BANGKOK, Sept 8: Thailand’s fragile recovery has been restrained by tortuous reforms in its struggling banking sector and analysts predict it will take at least another year for local banks to resume normal lending. says Reuters.
Battered Thai financial institutions have raised 800-900 billion baht ($20-23 billion) of new capital since January 1998 to replenish eroded equity.
More than 60 per cent of the funds have been injected by the government into state-owned or nationalised banks.
But analysts expect Thai banks to contribute little to the three to four per cent economic growth projected for Thailand this year as they barely manage to keep pace with meeting their own capital adequacy and provisioning requirements.
Banking analyst Karn . KaruhadeJ at Dresdner Kleinwort Benson in Hong Kong described the expectea 1999 economic expansion as "easy growth" helped mainly by a low gross domestic product base in 1998 when the economy con-‘ traded 9.4 per cent.
'The real economy has not expanded much. Businesses have simply used more of their
big surplus capacity while private investment figures remain flat or even negative," he said.
Total Thai bank credits fell 6.1 per cent year-on-year in July 'to 5.38 trillion baht although bankers attributed the smaller outstanding loans partly to substantial bad loan write-offs by Thai banks this year.
Goldman Sachs expects total bank credits to remain flat in 1999, picking up by between four to six per cent next year and rising another 10 per cent in 2001.
About 2.7 trillion baht, or 47 per cent of current financial sector loans, are non-performing with borrowers stopping paying interest on them for three months or more.
NPL block quick recovery
Thai Finance Minister Tar-rin Nimmanahaeminda on Tuesday listed bank NFLs and the difficulty financial institutions had raising sufficient capital as the biggest hurdles to quick economic recovery.
Somjal Phagaphasvivat. economist and political lecturer at Bangkok's Thammasat University, said the government should be credited for partially restoring confidence
in Thai banks one year after it launched a programme to help them recapitalise.
"The public at least does not expect more banks to fail and their non-performing loans (NPLs) have started to stabilise in the past few months," he said. Merrill Lynch said in a report this week Thai bank recapitalisation had moved at a steady pace and the government programme to boost the sector had generally worked.
But Somjai said Thai banks faced worrying situation as they had sat since early this year on a mountain of excess deposit fupds while they focused on shoring up their own positions.
He said sluggish corporate debt restructuring and unsustainable problem loans carried by state-owned Krung' Thai, Bank Plc were other weaknesses ’ of the banking sector. '
"The most flagrant failure of the government programme is its Inability to induce more new lending and to encourage more debt restructuring." Somjai said.
He added, however, that rehabilitation of bank NPLs should gather Speed later this year after enforcement of new
bankruptcy and foreclosure laws from the second half of 1999.
Financial system not doing its job
Karn of Dresdner said: "The failure of the financial system to perform its job... is a drag on the economy, a constraint on faster economic growth. It forces the government to step in to provide bridging loans for business."
"While our trade and manufacturing sector may have im-8roved. Thai banks have not.
s a contrasting picture which could not be sustained," he added.
The Thai banking sector has goqe through major transformation in the past two years since the baht was devalued in July 1997.
Six of its previous 15 banks would have been sold to foreign buyers by end-1999 and another three have been either liquidated or merged with other state-owned institutions.
About two thirds of its previously overcrowded 93-com-pany finance sector have been closed by the authorities. Not a single Thai bank has posted a net profit since the fourth quarter of 1997.