Bad loans at Kasikornbank will shrink significantly to just Bt10 billion by the end of the year, or one per cent of outstanding lending, according to president Prasarn Trairatvorakul.

Current net non-performing loans (NPLs) at the country's fourth-largest bank are 3.17 per cent of total loans. This is after the Bank of Thailand allowed banks to report net NPLs by deducting allowances for doubtful accounts from gross NPLs.

This has lowered all banks' NPLs. The average level of NPLs at all banks is 6 per cent of total loans. At Kasikornbank, gross NPLs are 5.67 per cent of total loans before the deduction.

Since December 2006, banks have reported bad loans in two categories, net and gross.

Prasarn said the bank's NPL-reduction plan comprised bad-debt restructuring and write-offs. Prasarn said NPLs should not exceed 2 per cent of all loans.

The current level is much recovered from the aftermath of the 1997 financial crisis, when bad debt at banks ballooned to around 47 per cent of all loans.

Although Kasikornbank's level is low, with little indication it could rise, the bank maintains strict bad-loan provisioning in light of the country's economic and political uncertainties.

Kasikornbank normally sets aside bad-debt reserves of around Bt1.2 billion to Bt1.5 billion a quarter. It does not need to set aside more reserves to comply with International Accounting Standard 39 following a large reserve injection in the fourth quarter of last year.

With political and economic uncertainties Kasikornbank cut its 2007 gross-domestic-product forecast to 4-5 per cent to 3.5-4.5 per cent.

The bank has kept its loan-growth target unchanged at 8 per cent to 13 per cent. This will be supported by small and medium-sized enterprises.

In addition, Prasarn expected lending rates to fall by at lest 50 basis points this year, in line with the country's signal rate, which is expected to fall further.

He predicted the central bank's Monetary Policy Committee would cut its one-day repurchase rate this month.

That will make short-term fixed-deposit fall, in particular the three- and six-month rates.

"As the repurchase rate was cut 25 basis points last month, banks long-term deposit rates decreased by between 25 basis points and 50 basis points. If the repurchase rate is cut this month, bank short-term deposit rates will be cut, too," he said.

However, savings-deposit rates are unlikely to be cut this year.

Somruedi Banchongduang

 The Nation