Clear debts in two years, Thailand told

August 4, 2000

THAILAND should quickly come out with "a compelling story" to bolster foreign investors' confidence by pledging to get rid of the banking sector's bad debts in two years, a financial seminar was told yesterday.

Speaking at a BoA Asset Management seminar on condition of anonymity, a senior official from an international financial organisation said the implication of Thailand having to sell some 25 per cent of bad loans in the banking sector meant asset prices would fall further.

Thailand did not have to introduce any further laws to tackle the banking problems, he said. All it needed to do was get all the procedures concerning asset liquidation or asset transfers up and running, with banks taking a hit on their balance sheets.

The fragile economic recovery was at risk of being derailed by the persistently high level of bad debts, which presently stand at about 35 per cent of the total loans in the banking sector. The ailing banking sector has stopped credit growth and denied companies the liquidity they need to finance business expansion.

Dr Olarn Chaipravat, former president of the Siam Commercial Bank, warned that unless the government promotes the bond market as an alternative source of financing to bank credit, Thailand was at risk of suffering another financial crisis.

However, an unprecedented decision by DBS Thai Danu Bank to sell off its Bt30 billion in bad assets outright was a positive sign. Siam Commercial Bank is pondering a similar option to eliminate at least Bt30 billion of its bad debts.

So far only some of the Bt800 billion assets from the 56 failed finance companies have been liquidated.

But not all banks could act like DBS Thai Danu Bank, which would be hurt by selling Bt30 billion of bad assets for only Bt8 billion. Selling bad assets outright at discount prices requires banks to go back to their shareholders to raise capital.

But if the asset liquidation was not accelerated, foreign money would not flow back into the economy and eventually tax payers would have to shoulder the banks' capital shortfalls.

The official said some Bt1 trillion worth of problem loans mediated by the Corporate Debt Restructuring Advisory Committee had failed to be settled and would have to go to the Civil Court.

The whole legal process was expected to take about seven years, with another two to foreclose and liquidate the assets.

BY THANONG KHANTHONG