Commercial reform sees bad loans down to 3.4%

Net non-performing loans (NPLs) in the banking system declined to 3.4 per cent of total loans at the middle of the year, says the Bank of Thailand (BOT) senior director Sorasit Soontornkes.

Net NPLs- the result of reserves minus gross NPLs - registered at Bt232.1 billion as of June 30, down Bt17.6 billion quarter on quarter.

The ratio fell from 3.75 per cent to 3.43 per cent.

That is a step closer to the central bank's target of 2 per cent at the end of this year.

The decline was attributable to commercial banks' active debt restructuring process as well as cautious loan approval amid the current economic slowdown.

Sorasit said the banks could not reduce NPLs, largely because of the legal process involved in asset foreclosure. 

However, they did not erode the banks' financial status, which was an average capital adequacy ratio of 12 per cent.

"Banks' NPLs have declined and credits have increased, while the economy continues to grow," the senior director said.

The BOT said NPLs in Thai commercial banks declined by Bt16.5 billion in the second quarter to Bt228 billion.

The ratio of NPLs was just 3.8 per cent of outstanding credit at the end of last month, compared with 4.1 per cent.

The industry's gross NPLs, which excluded reserves, amounted to Bt451.8 billion or 6.5 per cent of total loans at the end of June, down by Bt18.1 billion from

Bt467 billion or 6.8 per cent of total loans at the end of the first quarter.

Sorasit said NPLs in the banking system would jump after the BOT's Financial Institutions Business Act requires NPLs in asset-management companies to be included in consolidated balance sheets, which will be adopted soon.

However, the requirement would not have any impact on the banks' performance, as they had a level of capital adequacy to service them, he said.

Banks set aside reserves before transferring NPLs to asset-management companies, so they would not be affected if the bad loans were transferred back, the assistant governor said.

"Banks' capital-adequacy ratios average 12 per cent, while some banks reach 15 per cent," he said.

Although the new law, which takes effect on August 3, will require consolidated supervision, BOT regulators adopted the practice two years ago.