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Published on August 14, 2007

Although non-performing loans (NPLs) in the banking system will not be reduced to the targeted 2 per cent of overall lending by the end of the year, the Bank of Thailand expects the figure will however be lower than 4 per cent.

The capitalisation of banks, however, remains strong as they only have to set aside an additional Bt3 billion to meet the central bank's requirement under the new International Accounting Standard (IAS39).

They have already set aside Bt90 billion for IAS39, said Tongurai Limpiti, a senior director of the Financial Institutions Policy Group.

She said NPLs were likely to decline as the economy gradually recovers. They could be lower than 4 per cent at the end of the year despite both external and internal risk factors.

"Actually, the current level of NPLs is quite okay, but remains higher than the target. Moreover, banks continue to be affected by political risk, foreign exchange and external risk factors," Tongurai said.

 NPLs were Bt254.51 billion or 4.41 per cent of total lending as of June, rising from Bt240.32 billion or 4.18 per cent as of March.

Former central bank governor MR Pridiyathorn Devakula took aggressive action a few years ago to reduce the level of NPLs, while banks have slowly been restructuring debts. Pridiyathorn set a 2-per-cent target for NPLs by the year-end.

Tongurai said NPLs had risen slightly but the increase was not a concern, considered from the viewpoint of improving financial and economic conditions.

She insisted that re-entry NPLs had not shown a large rise, as earlier feared. They are limited to sectors which have lost competitiveness.

The central bank has recently warned commercial banks to be cautious about rising NPLs and foreign market investments, which require a strengthening of their risk management.

Deputy governor Bandid Nijathaworn said the banks should constantly take a close look at the continuing volatility of global markets and rising bad loans amid the current economic adjustments.

Assistant governor Samart Buranawatanachoke said the banking system's capital adequacy ratio was 13-14 per cent, higher than the requirement of 8.5 per cent. Most banks have enough capital to completely cover the new IAS39 standard.

Anoma Srisukkasem

The Nation