Finally, canonical banking regulation – in accordance with the Basle I and II framework – was
implemented in several steps. It may be worthwhile to remember that Thailand had formally
adopted the Basle I regulations already in 1993, i.e. before the outbreak of the Asian crisis. A
positive consequence of this adoption was for example – in contrast to public perception – that
Thai banks did not take high currency risks. However, the adoption was to some extent rather
perverse as the less diversified finance companies were allowed to operate with a lower capital
adequacy ratio than regular banks. Most important, implementation was weak as loan
classification did not fulfill international standards. In consequence, too few loans were
recognized (and classified) as non-performing which was no problem as long as banks and their
customers could ‘‘grow out’’ of their problems. When, however, effectively non-performing
loans could not be easily extended and expanded in the less advantageous macroeconomic
environment of the years 1996/1997, the effective mis-classification turned into a massive
problem. It follows from this experience that the authorities already started in 1997 to correct the
overly generous classification of problematic loans. It took until 2002, however, to bring
classification rules in Thailand to the international level.
Finally, canonical banking regulation – in accordance with the Basle I and II framework – wasimplemented in several steps. It may be worthwhile to remember that Thailand had formallyadopted the Basle I regulations already in 1993, i.e. before the outbreak of the Asian crisis. Apositive consequence of this adoption was for example – in contrast to public perception – thatThai banks did not take high currency risks. However, the adoption was to some extent ratherperverse as the less diversified finance companies were allowed to operate with a lower capitaladequacy ratio than regular banks. Most important, implementation was weak as loanclassification did not fulfill international standards. In consequence, too few loans wererecognized (and classified) as non-performing which was no problem as long as banks and theircustomers could ‘‘grow out’’ of their problems. When, however, effectively non-performingloans could not be easily extended and expanded in the less advantageous macroeconomicenvironment of the years 1996/1997, the effective mis-classification turned into a massiveproblem. It follows from this experience that the authorities already started in 1997 to correct theoverly generous classification of problematic loans. It took until 2002, however, to bringclassification rules in Thailand to the international level.
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