Spectre of NPL crisis resurfaces

The gross non-performing loans outstanding at Thai financial institutions have increased from Bt457.6 billion (7.31 per cent of total loans) in the fourth quarter of last year to Bt469.5 billion (6 per cent of credit) in the first quarter of this year.

As of March, the NPLs of the manufacturing sector were still the largest outstanding at 41.17 per cent, followed by the commerce sector (14.65 per cent), personal consumption ( 12.3 per cent ) and real estate ( 11.9 per cent ). In terms of the NPL-to-total-loans ratio, the real-estate sector has the largest amount of bad assets at 15.15 per cent followed by manufacturing (11.98 per cent), mining and quarrying (11.41 per cent), construction (10.75 per cent), and agriculture, fishing and forestry (10.5 per cent).

For the bad assets of personal loans, the NPL ratio in the personal consumption sector stood at 4 per cent and the NPLs of credit cards at 3.7 per cent.

The causes for the gross NPL increase in the financial system stem from new NPLs and re-entry NPLs. As of March, new NPLs stood at Bt38.82 billion and re-entry at Bt16.19 billion. On the other hand, debt restructuring has contributed to reducing NPLs by Bt10.24 billion.

Financial institutions in Thailand faced a severe financial crisis in 1998 when the NPL ratio peaked at 47.7 per cent, but this has been reduced to 6 per cent 10 years later. The present level is still considered high, with financial institutions still at risk of weakening their capital base, which in turn may affect credit extension to businesses severely hit by high oil prices.

With respect to global crude

oil prices, they have been fluc-tuating recently. They fell from

a peak at $141 a barrel on May 21 to $122 early this month, then

skyrocketed again to $139.89

on June 16 on the Nymex. Also,

the London Brent North Sea

crude price hit a lifetime peak of $139.32 on June 20. Some oil experts have projected that the world crude price may reach as high as $150 in the very near future, since demand for oil is exceeding supply and speculators are aggressively pushing prices up in the futures market.

High oil prices will definitely affect the economy and, in turn, will affect the operations of the business sector. Therefore, it is a wake-up call for a revisit of NPL problems, which must be monitored closely as soon as possible.