Now senior Thai banking sources say the Government Investment Corporation of Singapore, or GIC, has in recent weeks quietly but aggressively snapped up shares in Thailand's remaining privately held banks, including Bangkok Bank and Thai Farmer's Bank, putting GIC among the largest shareholders in both banks. The Stock Exchange of Thailand could not confirm the transactions. But such outward investment fits with Singapore's recession-motivated drive to diversify its economic holdings offshore.

Until now Singapore's capital inflows to Thailand have failed to elicit the pangs of economic nationalism Western-led corporate takeovers and liquidations have brought. Yet the latest buy-in to historically family-held banks is beginning to stir nationalistic sentiment not only behind bank boardroom doors, but also in parliament. "It's becoming a matter of economic sovereignty," says one Thai senator.

Yet Singapore has burned its fingers before in Thai banks. Analysts agree the Development Bank of Singapore's takeover of Thai Danu in 1998 was poorly timed. After taking a 71 percent haircut on bad assets, DBS had to inject an additional 13.5 billion baht ($307 million) of capital into the bank last year. With more generous loss-sharing agreements, the United Overseas Bank got a sweeter deal on Radanasin Bank. But as retail-banking competition has intensified, the original attractiveness of Radanasin's branch network has diminished.

Singapore's latest investment in Thai banks may also prove premature. A recent ABN Amro report shows that Bangkok Bank is paying a "punitively expensive" 11 percent rate on nonequity instruments, which make up 73 percent of the bank's tier-one capital. When it is eventually called, Andrew Maule, the report's author, estimates Bangkok Bank will need to raise $1 billion in new equity, representing a major dilution to existing shareholders. And as state-held banks begin lending at sub-market rates, both Bangkok Bank and Thai Farmers Bank risk losing market share and pricing on loans.