Abstract
This paper examines the performances of Asian asset management companies (AMCs). The analysis reveals that AMCs vary in their design and performance. Asset management companies can trigger moral hazard-inspired bank lending. Empirical examination of the Thai experience reveals that the moral hazard-inspired bank lending resulted in creating more new NPLs in the case of public asset management companies. Alternatively, the centralized Thai Asset Management Company (TAMC) decreases the new NPL ratio, suggesting that TAMC provokes no adverse moral hazard effect on financial institutions. The paper also finds that the same institutional consideration significantly decreases new NPL in foreign banks and finance companies.
Highlights
Many countries that have experienced financial crisis or have fragile banking systems due to high nonperforming loans (NPLs) in the financial system have turned to asset management companies (AMCs) as a central strategy for solving this problem
NPL creation in the public banks was accelerated even when the Thai economy was growing. This result is consistent with our prior finding that moral hazard may have been more severe with the public banks that enjoyed the benefits from the FIDF-funded AMCs, and that the public banks kept lending to nonviable projects, which eventually became new NPLs
Two other AMC regimes reveal negative relationship between new NPLs and gross domestic product (GDP) growth, which implies that NPL creation under the other two AMC regimes decelerated as the economy picked up
Summary
Many countries that have experienced financial crisis or have fragile banking systems due to high nonperforming loans (NPLs) in the financial system have turned to asset management companies (AMCs) as a central strategy for solving this problem. In Asia, in particular, the four crisis-affected countries of Indonesia, Republic of Korea, Malaysia, and Thailand established centralized AMCs soon after the onset of the financial crisis in 1998 to help clean out their bad loans problem. The more recent addition to the list of Asian countries that have adopted centralized AMCs is People’s Republic of China, which established not just one but four AMCs to handle the bad loans of the four state-owned banks. EXPERIENCE OF ASIAN ASSET MANAGEMENT COMPANIES: DO THEY INCREASE MORAL HAZARD?—EVIDENCE FROM THAILAND AKIKO TERADA-HAGIWARA AND GLORIA PASADILLA
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