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Nonperforming loans and public asset management companies in Malaysia and Thailand

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  • Masahiro Inoguchi
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    Abstract

    This paper explores the factors which eliminated the nonperforming loan (NPL) problem in Malaysia and Thailand following the 1997 Asian Financial Crisis. The number of NPLs which expanded in the aftermath of the crisis, has since declined in most Southeast Asian countries. Although previous studies have explored the causes of the increase in NPL numbers, few have analysed the factors that contributed to the reduction in their number in Asia. In Malaysia and Thailand, authorities put in place a number of measures to manage NPLs. As a vehicle to acquire NPLs from banks, Malaysia established the Pengurusan Danaharta Nasional Berhad (Danaharta) in 1998, while Thailand established the Thai Asset Management Corporation (TAMC) in 2001. We analyse whether the characteristic features of banks, improvements in macroeconomic conditions, and facilities for purchasing loans caused a reduction in the number of NPLs in Malaysia and Thailand. The results suggest that selling loans to a public asset management company was effective in reducing the number of NPLs in Thailand. However, while macroeconomic conditions influenced the decline in NPL ratios in Thailand, in Malaysia, good performing commercial banks and large commercial and investment banks generally had smaller NPL ratios throughout and following the crisis.

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    File URL: https://crawford.anu.edu.au/pdf/pep/apep-398.pdf
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    Bibliographic Info

    Paper provided by Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University in its series Asia Pacific Economic Papers with number 398.

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    Length: 37 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:csg:ajrcau:398

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    1. Bonin, John P. & Huang, Yiping, 2001. "Dealing with the bad loans of the Chinese banks," Journal of Asian Economics, Elsevier, vol. 12(2), pages 197-214.
    2. Akiko Terada-Hagiwara & Gloria Pasadilla, 2004. "Experience of Asian Asset Management Companies (AMCs): Do they Increase Moral Hazard? - Evidence from Thailand," Finance 0410001, EconWPA.
    3. Ogawa, K. & Kitasaka, S.-I., 2000. "Bank Lending in Japan: its Determinants and Macroeconomic Implications," ISER Discussion Paper 0505, Institute of Social and Economic Research, Osaka University.
    4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    5. Boudriga, Abdelkader & Boulila, Neila & Jellouli, Sana, 2009. "Does bank supervision impact nonperforming loans : cross-country determinants using agregate data ?," MPRA Paper 18068, University Library of Munich, Germany.
    6. Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
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