The protests, and the acquiescence of the big lenders, follows the populist policies of the Thaksin administration and promises by the government that it would "convince banks" to forgive farmers' debts.

Following the agreement, a source at the Thai Bankers' Association said all other banks had agreed to follow suit.

"We want to avoid causing more chaos to society," the source said.

The issue is beginning to hit commercial banks hard, with Krung Thai Bank admitting it had lost up to Bt600 million by appeasing the farmers.

Yesterday hundreds of farmers gathered outside the headquarters of Krung Thai Bank and Bangkok Bank demanding increased haircuts of their debts. These cuts are on top of others made by the banks last year at the behest of the government.

With the Network of Indebted Farmers and the Farmer Rehabilitation and Development Fund demanding further concessions, the two banks caved in yesterday.

Under the new agreement, all borrowers will have to repay only half of their loans and interest will be waived. Last year's agreement said debtors with loans of Bt1 million or less would be forgiven half of the original principal and interest payments would be waived. But those who had borrowed between Bt1 million and Bt2.5 million were required repay 90 per cent of the original principal yet interest payments were waived.

A source in the banking industry said the continuing protests arose from the Thaksin administration's populist policies.

Preecha Phykham, Krung Thai Bank's first executive vice president, said the bank would lose between up to Bt600 million from granting loan haircuts for farmers. The bank has lent Bt1.7 billion to about 11,400 debtors.

"Despite booking a loss of Bt600 million, it's worth it for the bank because these are retail debtors and it is quite difficult to get paid," he said. "The bank realises that it's a heavy burden for them."

Before getting the banks' signatures yesterday, about 2,000 farmers demonstrated in front of their head offices yesterday.

Bangkok Bank's senior executive vice president, Suvarn Thansathit, said the bank had been restructuring farmer's debts according to last year's agreement.

However, the process has been slow. Many documents submitted by farmers were incorrect.

He said the bank's farmer debts covered by the new agreement amount to between Bt200 million and Bt300 million

Somruedi Banchongduang

The Nation