Bad loans hamper Thai banks' recovery<\/p>\n
BANGKOK (AFP): Thailand's embattled banking sector will slowly
\nbegin to recover in 2001 but a morass of non-performing loans
\nwill continue to plague the industry, Merrill Lynch said in a
\nreport Tuesday.<\/p>\n
The outlook for the banking sector next year is cautiously
\npositive, but recovery could be pushed off course by the mountain
\nof bad loans or if the U.S. economy suffers a sharp decline,
\nMerrill Lynch Phatra said.<\/p>\n
After losing money in 1999, Thai banks will push back into the
\nblack in 2000, the report said.<\/p>\n
Yet \"since Thailand's economic recovery remains fragile and
\nnarrow-based, a hard landing for the US economy could do serious
\ndamage to the asset quality of Thai banks.\"<\/p>\n
Although non-performing loans (NPLs) have decreased from 47
\npercent of total loans in January 2000 to 38 percent today, the
\nremaining debt burden will be extremely difficult to restructure,
\nMerrill Lynch warned.<\/p>\n
Many of the remaining NPLs are in sectors such as property
\nthat were decimated by the Asian economic crisis and will
\nprobably take years to rebound.<\/p>\n
Some analysts have charged that Thai banks are now putting off
\nrestructuring the toughest NPLs by rescheduling the debt well
\ninto the future.<\/p>\n
\"New and relapsing NPLs could wipe out banks' operating
\nprofits and eat into their already thin capital,\" Merrill Lynch
\nsaid.<\/p>\n
The NPL quagmire also has a major impact on the growth of new
\nbank loans, which are crucial if Thai companies are to shrug off
\nthe financial crisis and begin expanding again.<\/p>\n
\"Unfortunately, loan growth remains sluggish. Outstanding
\nloans have contracted 5.4 percent in the year to date,\" Merrill
\nLynch said.<\/p>\n
Because banks have such a high percentage of bad loans on
\ntheir books, they are unable to take the type of loan risks
\nnecessary to stimulate the economy, it said.<\/p>\n
And because NPLs have made banks less attractive to share
\ninvestors, the banking sector of the Stock Exchange of Thailand
\n(SET) has fallen over 55 percent this year, depriving
\ninstitutions of the capital they need to make loans.<\/p>\n
\"Disappointing progress in NPL restructuring is the primary
\nreason the banks have done poorly (on the SET), we believe,\" the
\nreport said.<\/p>\n
In the long run, Thailand's new government must address the
\nbanking sector's problems or suffer the damage that bank
\ncollapses can wreak on the economy, Merrill Lynch said.<\/p>\n
Thailand is holding national elections on January 6, tipped to
\nbe won by the upstart Thai Rak Thai party led by
\ntelecommunications tycoon Thaksin Shinawatra.<\/p>",
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