Bad loans hamper Thai banks' recovery

Bad loans hamper Thai banks' recovery

BANGKOK (AFP): Thailand's embattled banking sector will slowly
begin to recover in 2001 but a morass of non-performing loans
will continue to plague the industry, Merrill Lynch said in a
report Tuesday.

The outlook for the banking sector next year is cautiously
positive, but recovery could be pushed off course by the mountain
of bad loans or if the U.S. economy suffers a sharp decline,
Merrill Lynch Phatra said.

After losing money in 1999, Thai banks will push back into the
black in 2000, the report said.

Yet "since Thailand's economic recovery remains fragile and
narrow-based, a hard landing for the US economy could do serious
damage to the asset quality of Thai banks."

Although non-performing loans (NPLs) have decreased from 47
percent of total loans in January 2000 to 38 percent today, the
remaining debt burden will be extremely difficult to restructure,
Merrill Lynch warned.

Many of the remaining NPLs are in sectors such as property
that were decimated by the Asian economic crisis and will
probably take years to rebound.

Some analysts have charged that Thai banks are now putting off
restructuring the toughest NPLs by rescheduling the debt well
into the future.

"New and relapsing NPLs could wipe out banks' operating
profits and eat into their already thin capital," Merrill Lynch
said.

The NPL quagmire also has a major impact on the growth of new
bank loans, which are crucial if Thai companies are to shrug off
the financial crisis and begin expanding again.

"Unfortunately, loan growth remains sluggish. Outstanding
loans have contracted 5.4 percent in the year to date," Merrill
Lynch said.

Because banks have such a high percentage of bad loans on
their books, they are unable to take the type of loan risks
necessary to stimulate the economy, it said.

And because NPLs have made banks less attractive to share
investors, the banking sector of the Stock Exchange of Thailand
(SET) has fallen over 55 percent this year, depriving
institutions of the capital they need to make loans.

"Disappointing progress in NPL restructuring is the primary
reason the banks have done poorly (on the SET), we believe," the
report said.

In the long run, Thailand's new government must address the
banking sector's problems or suffer the damage that bank
collapses can wreak on the economy, Merrill Lynch said.

Thailand is holding national elections on January 6, tipped to
be won by the upstart Thai Rak Thai party led by
telecommunications tycoon Thaksin Shinawatra.