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Doubts still raised over Thai bad loan steps

BANGKOK: Thai banks say they have resolved billion of dollars of bad loans over the last few months but all may not be what it seems, a banking analyst said.

Richard Henderson, head of research at Kim Eng Securities in Bangkok, told Reuters Television that Thai banks, reporting 1999 results this week, had found many ways to bring down their bad loan figures, and some of them were dubious.

"There are enormous incentives for the banks to restructure debt," he said in an interview.

"The temptation is what I call the 'Lend me a fiver, and I'll buy you a drink' syndrome, in other words lending non-performing customers a bit more cash so that they can pay you interest."

"That is a severe temptation and of course if Thai banks were better at resisting temptation they wouldn't be in this trouble in the first place," he said.

Thailand's economic crisis of 1997 and 1998 took a heavy toll on Thai banks, exposing inadequate credit controls and sending many of their customers into insolvency.

According to the Bank of Thailand, about 42.3 percent of the assets of Thai banks and finance companies at the end of November were non-performing loans (NPLs) -- lending on which no income had been received for at least three months.

This was lower than the 43.8 percent reported a month earlier and the peak of 47.7 percent seen in May.

But NPLs still totalled about 2.36 trillion baht ($63.36 billion) at the end of November, against 2.46 trillion a month earlier and a peak of 2.73 trillion in May.

Henderson said some of the non-performing loans had "genuinely been dealt with".

"Some have been moved into AMCs (asset management corporations) which are only partly now a problem of the parent bank. Most of them, though, are still right where they always were -- on the balance sheets of the banks concerned.

"But a lot of them have been reclassified. They are no longer called non-performing loans, they are called restructured loans.

"And that raises the question obviously as to how much of this restructuring is genuine, which is something which is very difficult to tell, of course," he said.

Henderson said it would take a long time to find out exactly how effectively the banks had handled their problem loans.

"The problem is that an awful lot of debt has simply been rescheduled," he said.

"We will know in two, three, five years when these debts become due again whether they really have been dealt with or not. But certainly in an awful lot of cases it appears that they haven't been and they won't be until they have to be."

Henderson said Thai banks' results this week, which mostly showed lower losses were welcome, but added:

"For a banking system which has spent the last few years losing in total roughly three to four times its equity, there was a certain amount of scope for improvement."

Overall, he said he thought investors should still avoid Thai banks, although some banks were less risky than others.

"On the whole I would still rather stay clear of the banks collectively on a longer-term view, although some of them offer perfectly good trading counters," he said.

"There are certainly banks that offer relatively good value."

"The market has not yet given the better capitalised banks the credit for balance sheets that are better than they look. So we would still say the banks that give relatively good value are the likes of Bangkok Bank, Thai Farmers Bank and Siam Commercial Bank.

"The ones that offer relatively poor value certainly include the likes of Krung Thai Bank," he said.-Reuters