BOT ready to pump Bt1 trillion into ailing financial markets

[webfact]

BOT ready to pump Bt1 trillion into ailing financial markets

By Wichit Chaitrong
The Nation

 

Central bank Governor Veerathai Santiprabhob, third from left, senior officials from the Ministry of Finance and representatives from the financial market hold an emergency press conference on Sunday (March 22) to announce a plan to inject liquidity of over Bt1 trillion into the bond market, which is hit by tight liquidity as a result of virus fears.

 

The Bank of Thailand (BOT) has pledged to inject over Bt1 trillion to rescue the financial markets while the Ministry of Finance promised extra economic relief to support people affected by the Covid-19 fallout.

 

The BOT will allow banks to borrow money from it should investors make panic sales of investment units in bond mutual funds, BOT Governor Veerathai Santiprabhob said on Sunday.

 

Veerathai, senior officials from the Finance Ministry and representatives from financial markets held an emergency press conference on Sunday (March 22) to announce measures to support the bond market, which is suffering from a potential liquidity crunch as investors want to hold cash amid the uncertainty fuelled by the virus fears. 

 

Virathai said that commercial banks could use investment grade bonds as collateral for borrowing money from the central bank’s lending facility, worth over Bt1 trillion.

 

Investment in money market funds and daily fixed-income funds is estimated to be over Bt1.6 trillion while the market liquidity has become thin as investors worry about the severe impact of the Covid-19 outbreak.

 

Banks that also own investment management companies, managing mutual funds, are ready to buy investment units from their subsidiaries when investors sell investment units back to the fund managers, Predee Daochai, president of the Thai Bankers’ Association said.

 

Veerathai said the central bank will coordinate with commercial banks, Government Savings Bank, insurance companies and Government Pension Fund to create a bridging fund of between Bt70 to Bt100 billion.

 

The bridging fund will provide short-term lending for up to 270 days for those companies that had previously issued corporate bonds and could not adequately redeem it when the bonds reached maturity. Usually, bond issuers do not find a problem as they roll-over their bonds when corporate bonds reach maturity, but the current market has become thin, due to virus fears, said Veerathai. The bridging fund will top up when insurers cannot fully raise money in the financial market to meet their obligations.

 

Veerathai also promised to provide more liquidity in the government bonds market after the central bank recently purchased Bt100 billion worth of government bonds.

 

Prasong Poontaneat, permanent secretary of the Finance Ministry, said the ministry will on Tuesday submit to the Cabinet another economic package to support people and labour affected by the impact of the coronavirus outbreak. He did not reveal details but said that Social Security will support those who lose their jobs while the ministry will provide support to those who are not members of the Social Security Fund.

 

The secretary-general of the Securities and Exchange Commission, Ruenvadee Suwanmongkol, promised new measures to support the stock market affected by investors selling-off shares. Restrictions on treasury stocks, or buying back stocks, would be eased in order to allow corporates, or executives of companies to buy back stocks more easily. Currently they have to wait for one year after the first buyback takes place, she added.

 

Veerathai assured the markets that Thailand has plenty of liquidity due to high international reserves, banks having adequate capital and corporates having lower foreign debt. “This situation is different from the Asian financial crisis of 1997 when the country ran out of reserves, banks did not have enough capital and corporates had high foreign debt, but this time, international reserves are high, and banks have a solid capital base,” Veerathai added.

 

Below is the joint statement issued on Sunday on the Thai financial market’s response to the Covid-19 situation:

 

"The recent development of the Covid-19 situation has led to turbulence in financial markets and sales of assets across the world. This has affected liquidity and functioning of the financial market, and regulators in many countries have issued several measures to stabilise the financial markets.

 

"Even though the Thai financial system remains strong, with commercial banks holding healthy levels of capital and liquidity reserves, the liquidity stress and the resulting irregularity in the global financial market have begun to affect the Thai financial market. The Bank of Thailand (BOT) alleviated the situation through a government bond purchase programme of more than Bt100 billion from March 13-20, and the reduction and cancellation of BOT bond issuance, while the Monetary Policy Committee has reduced the policy rate to the record-low level of 0.75 per cent per year on March 20. "The BOT stands ready to make additional purchases of government bonds to lower the volatility of the government bond yield and ensure the normal functioning of the government bond market.

 

"Nonetheless, the highly volatile environment has led some investors to redeem their investment units from bond mutual funds. This has forced some bond mutual funds to liquidate their bond holdings — most of which are high-quality — at prices below fair value, impacting the funds’ value. This rapid decrease in the funds’ value might lead to further selloff of other mutual funds and result in the disruption of the bond markets, mutual funds, and eventually the overall financial markets and economy at large.

 

"The Ministry of Finance, the Securities and Exchange Commission, and the Bank of Thailand have been closely monitoring the situation in the financial market, and deem it necessary to take the following measures to stabilise the financial market and stop the liquidity problem from spreading further:

 

"Bond mutual funds: The BOT has set up a special facility to provide liquidity for mutual funds through commercial banks. Commercial banks that purchase investment units of high-quality money market funds or daily fixed income funds, which are impacted by the decreased market liquidity, will be able to use the underlying unit trust as collateral for liquidity support from this special facility. The facility will remain open until the market condition returns to normal. The BOT’s preliminary estimate of eligible bond mutual funds is approximately Bt1 trillion.

 

"Corporate bonds: The Thai Bankers’ Association, the Government Savings Bank, Thai insurance providers, and the Government Pension Fund have together set up a Bt70 billion to Bt100 billion Corporate Bond Stabilisation Fund to invest in high-quality, newly issued bonds by corporates that cannot fully roll over maturing corporate bonds.

 

"Government bonds: The BOT will continue to provide liquidity to the government bond market through bond purchasing to ensure the government bond market continues to function normally.

 

"These measures are expected to provide liquidity and help the normal functioning of the financial market and help build investors’ confidence.

 

Relevant public and private institutions will continue to work together, monitor the situation, and provide additional measures to ensure the normal and efficient functioning of the financial market.

 

"As the current stress period is the result of the temporary liquidity shortage while bond mutual funds still hold low-risk, good-quality assets, they urged the public not to rush to redeem during this period of market abnormality. Doing so might result in prices that are significantly below fair value."

 

Source: https://www.nationthailand.com/business/30384623

 

-- © Copyright The Nation Thailand 2020-03-23

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[champers]

Nice to see a passing mention about the have nots in society who have been woefully overlooked so far. More businesses will close on a daily basis; people who live a hand to mouth existence are in urgent need of help.

[Grumpy John]

With US$220 billion in foreign reserves I think the government should be offering more help to regular people....as well as making an effort to stabilise the bond market.

[colinneil]

Why not pump all that money into helping people survive this crisis?

Once again its all about money, money markets, not the benefit of the people.

[Topdoc]

Global debt is currently around $250 trillion and global bank capital is currently only about $10 trillion.

If the coming defaults, caused by the virus reaction, trigger a mere 4% loss in total debt, it will exceed the entirety of global bank capital.

 

Liquidity problem?

[ParkerN]

3 hours ago, webfact said:

Central bank Governor Veerathai Santiprabhob, third from left, senior officials from the Ministry of Finance and representatives from the financial market hold an emergency press conference on Sunday (March 22) to announce a plan to inject liquidity of over Bt1 trillion into the bond market, which is hit by tight liquidity as a result of virus fears.

 

Talking about it is much better than simply getting on and doing it. Everyone knows that. These people have to have their 10 minutes in the sun. Everyone got their microphones ready? Right, off we go!.

 

It's circus time...

 

 

 

 

 

[ParkerN]

3 hours ago, champers said:

Nice to see a passing mention about the have nots in society who have been woefully overlooked so far. More businesses will close on a daily basis; people who live a hand to mouth existence are in urgent need of help.

And are getting the usual crumbs from a government whose objectives are to look after an altogether different group of people.

 

 

[saengd]

7 minutes ago, colinneil said:

Why not pump all that money into helping people survive this crisis?

Once again its all about money, money markets, not the benefit of the people.

Perhaps if you understood what a liquidity crisis in the bond market really is and what it means you might change your tune:

 

Investors, governments , companies and individuals buy bonds, particularly government bonds, because they are considered safe plus they pay an income for many years. In a bond liquidity crisis the number of buyers of those bonds starts to dry up, that usually means those investors who try to sell and who want to hold cash (which is less risky) aren't able to, or, because business is bad and they need the money to pay their bills. Those bills might be payrolls, inventory, rent or even bank assets/financing or anything else that keeps businesses running, businesses that employ people.

 

If the Central Bank doesn't address the liquidity problem in the bond market, the knock on effect on the people would be substantial because businesses would fail, people would become unemployed and the whole economy would be downgraded because the bonds would be seen as less secure. 

[Topdoc]

29 minutes ago, saengd said:

because they are considered safe

But you have to ask the question, what if the Central Bank cannot address the liquidity problem in the bond market?

 

Then those bonds will not be as safe as they were initially assumed to be!

 

So perhaps the initial assumption was wrong. How can you deem an asset "safe" based on an assumption?

My decades of experience in this area indicate that bonds should actually be placed in the 'liabilities' column on the balance sheet and not in the 'assets' column.

 

Because the ability of government to re-pay the bonds is dependent on the economic situation AND furthermore, as the interest rates collapse the NPV of debt rises exponentially as shown with the sky high bond prices.

 

If government want to reduce their debt and lower their bond liabilities, they must buy the bond back at face value today, which is something they simply cannot afford to do!

 

The whole thing stinks like massive accounting fraud!
 

[saengd]

Yes I can agree with much of that although when you start to trace the problem back to that degree it becomes far too complicated for the average TV Forum member to fully comprehend. Plus there has to be a basic premise that we can hold to be true today and that is that higher grade bonds and sovereigns are about as low risk as you can find in the bond market. If you remove that premise then what's left is that the world has been motoring down a dead end road for decades.

[JimHuaHin]

Rich Thais helping rich Thais; too bad about working class Thais.

[Yadon Toploy]

That's the wonderful thing about Buddhism. The concept is that you deserve what you get in this life because of actions in a past life.

 

1 hour ago, ParkerN said:

And are getting the usual crumbs from a government whose objectives are to look after an altogether different group of people.

 

 

Indeed. The promised wealth for the Thais has gone already straight after the coup but most don't even know.

 

It was all stolen from right under their noses.

[tokyoblond]

• 1 hour ago, saengd said:

  If the Central Bank doesn't address the liquidity problem in the bond market, the knock on effect on the people would be substantial because businesses would fail, people would become unemployed and the whole economy would be downgraded because the bonds would be seen as less secure. 

  But surely, that is what is hapening already, so how much good will it do? The only good it will do is keep the money where it always has been in Thailand. None of this is helping the lady selling fried chicken at the roadside, or the souvenir seller who scrapes together a profit each day.

The idea that all businesses should close for 2 weeks (or more), which I totally understand in the current situation, is all fine and dandy if you have 10 million baht in your bank account - let's all have a jolly holiday, eh? But the everyday people (yet again) are the ones that will be financially destroyed by this, not the people/insitutions that can afford to be investing in government bonds. Where is the help for the everyday employee now unemployed, or the small business owner, who now has 0 baht income? Oh, there's nothing left for them.... we spent it all on protecting our bonds.

[ChrisY1]

Pumping up financial institutions....forget the ordinary people.

No amount of free money will help most businesses that have say <150 employees.....they'll fail.

Large corporations will simply lay off workers to save money.....

Soon the government will understand that they are helpless...all the while say that they are doing their best.

[Assurancetourix]

1 hour ago, saengd said:

Perhaps if you understood what a liquidity crisis in the bond market really is and what it means you might change your tune:

Colin understood very well; it is you who does not want to admit that the world stock exchanges are based on wind, money which does not really exist.
It has to stop, that listed companies are listed on their real turnover and especially their profits (before or after taxes, whatever).
Covid-19 was the trigger for the global crisis looming on the horizon for several months.

[kevin612]

The government is helping the rich again and no relief for their people.

[Assurancetourix]

5 minutes ago, kevin612 said:

The government is helping the rich again and no relief for their people.

 

In France, last year began a movement of protest against "yellow vests" protesting against the incessant increases in basic necessities.
The Macron government sent them the police because they supposedly ran out of cash.
However what we see today in a country which has supposedly no more money, they find as if by a miracle a thousand billion euros so that the stock market does not collapse.

[bangkokbonecollector]

1 hour ago, saengd said:

Yes I can agree with much of that although when you start to trace the problem back to that degree it becomes far too complicated for the average TV Forum member to fully comprehend. Plus there has to be a basic premise that we can hold to be true today and that is that higher grade bonds and sovereigns are about as low risk as you can find in the bond market. If you remove that premise then what's left is that the world has been motoring down a dead end road for decades.

I concur 

[johng]

8 minutes ago, Assurancetourix said:

they find as if by a miracle a thousand billion euros so that the stock market does not collapse.

They always find money to bail out their "banker friends"  yet the normal person has to struggle to keep a roof over their head

and food on the table ( quite a few don't even have a roof)

Instead of propping up the Ponzi scheme stock market..bring back the industries that have been exported to China,create real jobs making real products for the "normal people"

[madmitch]

5 hours ago, webfact said:

while the Ministry of Finance promised extra economic relief to support people affected by the Covid-19 fallout.

I shall refrain from commenting adversely until I hear what this statement means.

[ParkerN]

2 hours ago, Yadon Toploy said:

That's the wonderful thing about Buddhism. The concept is that you deserve what you get in this life because of actions in a past life.

 

Indeed. The promised wealth for the Thais has gone already straight after the coup but most don't even know.

 

It was all stolen from right under their noses.

 

And the ongoing revenue streams are being taken as they are seen - by the same people.

 

And the poor buggers don't even know it because nobody is telling them and nobody will tell them.

[saengd]

2 hours ago, Assurancetourix said:

Colin understood very well; it is you who does not want to admit that the world stock exchanges are based on wind, money which does not really exist.
It has to stop, that listed companies are listed on their real turnover and especially their profits (before or after taxes, whatever).
Covid-19 was the trigger for the global crisis looming on the horizon for several months.

Not only did Colin not understand but clearly you didn't either, the subject is bonds, not the stock market, if you want to have  chat about equities we can do that somewhere else. 

Edited March 23, 2020 by saengd

[saengd]

2 hours ago, kevin612 said:

The government is helping the rich again and no relief for their people.

You seem not to understand much of what the OP talks about but you're not alone, 95% of posters in thi thread don't understand either!

[Yadon Toploy]

2 hours ago, ChrisY1 said:

Pumping up financial institutions....forget the ordinary people.

No amount of free money will help most businesses that have say <150 employees.....they'll fail.

Large corporations will simply lay off workers to save money.....

Soon the government will understand that they are helpless...all the while say that they are doing their best.

We've been ordered to close by the local authorities in three provinces. 

 

All staff sent home today on 75% pay as the law allows, if it continues into the next pay cycle there will be forced redundancies, and further pay cuts for all staff.

 

Economic realities are going to bite hard for some of the guys that have bought new vehicles and houses. 

[saengd]

2 hours ago, tokyoblond said:

• But surely, that is what is hapening already, so how much good will it do? The only good it will do is keep the money where it always has been in Thailand. None of this is helping the lady selling fried chicken at the roadside, or the souvenir seller who scrapes together a profit each day.

The idea that all businesses should close for 2 weeks (or more), which I totally understand in the current situation, is all fine and dandy if you have 10 million baht in your bank account - let's all have a jolly holiday, eh? But the everyday people (yet again) are the ones that will be financially destroyed by this, not the people/insitutions that can afford to be investing in government bonds. Where is the help for the everyday employee now unemployed, or the small business owner, who now has 0 baht income? Oh, there's nothing left for them.... we spent it all on protecting our bonds.

BOT intends to buy 100 billion Baht of bonds, that's USD 3.2 billion. Foreign currency Reserves are USD 230 billion, I believe that spend leaves ample for the unemployed, if needed. But I think help for the unemployed is the subject of a different OP, as much as you'd like to hijack this one and make it part of the OP! 

[CGW]

6 minutes ago, saengd said:

You seem not to understand much of what the OP talks about but you're not alone, 95% of posters in thi thread don't understand either!

Indeed, fools don't understand that in supporting the financial markets when (if) the economy goes into recovery mode, the financial markets and "Corporate" will be able to employ minimum wage earners again (if they have survived, that is)

[ParkerN]

1 hour ago, Yadon Toploy said:

We've been ordered to close by the local authorities in three provinces. 

 

All staff sent home today on 75% pay as the law allows, if it continues into the next pay cycle there will be forced redundancies, and further pay cuts for all staff.

 

Economic realities are going to bite hard for some of the guys that have bought new vehicles and houses. 

 

My sympathies for the problems you find yourself in. Not nice.

[vangrop]

Some thoughts on our Financial system.

A stock has an hypothetic worth based on future sales, revenue, profit. But If the cie from which you are SHARING the ownership goes bankrupt the remains for the shareholders would probably be nothing after settling all the debts. Thats what they call venture capital. You could invest in real estate, but remember the 2008 Financial crisis originated by real estate prices collapsing. You could cashing everything but dont forget that a banknote is finally Worth the paper value. As one of the De Beers heirs once stated you by gold by stupidity and Diamonds by vanity. In crisis the old barter market is heading up and dont forget the basic importance of farming. What actually  worldwide countries, and not only Thailand, are projecting to do help solving the corona crisis issues is to pump massively money into the Economy. Roughly stated they will simply print uncovered banknotes. Once pay back time shows up it will cost each of us a fortune to have everything back into balance. So lets hope The corona virus will be Beaten very soon. Nevertheless lets look at the bright side of this situation: this has a positive impact on climat since pollution is drastically going down and the worldwide Financial mess is being washed away as by a tsunami.

Regards Philippe

[Snow Leopard]

4 hours ago, Assurancetourix said:

 

In France, last year began a movement of protest against "yellow vests" protesting against the incessant increases in basic necessities.
The Macron government sent them the police because they supposedly ran out of cash.
However what we see today in a country which has supposedly no more money, they find as if by a miracle a thousand billion euros so that the stock market does not collapse.

They dont find it. It is printed money and borrowing from the future. It devalues the currency today stealing from peoples savings and adds to the debt our kids will have to pay. 

[Snow Leopard]

8 minutes ago, vangrop said:

Some thoughts on our Financial system.

A stock has an hypothetic worth based on future sales, revenue, profit. But If the cie from which you are SHARING the ownership goes bankrupt the remains for the shareholders would probably be nothing after settling all the debts. Thats what they call venture capital. You could invest in real estate, but remember the 2008 Financial crisis originated by real estate prices collapsing. You could cashing everything but dont forget that a banknote is finally Worth the paper value. As one of the De Beers heirs once stated you by gold by stupidity and Diamonds by vanity. In crisis the old barter market is heading up and dont forget the basic importance of farming. What actually  worldwide countries, and not only Thailand, are projecting to do help solving the corona crisis issues is to pump massively money into the Economy. Roughly stated they will simply print uncovered banknotes. Once pay back time shows up it will cost each of us a fortune to have everything back into balance. So lets hope The corona virus will be Beaten very soon. Nevertheless lets look at the bright side of this situation: this has a positive impact on climat since pollution is drastically going down and the worldwide Financial mess is being washed away as by a tsunami.

Regards Philippe

Well said.