 financial crisis.

However, if the Covid-19 outbreak persists, more problems will emerge. 

“One of the biggest challenges for the new central bank governor will be dealing with bad debt in the financial sector,” said Pipat Luengnaruemitchai, assistant managing director at Phatra Securities.

Monetary policy has been blamed for widening income equality as central banks around the globe inject massive liquidity into the market, driving up financial asset prices. In stark contrast, workers are losing their incomes to layoffs and furloughs as companies struggle for survival. The low interest rate is also hurting savers, especially the elderly whose income depends on bank savings.

The BOT forecasts the Thai economy will shrink 8.1 per cent this year while the International Monetary Fund projects the global economy will contract 4.9 per cent. A slower global recovery would also delay the Thai recovery. The BOT calculates it will take about two years for the Thai economy to return to its pre-pandemic level.

The central bank along with the Budget Bureau, Finance Ministry and National Economic and Social Development Council have a key role in formulating the annual budget. The challenge is how the new central bank governor can influence overall macro-economy policies.

Voters and outsiders have voiced growing dissatisfaction with Thailand’s economic management since the military coup in 2014. Among them is respected economist Virabongsa, who has slammed the current government for its lack of expertise in economic policies.

Finally, new governor Setthaput will face the “integrity challenge”. 

The post of BOT governor demands high moral standards which were set by Puey Ungphakorn during his 12-year term in 1960s. Puey is credited as the founder of Thailand’s modern economy. At a time when the military enjoyed huge influence in Thai politics, he used his deep knowledge of economics along with personal influence derived from strong integrity to limit military meddling in economic management and stop generals plundering both state-owned and private enterprises. Given that the military still has a strong hand in national budget allocation – judging from the rise in defence spending since the 2014 coup – it will be interesting to see how the new governor deals with the issue.

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SET dips as US govt squabbles over $1-trillion stimulus package

EconJul 29. 2020

By The Nation

The Stock Exchange of Thailand (SET) Index closed at 1,338.35 today (July 29), down 2.57 points or 0.19 per cent, while total transactions stood at Bt56.111 billion with an index high of 1,349.91 and a low of 1,337.03.

In the morning session, a stock analyst with Krungsri Securities said he expected the index to fall to between 1,325 and 1,330 points before rebounding due to the conflicts between the US Democrats and Republicans over the US$1-trillion economic stimulus.

“Uncertainty over the rising number of new Covid-19 cases in the US – which rose by 60,000 in just one day – will pressure investment,” he said. “However, the index will rebound from mass purchases of stocks whose second-quarter performance is expected to improve.”

The analyst also advised investors to monitor the US Federal Open Market Committee meeting today and tomorrow to see if it will maintain the interest rate at 0 to 0.25 per cent.

The top 10 stocks with the highest trade value today were KBANK, KCE, GULF, CBG, CPALL, IVL, OSP, STGT, BBL, and AOT.

As of 4.30pm, the price of crude oil rose by $0.43 or 1.05 per cent to $41.47 per barrel, while gold rose by $7.50 or 0.39 per cent, to $1,952.10 per ounce.

Other Asian indices were mixed:

Japan’s Nikkei Index closed at 22,397.11, down 260.27 points, or 1.15 per cent.

China’s Shanghai SE Composite Index closed at 3,294.55, up 66.59 points, or 2.06 per cent, while Shenzhen SE Component Index closed at 13,557.44, up 410.09 points, or 3.12 per cent.

Hong Kong’s Hang Seng Index closed at 24,883.14, up 110.38 points, or 0.45 per cent.

South Korea’s KOSPI Index closed at 2,263.16, up 6.17 points, or 0.27 per cent.

Taiwan’s TAIEX Index closed at 12,540.97, down 45.76 points, or 0.36 per cent.

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Price of electronic shares skyrocket in morning trade

EconJul 29. 2020

By The Nation

The price of electronic shares surged by 8 per cent this morning (July 29) in response to strong second-quarter performance by Delta Electronics (Thailand).

The price of Delta’s shares rose by 11 per cent, KCE Electronics 8 per cent, Hana Microelectronics 5 per cent and SVI 5 per cent.

Delta, in its second-quarter performance announcement on July 24, said the company’s net profit was Bt2 billion, up 130 per cent year on year as its operating costs dropped by 4.2 per cent while sales increased by 3.5 per cent.

A stock analyst at UOB Kay Hian Securities said Delta’s gross profit margin was 27 per cent, better than the expected 22.

“We expect Delta’s gross profit margin to increase further in the second half of this year, so we increased the company’s profit forecast this year and next year to 61 per cent and 45 per cent, respectively,” the analyst said.

“Also, we advise investors to buy this stock at Bt124 per share.”

The analyst added that the strong performance in electronic stocks helped boost the Stock Exchange of Thailand Index in morning trade.