The Current Housing Finance Situation in Thailand

In the wake of the Asian financial crisis in 1997, Thailand embarked on a comprehensive financial sector restructuring effort to restore stability and confidence in its economy. This period saw the establishment of several new organizations aimed at addressing the weaknesses exposed by the crisis and laying the groundwork for a more resilient financial system. One of the key areas of focus was housing finance, which plays a crucial role in mobilizing household savings and providing residential mortgages. This article will explore the various institutions and measures introduced as part of Thailand’s financial sector restructuring, with a particular emphasis on their impact on housing finance.

The Asian financial crisis of 1997 was a watershed moment for Thailand’s economy. The crisis was triggered by a combination of factors, including a persistent current account deficit, excessive foreign debt, a real estate bubble, and inefficiencies in the operations of financial institutions. The crisis led to a sharp depreciation of the Thai baht, a surge in non-performing loans (NPLs), and a severe contraction in economic activity. In response, the Thai government implemented a series of measures to stabilize the financial system and restore confidence among investors and the public.

One of the key institutions established in the aftermath of the crisis was the Financial Sector Restructuring Authority (FRA). The FRA was tasked with overseeing the restructuring of financial institutions, removing non-viable entities from the system, and dealing with impaired assets. Despite some initial delays, the FRA played a crucial role in boosting confidence in the financial sector and demonstrating the government’s commitment to reform. The FRA’s efforts included the establishment of an asset management company to act as a bidder of “last resort” for assets of closed finance companies. This helped to clean up the balance sheets of financial institutions and facilitated the sale of impaired assets.

In addition to the FRA, several other new institutions were set up as part of the financial sector restructuring effort. These included the Radasin (RAB), the Thai Asset Management Corporation (TAMC), and the Property Loan Management Organization (PLMO). Each of these organizations had a specific role to play in addressing the challenges posed by the crisis. For example, the TAMC was established to manage and dispose of non-performing assets, while the PLMO focused on managing and restructuring property-related loans. These institutions collectively contributed to the stabilization of the financial sector and the gradual recovery of the economy.

In 2003, the Thai government established the Islamic Bank of Thailand, further diversifying the financial landscape. This move was aimed at catering to the specific needs of the Muslim community and promoting financial inclusion. In addition, the Bank of Thailand (BOT) approved the establishment of 10 new commercial banks, some of which specialized in residential finance. One notable example was the new bank from the ‘Land and House Group of Companies,’ the largest developer in Thailand, which aimed to provide residential mortgages for its customers. This specialization in housing finance was a significant development, as it allowed for more targeted and efficient provision of mortgage services.

Overall, the Thai financial system is dominated by commercial banks, which have mobilized the greatest proportion of household savings and are the largest providers of residential mortgages. This dominance is a reflection of the central role that commercial banks play in the economy, both in terms of intermediating savings and providing credit for housing and other investments. The restructuring efforts following the crisis have further strengthened the position of commercial banks, enabling them to better manage risks and provide more stable and sustainable financing for the housing sector.

The financial sector restructuring effort in Thailand following the 1997 Asian financial crisis was a comprehensive and multifaceted approach aimed at addressing the underlying weaknesses in the financial system and restoring confidence. The establishment of new institutions such as the FRA, RAB, TAMC, and PLMO, along with the introduction of specialized banks and the Islamic Bank of Thailand, played a crucial role in this process. The focus on housing finance, in particular, has been instrumental in mobilizing household savings and providing residential mortgages, thereby supporting the recovery and stability of the economy.