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TBA advises 'summary court' to speed up NPL cases

September 13, 2000

WITH the prospect of some Bt1 trillion in bad debts rolling into the Civil Court toward the end of this year the Thai Bankers Association has floated the idea of establishing a summary court to expedite cases.

THE Thai Bankers Association has recently floated the idea of establishing a "summary court" to expedite and speed up cases, with the prospect of some Bt1 trillion in bad debts rolling into the Civil Court toward the end of this year.

Financial sources said judges presiding over the summary court would simply deliberate the cases based on documents, without the need to listen to protracted arguments over the cases.

 

As of July this year, the level of NPLs fell from their peak of 47.7 per cent of all lending to 31.3 per cent, or Bt1.6 trillion. This high level has continued to put the health of the entire banking system at risk and undermine confidence about the sustainability of the economic recovery.

A highly placed source at the Finance Ministry said Finance Minister Tarrin Nimmanahaeminda agreed with the idea of a court, which would be able to process small non-performing loan (NPL) cases more quickly.

"But the problem of having a summary court is that it may be seen as helping creditors. Traditionally, Thai courts have been more in sympathy with the debtors," the official said.

The Civil Court is facing a massive caseload crashing onto its desk, as some Bt1 trillion of bad debts will soon be inundating the court for legal settlement. This prospect has raised concern over the effectiveness of the Thai judicial system to process the huge amount of bad loans afflicting the banking system timely enough to support the economic recovery.

A local banker who has just returned from a foreign trip said most of the foreigners he spoke to told him that they were amazed that Thailand lacks a legal system capable of dealing with NPLs (bad debts) in the banking system.

"They said the court should take five to seven months to settle NPL cases - not five to seven years," the banker said.

As of July this year, the level of NPLs fell from their peak of 47.7 per cent of all lending to 31.3 per cent, or Bt1.6 trillion. This high level has continued to put the health of the entire banking system at risk and undermine confidence about the sustainability of the economic recovery.

However, over the next two weeks the Financial Institution Development Fund (FIDF) will hive-off some Bt520 billion of NPLs held by Krung Thai Bank. This will sharply reduce the level of NPLs still in the banking system to 21 per cent of total loans within this third quarter.

Financial sources agreed that the judicial system is unable to cope with the crisis in the banking system and has created a bottleneck to efforts in completing the clearing out of the bad assets. Saying that until these assets that are still on banks' balance sheets are cleared off, the economic downturn in Thailand will not bottom out.

Parliament passed the amendments to the bankruptcy and foreclosure laws in April 1999 and it was not until June the same year that a Central Bankruptcy Court was established. The financial authorities have formed a Corporate Debt Restructuring Advisory Committee, chaired by the Bank of Thailand governor, to mediate over corporate debt restructuring between the banks and the big corporates.

Loans that can be restructured have been channelled through the Central Bankruptcy Court but banks wanting to get their hands on collateral put up by their indebted customers have preferred to go through the Civil Court to recover as much of their money as possible.

The Finance Ministry official admitted that the court process is too slow which has prompted the government to introduce an arbitration process to help speed up the legal proceedings.

BY THANONG KHANTHONG

 

 

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