Deputy governor Tarisa Watanagase explained that Bt10 billion of the Bt12-billion quarterly increase in NPLs could be attributed to the BOT's "prudent supervision".

Only Bt2 billion of the increase in bad loans derives from a deterioration in the debtors' ability to repay their debts, she added.

She said the increase incurred from the "qualitative loan provision" and did not mean debtors were losing their repayment ability for the future.

The quarterly NPLs increased largely because some banks approved loans without cautious feasibility studies or did not know exactly what purposes borrowers had in mind for the loans.

"NPLs rose because banks did not follow standards of risk management as well as they should. It does not mean debtors did not pay their debts," said the deputy governor.

The BOT introduced the rule of qualitative loan provision several years ago, aimed at taking serious action on the banks' loan classifications to prevent any severe loss.

Under the requirement, the central bank requires banks to classify their loans and make reserves, in case a debtor's balance sheet indicates the borrower may be unable to repay debts in the future.

Tarisa said the central bank ordered banks whose quality of loans did not meet the requirements as NPLs.

They were also asked to develop risk-management systems in line with the standard, she said.

The BOT said net NPLs stood at Bt484.3 billion, or 8.22 per cent of total loans, at the end of the second quarter, rising Bt12 billion from Bt472.6 billion, or 7.97 per cent of the outstanding credit, at the end of first quarter.

Earlier, some banks complained that the deterioration of their debtors' repayment-servicing ability was due to the greater cost of living prompted by the oil-price and interest-rate hikes.

The BOT has targeted NPLs to decline to 2 per cent of total

loans by the end of next year, on anticipation of debt restructuring and transfers of non-performing assets to Bangkok Asset Management.

Anoma Srisukkasem

The Nation