Banks, piggy banks and the joy of capital markets

'I believe that banking institutions are more dangerous to our liberties than standing armies.'- Thomas Jefferson, letter to the US Secreatary of the treasury, 1802

There is, in tradition to oligopolistic licensses and concessions, a second recource which the south-east Asian godfather cannot do without: access to capital. In the post-colonial era, capital become readily available for the first time to local entrepreneurs because of three developments. The first was changes in the lending practices of existing banks. The second was the obtaining by well-connected tycoons of licenses to open their own banks, which typically became akin to personal piggy banks, albeit ones filled with other people's money. The third development was the growth of the region's capital markets.

Few things constrained local businessmen so much under colonial rule as the dificulty of obtaining loans at reasonable interest. Eoropean and american banks were little concerned with lending to Asian businesses- their preferred activity was financing international trade with letters of credit and other support- and when they did lend to locals their compradors were rapacios in demanding kickbacks. There was a number of small ethnic Chinese and Thai- controlled bank in the region, but they were extreamely conservative in their lending practices. Most local businessmen turned to the traditional Indian moneylenders with their punishing rates of interest. Starting in the 1950s, however, more aggressive, entrepreneurial management at two Asian-based banks began to change this situation. The banks in question were Bangkok Bank, headquatered in Thailand, and the Hongkong and Shanghai bank, based in Hong Kong.

The trail blazerr was Bangkok Bank, led by Chin Sophonpanich, son of Teochiu father and a thai mother. A skilled trader and wartime black marketeer, Chin was brought in at the end of the Second World War to what was a failing institution set up under the aegis of the Thai royal family; he was employed first as comprador and subsequently as general manager. In the years that followed, Chin built out the most strongly politically-connected business in post-war Thailand, with Bangkok Bank at its centre. After the military coup of 1947, he co-opted the leadership families of Field Marshal Phin Choonhavan and police director-general Phao Siriyanon as shareholders and directors of his companies and restructured the bank to make the government its biggest shareholder. In return, he obtained a large injection of state capital, near-monopolies of gold and foreign exchange trading and the handling of overseas remittances by ethnic Chinese worker, protection from competition and an unrivalled client base. Like all the most successful godfathers, Chin also rose above the dialect differences of Chinese community, recruiting the cream of Thai-Chinese graduates (pure Thais almost always preferred civil service careers to business) from the elite Thammasat University. One of the most important was Boonchu Rojanasathien, a Hainanese, who saved Chin's bacon after Field Marshal Sarit Thanarat staged a coup in 1957. Chin quikly made Sarit an adviser and appointed his interior minister, Field Marshal Prapass Charusathiara, chairman of Bangkok Bank, but his links to the ousted Phin and Phao made him too nervous to remain personally in Bangkok. He went into exile in Hong Kong untill Sarit died in 1963. In his absence, Boonchu ran the bank, backed by the most adeptly chosen management cadre in Thailand. A sense of how effectively the executives straddled the worlds business and politics is given by the fact that, as of 1980, Bangkok Bank's board had produced three deputy premiers and two speakers of the Thai parliament. But the executives were also entrepreneurial businessmen; they introduced time deposits (long-term saving) and rural credit to Thailand.

Chin Sophonpanich created the largest bank in south-east Asia and one that was extremely profitable. A report by the International Moneytary Fund in 1973 claimed that Bangkok Bank's privileged position allowed it to make returns on its capital in excess of 100 per cent a year (a claim denounced by Chin's lieutenants). What was not in dispute was that the bank's bulging deposit base could not be lent 0ut at optimum rates in Thailand alone. This is where Chin revolutionised the south-east Asian banking scene. He personally travelled between Hong Kong, Singapore, Kuala Lumpur and Jakarta, identifying and courting the new generation of putative post colonial tycoons. Onemultibillionaire remembers looking for money in late 1950s to fund an import subtitution deal for which he had obtained a licence. Having heard about Chin, he offered to come and see him. Chin's response was that there was no need- he would come to client. 'For the Chinese businessmen of south-east Asia there was a major moment with Chin Sophonpanich,' says the tycoon. 'He broke what was then the highly conservative, highly colonialistic banking system.'