BUBBLE FEARS DISMISSED

       The economy is not developing a bubble as asset prices have not risen beyond the fundamental level, while political uncertainty has also put pressure on economic growth, Kasikornbank president Prasarn Trairatvorakul said yesterday. His comment was in reaction to the Asian Development Bank's statement on Tuesday that it is concerned the Thai economy could develop a bubble as the low cost of funding may lead developers to borrow too much for investment in property assets.
       The ADB now forecasts the economy will contract by 3.2 per cent this year.
       Prasarn, a former secretarygeneral of the Securities and Exchange Commission and exBank of Thailand official, pointed to the fact that a bubble in the economy generally reflected asset prices that are higher than the fundamental level. Since the 1997 financial crisis, he said, Thai businesses had been very cautious.
       So far, he added, the SET Index had rallied significantly as investors expect the Thai economy will recover soon. But the index has also recently corrected, which is a normal movement. Therefore, he does not believe the economy is inflating into a bubble.
       Moreover, Prasarn commented that the ADB's forecast of 2009 growth was not too pessimistic given Thailand still faced risk from political uncertainty, which put pressure on economic growth. The political unrest directly affects tourism and domestic consumer confidence, which constrains growth more than in neighbouring countries.
       "The Thai economy seems to have recovered this quarter, which is likely to record positive growth compared to the second quarter. And in the fourth quarter, the economy will grow positively as a result of an improvement in the world economic situation. The US, Europe and [notably] Germany show clear recovery signs," he said.
       This year, he predicts, the Thai economy is likely to record a contraction of 3 per cent.
       Thus, Kasikornbank's net lending will increase by around 4 per cent, against the previous target of 45 per cent. Currently, all sectors - including large corporations, small and mediumsized enterprises and retailers - are expanding.
       Credit for investment expansion has returned, he added. For example, the masstransit project, which was postponed early this year, has already started.
       In addition, the bank will keep its net interest margin in the targeted range of 3.83.9 per cent by managing its credit expansion rather than competing on pricing.
       Prasarn said Kasikornbank's interestrate trend remained stable. However, in the first half of next year, both lending and deposit rates are likely to rise, reflecting economic recovery and less liquidity in the system.
       The Bank of Thailand's policy rate is likely to increase after commercial banks hike their rates. Prasarn expects the central bank's policy rate to start rising in the second quarter of next year.
       He believes the baht's value will keep appreciating as Thailand has a currentaccount surplus as well as continuing capital inflow.