Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula is likely to order some specialised financial institutions (SFIs) to merge in order to reorganise state-owned banks, said an informed source at the Finance Ministry.

The Fiscal Policy Office (FPO) this week discusses pending projects and makes proposals to Pridiyathorn.

FPO director-general Naris Chaiyasoot has summoned senior officials this week to discuss the issue, said the source.

Naris is likely to keep his job, although there has been speculation he may be removed, the source said, Pridiyathorn will submit to the Cabinet his reshuffle of senior Finance Ministry officials, and Revenue Department director-general Sirote Swasdipanich is expected to be moved to an inactive post.

Pridiyathorn last week slammed the FPO for failing to take a stand against the previous government's populist policies financed by SFIs. He also said he would reduce SFI non-performing loans (NPLs), particularly those at the Small and Medium Enterprise Development Bank (SME Bank).

However, the ministry source anticipated Pridiyathorn would go beyond his publicly stated efforts.

It is likely Pridiyathorn will order SFIs to merge to create economies of scale, end job duplication and strengthen management and SFI capital, the source said.

The SME Bank balance sheet shows about 30 per cent of its loans are NPLs. Because its business is similar to the Export-Import Bank of Thailand, the two may be married, the source said.

The Government Housing Bank (GHB), Government Savings Bank (GSB) and the Secondary Mortgage Corp (SMC) will possibly be merged, the source said.

The SMC was set up after the 1997 financial crisis and provided financial liquidity in the mortgage market. It is currently in a financial scandal.

The GSB and GHB compete with each other in the housing market. The GSB has the advantage of high liquidity, but it has less lending experience. The GHB is a key mortgage lender, but it often has inadequate funds.

Both banks lend to low-income groups eligible to buy government-subsidised housing.

The GHB has implemented the People's Bank scheme, one of former prime minister Thaksin Shinawatra's populist polices Pridiyathorn disagrees with.

Critics said former Finance Minister Thanong Bidaya had failed to get state banks to pool resources and support one another.

Most SFIs did not comply with Bank of Thailand recommendations during the Thaksin administration.

As a former central-bank governor Pridiyathorn knows well how each bank performed, the source said.

For example, the BOT suggested the GHB strengthen risk management, and the Bank of Agriculture and Agricultural Cooperatives was asked to watch NPLs.

Ammar Siamwalla, an economist at the Thailand Development Research Institute, expressed support for privatising state-owned banks.

"Politicians and banks do not go together," he said. His statement suggested politicians could collapse banks, as they did the Bangkok Bank of Commerce. He cited huge NPLs at Krung Thai Bank (KTB), a state-owned commercial bank.

Since 2001 the Thaksin government had used SFIs and KTB to implement easy credit. Opponents called this a risky populist policy.

The past government insisted state banks play a major role in economic recovery when commercial banks were reluctant to lend.

Wichit Chaitrong

The Nation