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.