Thai bad loans likely soar in 2001

Asian Economic News, Feb 12, 2001

BANGKOK, Feb. 6 Kyodo

Non-performing loans held by Thai financial institutions sharply declined in December to 17.9% of total outstanding debts, but new concerns have been raised bad debts amid uncertainty over the new government's planned national asset management company, a private research house said Tuesday.

The Bank of Thailand reported Monday that total bad loans held by Thai financial institutions in December fell to 858.21 billion baht from 1.2 trillion baht in November last year.

But most of the net fall in 2000 was attributable to accounting effects, notably write-offs and transfers to asset management companies, said Thai Farmers Research Center Co., a research arm of Thai Farmers Bank.

Of the net fall last year, 24% came from write-offs, 36% were transferred to asset management companies and 32.2% came from debt restructuring, it said.

Thai financial institutions are allowed to write-off debts classified as lost with 100% provisioning. But the desirable method to resolve bad debt problems is restructuring because it effectively revives businesses.

Serious concerns are now seen regarding new bad loans and a return to non-performance of some loans that had been restructured.

Of 52.9 billion baht in bad debt increases in December, 24.5 billion baht was from new bad loans, but 28.4 billion baht came from restructured loans once again gone bad.

Incoming Prime Minister Thaksin Shinawatra plans to set up a national asset management company to handle all bad debts held by Thai financial institutions, but the policy has been strongly criticized as too costly to implement.

''If the national (asset management) issue remains unclear, the loan problems will be getting worse...likely to intensify in 2001,'' Thai Farmers Research Center said in its report.

A Thai economic slowdown this year may also aggravate the situation, it said.

Progress in debt restructuring may also be delayed because creditors and debtors will wait for a national asset management company to buy their assets. As a result, strategic bad loans may eventually increase as debtors and creditors may wait for windfall benefits from the new body, the research group said. ($1=42.48000 baht)