Banking chief seeks relaxed NPL rules
M R Pridiyathorn Devakula, president of the Export and Import Bank of Thailand, suggested that banking regulations covering non-performing loans (NPLs) be eased to help strengthen the capital base of commercial banks and give them more lee-way in extending credit.
Speaking at the Thammasat Economic Association's year-end conference, Pridiyathorn said banks, most with shaky finances, are now too nervous in extending new loans to jump-start the economy because they are required to book unpaid loans for three months as NPLs, which have to be reserved or written off adequately.
He said should the rules be relaxed -- chances for which are slim due to the stringent IMF requirements -- banks will be given more room to resume lending. ''Banks are now nervous about this three-month rule because NPLs are still rising,'' Pridiyathorn said.
He said the Aug 14 bail-out scheme for the banking system has yet to work properly because most banks still have that ''business as usual'' attitude. The scheme is one of the methods in tackling the banking system apart from selling local banks to foreigners or converting banks' debts owed to the Financial Institution Development Fund into equity.
Of all the 15 banks, six have already been nationalised and are not in a position to operate normally. Of the remaining nine banks, five are being run with a capital-adequacy ratio close to the regulatory requirement of 8.5 per cent. This allows them no room to expand their risk assets or provide new loans.
The four remaining healthy banks are Bangkok Bank, Thai Farmers Bank, Bank of Asia and Thai Danu Bank, which are also afraid to provide fresh loans due to the uncertain business outlook. Despite Bank of Asia and Thai Danu Bank being taken over by ABN Amro Bank of the Netherlands and Development Bank of Singapore, they are still cautious about credit expansion. Bangkok Bank and Thai Farmers Bank, who successfully raised capital earlier this year, are also not certain about the economy's future outlook and are doing their best to protect their portfolios.
Dr Virabongsa Ramangkura, a conservative economist and former finance minister, agreed that in this abnormal time authorities should focus on making the banking system work again instead of trying to have the banking system meet international standards. He shared Malaysian Prime Minister Dr Mahathir Mohamad's recent plan to move NPL rules from three to six months.
''China they say is not a developed country like Thailand so they do not have to impose strict standards otherwise they will have to sell their banks to foreigners,'' he said. ''Even during the US banking crisis they moved the three-month rule to six months for some ailing banks.''
A foreign banker agreed that the three-month NPL rule would only create unnecessary problems at a time when banks are already hard-pressed for capital. ''It's like asking a person who is already weak to undergo surgery in the intensive care unit,'' he said.
With NPLs rising to more than Bt2 trillion or 40 per cent of total loans, banks are operating under the pressure of capital adequacy. NPLs are still rising and if they are to reach 45 to 50 per cent of all loans, all banks will have to be nationalised.
Banthoon Lamsam, TFB president, said if the situation kept on deteriorating, his bank, which is applying for tier-2 recapitalisation scheme sponsored by the government, will only last for a year before new capital will have to be raised.
Other analysts believed that easing NPL rules from three to six months will not help improve banks' books significantly because by the end of the sixth month, banks will have to stop adding interest and book them as NPLs. Some have suggested that instead of extending the three-month rule, authorities should extend full provisions for loan losses, scheduled for three years until 2000, to five years instead.
Less pressure from the need to set aside loan-loss provisions will help strengthen financial positions of banks and allow them to extend more credit, they said.
Pridiyathorn suggested further that the government come up with remedies to ease the cash-strapped economy. First, state-controlled Krung Thai Bank should be forced to lend out to the real sector, which Pridiyathorn says has three types of customers. The first type usually miss servicing their debts for two years and are hard pressed to raise new capital. The second group will be those who still have the strength to do business but their access to loans have been locked up by weak banks. The third group of customers are those who are under the danger of becoming NPLs because they have been denied the credit even though their businesses remain viable.
Pridiyathorn suggested that the government set up a ''national equity fund'' to help good corporates recapitalise; otherwise all good firms will go out of business.
By Jiwamol Kanoksilp and Thanong Khanthong