Two key committees have called for the regulator overseeing thrift and credit cooperatives to speed up tightening prudential regulations.
Deposits at such cooperatives remain high and institutions are still increasing investment in risky assets, say the Bank of Thailand’s Monetary Policy Committee (MPC) and the Financial Institutions Policy Committee (FIPC).
People’s search-for-yield behaviour through thrift and credit cooperatives continues, though these institutions’ deposit growth has slowed somewhat, according to the summary conclusion of a joint meeting of the MPC and the FIPC.
Further tightening of the regulations will help thrift and credit cooperatives incorporate risk-management systems and good corporate governance, the committees said.
The Agriculture and Cooperatives Ministry is responsible for regulating all types of cooperatives, including thrift and credit cooperatives.
The ministry reports that as of Jan 1, 2015 there were 8,173 registered cooperatives in the country, 7,165 of which being operational.
There are 1,412 thrift and credit cooperatives registered, with 1,387 in operation.
After a string of reports on embezzlement at some thrift and credit cooperatives, concerns about supervising these institutions have surged.
Cooperatives draw huge numbers of depositors, as they offer better returns than banks.
The Klongchan Credit Union Cooperative is reportedly involved in a 13-billion-baht embezzlement scandal.
The Khehasathan Noppakao Ruamjai Cooperative was ordered closed after a sum of 5.5 billion baht went missing from its accounts.
The Chulalongkorn University Savings Cooperative is estimated to have lost 1.4 billion baht from fraud.
Moreover, search-for-yield behaviour, which leads to underpricing of risks, has been spotted at foreign investment funds (FIFs), the committees said.
Even though most FIF assets have been allocated among investment-grade countries, they are highly concentrated in a handful of nations.
Search-for-yield behaviour amid the extended low-interest climate is the central bank’s primary area of concern, of which it has repeatedly warned consumers.
The committees said risks to financial stability have lowered since they last convened.
Even though stronger economic growth is ameliorating the overall business sector’s financial status, the debt-servicing ability of small and medium-sized enterprises (SMEs) and households and real estate gluts in some areas warrant monitoring, the committees said.
The deterioration of debt-repayment ability of some business sectors and SMEs was attributed to their diminished competitiveness because of changes in sectoral structures.
Worldwide economies have continuously bounded back, improving the financial position of large corporations and affording commercial banks and insurers higher capital buffers.
Thailand’s external stability is also solid, as witnessed by high foreign exchange reserves, low foreign-denominated debt and a current account surplus, the committees said, adding that Thai financial system is capable of handling the risks that could manifest from uncertainties in overseas economies and financial markets.
The joint meeting also said that a glut in condos, office buildings and retail space has been detected in certain areas and is expected to rise further because of a series of imminent launches in mixed-use property projects.
In the forthcoming period, the Thai financial system still faces risks from monetary policy implemented by major economies, China’s financial stability, geopolitical risks and the uneven distribution of economic recovery, the committees said.
The joint meeting agreed to oversee some risks that could create fragility for financial stability, particularly in the debt-servicing ability of SMEs and low-income earners, search-for-yield behaviour and leftover property in some areas.