The Bank of Thailand (BOT) yesterday came out to allay jitters over signs of weaker debt-servicing ability by confirming that local banks would achieve the central bank's target of 2 per cent for non-performing loans (NPLs) by the middle of next year.

BOT governor MR Pridiyathorn Devakula said bank borrowers' capability to repay their debts remained in good shape, despite the current political and economic instability. This will result in a continuous decline in NPLs, resulting in the target being met by the middle of next year.

"I believe in my ability to handle the NPLs. I will try my best," said the governor.

He said NPLs continued to fall as economic growth kept up its momentum, driven by export expansion, while commercial banks had be cautious about loan approvals.

Pridiyathorn said higher prices for goods and services, driven by skyrocketing oil prices, have had a positive side, as consumers are scared to take on new debt, and this would lead to financial stability in the future.

The governor's comments cooled down concerns over an increase in NPLs due to increases in both interest rates and oil prices that have eroded the repayment ability of debtors.

Some banks, including Kasikornbank, have reported signs that borrowers have begun to fail to service their debts on time, but their loans are still performing as they pay debt ahead of 90 days.

BOT deputy governor Tarisa Watanagase said a very small number of customers were losing their ability to service their debts and thus resulting in bad loans.

But she said NPLs were not a big problem right now with small and medium-sized enterprises, or even individual borrowers.

Tarisa said that during the economic slowdown, the business and financial sectors could both adjust themselves to a satisfactory level. She confirmed the banks were now strong with high profits.

"I have held discussions with bank executives, and they say bad debts are not a big problem, while new loans are expanding in line with the economy," she said.

Meanwhile, Pridiyathorn forecast that investment would be back on track after the next general election is over.

He said investment had increased at a slow pace but that its growth would not drop to 2 per cent as forecast by the Finance Ministry.

He added that the country's net capital inflow continued, despite net sales by foreign investors in the Thai stock market. Capital is still flowing into the country through direct investment.

There was US$9 billion (Bt344 billion) worth of capital inflow in the first four months of this year and a tiny net amount last month.

Anoma Srisukkasem

The Nation