Non-performing loans within the financial sector stood at more than 2.7 trillion baht at the end of 1998, or 45.9% of total outstanding credit, the Bank of Thailand announced yesterday. Kitti Patpong-pibul, deputy central bank governor, said non-performing loans, defined as more than three months past due, had increased by 2.26% in the last month of the year.

Non-performing loans at eight private banks totalled 1.29 trillion baht at the end of 1998, or 42% of total outstanding loans of 3.06 trillion baht. Bad loans increased by 15.8 billion baht, or 1.24%, in December from the previous month. The eight banks were: Bangkok Bank, Thai Farmers Bank, Siam Commercial Bank, Bank of Ayudhya, Thai Military Bank, Thai Danu Bank, Bank of Asia and Nakornthon Bank.

Mr Kitti said particularly worrisome was the high levels of bad debt held at the five state-owned banks. Total non-performing loans at Krung Thai Bank, Bangkok Metropolitan Bank, Siam City Bank, BankThai and Radanasin Bank totalled 1.04 trillion baht at the end of the year, or 62.45% of total outstanding credit. Mr Kitti said growth in non-performing loans had showed signs of slowing, and regulators believed levels would reach their peak at the end of the first quarter this year.

Falling lending rates would help bring increased relief for borrowers to service debt, lowering overall costs and helping to spur economic activity. Corporate debt restructuring was also showing signs of improvement, aided by tax incentives and the expected passage of new bankruptcy and foreclosure laws within the next several months. But members of the Federation of Thai Industries and the Thai Chamber of Commerce have complained that local banks were refusing to extend new loans, putting many firms in the grips of a liquidity squeeze.

According to the central bank, outstanding credit declined steadily throughout the second half of 1998. Regulators expect total credit this year will expand by 6%. Banthoon Lamsam, chairman of the Thai Bankers' Association, said local banks were willing to lend only to borrowers without any outstanding loans in default. It was unreasonable to expect new bank lending alone to spur the economic recovery, he said. What was needed was industrial restructuring as well as government stimulus measures.

All financial institutions had been forced to seek new capital to help cover their non-performing loans. Hefty provisioning requirements and uncertain economic prospects had made many banks wary of new lending. In any case, regulators said they would set new targets to reduce non-performing loan levels at the five state-owned banks over the remainder of the year.

The government plans to sell off part, or all of its stake in the banks, over the next several years. Reviving asset quality is crucial in order to minimise losses incurred by the government during the privatisation process, as new investors are expected to ask the central bank to help bear the costs of bad loans after a sale is concluded.

Yesterday, representatives of the Thai Bankers' Association, the Foreign Banks Association and the Association of Finance Companies proposed two new drafts aimed at expediting corporate debt restructuring. The drafts outline an arbitration procedure to help allow creditors to reach quicker agreement on restructuring plans. Since last year, a committee comprised of local creditors, industry groups and central bank representatives, have met regularly to help coordinate restructuring efforts. Less than 20% of the 400 cases under consideration by the committee have been successfully restructured.

Two thousand new debt cases, involving outstanding liabilities of more than 100 million baht each, are expected to be accepted for consideration by the committee in the next several weeks. The cases will be selected based on their outstanding debt, viability and overall importance to the economy.

(Bangkok Post, Wednesday, March 3, 1999)