Severe problems may pitch Thai banks back into crisis

Severe problems may pitch Thai banks back into crisis

BANGKOK (AFP): Thailand's crippled banks have made tangible
progress in tackling billions of dollars of debt but severe
problems are looming which could pitch the sector back into
crisis, analysts warn.

Burdened by bad debts equal to 46 percent of total loans, the
struggling sector is unable to offer the magnitude of new lending
desperately needed to promote demand, growth and recovery,
analysts say.

The banks were hammered when the baht currency collapsed in
1997 leaving non-performing loans (NPLs) now estimated at 2.2
trillion baht (59.5 billion dollars).

In a first step towards reconstruction, the government
nationalised six banks last year and is leading recapitalization
efforts in line with its International Monetary Fund rescue deal.

Months of uncertainty over how remaining private banks would
replenish capital has lifted slightly with the passing Friday of
a government deadline for banks to file recapitalisation plans
with regulators.

Several banks said they did not need to join a 300 billion
baht government rescue plan after raising funds themselves, while
others had no option but to accept state help.

Under the package, banks must issue preferred stock or
subordinated debentures in exchange for government bonds.

"Instead of it being completely muddy we now have something
slightly less opaque," said Sriyan Pietersz, head of research at
SG Global Research, Thailand.

"There is progress but it could be a little faster."

Another deadline looms at the end of the month when banks must
sign memorandums of understanding on their plans under the IMF
bailout. It is then many observers believe that investors will be
able to judge the credibility of reconstruction.

Deeper problems however are lying in wait on the horizon,
experts warn.

To comply with the state plan banks must meet 40 percent of
total provisioning requirement by the end of the year 2000, a
requirement some analysts argue hardly insulates them against
continued economic stagnation.

"If there is not an economic upturn, or if we have renewed
currency volatility we could seen non-performing loans balloon
further -- and then the situation will be back to square one,"
said one local broker.

Calculations regarding NPLs were based on the position on
September 30 last year. As time goes on and more companies feel
the bite of recession, the NPL mountain is sure to grow, analysts
say.

The problem may also be compounded when long awaited
bankruptcy and foreclosure laws currently crawling through
parliament become law.

"Ideally these banks should really say 'we had NPLs of "x"
percent on September 30, however we think the peak is going to be
whatever percent,'" said Pietersz.

"Therefore based on a fairly reasonable collateral requirement
'this is the kind of colateral we need and we should be looking
to cover 20, 40, 60, 80, 100, percent of that by the year 2000
depending on how the NPLs progress.'"

To mitigate the NPL crisis some analysts are pushing for NPLs
to be simply written off to allow the banks to start again from
scratch.