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