BOT data showed new NPLs increased at a faster pace in the second quarter compared with a rise of Bt33.7 billion in the first quarter and Bt32.9 billion in last year's fourth quarter.

Outstanding credit at the end of this year's second quarter totalled Bt6 trillion.

BOT director Tumnong Dasri said the increase in NPLs stemmed partly from debtors' inability to repay their loans due to the current economic conditions.

The central bank's approach in its prudential supervision of qualitative NPLs also helped boost number of bad loans in the country.

"Business confidence has continuously declined, because debtors have lost their ability to repay their debts," he said.

Tumnong, however, tried to allay concerns by saying the significant increase in NPLs would not be repeated in future quarters, pointing out that sustainable oil prices and interest rates, coupled with a robust growth in exports and consumption, would maintain debtors' repayment ability.

He said the total value of the NPLs would be sustained at around Bt400 billion, while the banking system's credit growth would help drag the proportion of NPLs down to 2 per cent of total loans by the end of next year, as targeted.

BOT governor MR Pridiya-thorn Devakula had previously said NPLs would be reduced to 2 per cent by the end of next year after Bangkok Commercial Asset Management Co was allowed to buy out non-performing assets from commercial banks.

The BOT said re-entry NPLs were recorded at Bt22.9 billion in the second quarter, compared with more than Bt13.5 billion in the first quarter and Bt20.5 billion in the fourth quarter of last year.

In the second quarter, a Bt71.7-billion increase in NPLs was higher than a Bt58.4-billion reduction in others for a net rise of Bt13.3 billion.

The banking system's NPLs stood at Bt484.3 billion, or 8.22 per cent of total loans, as of the end of June. Of that total, Bt113.3 billion had successfully completed the debt-restructuring process, Bt166.1 billion were being negotiated, and the rest were within the legal process.

Bad loans peaked at Bt2.7 trillion, or 47.7 per cent, of total loans in May 1999. In an effort to reduce the hefty number of NPLs, the central bank set up the Cooperate Debt Restructuring Committee (CDRAC) to act as an intermediate between debtors and creditors.

Tumnong said the CDRAC was successful so far, as 80 per cent of the debts, or 11,655 debtors with NPLs worth a total of Bt1.5 trillion, had been restructured in the past eight years.

Around Bt425.4 billion worth of bad loans owed by 2,995 debtors had failed the restructuring process, and Bt955.2 billion worth owed by 3,314 debtors had been transferred to Thai Asset Management Corp and ruled bankrupt by the court.

Tumnong believes potential debtors and creditors can find solutions to their cases out of court in the future.

The CDRAC is due to wind up its operations on October 1.

Anoma Srisukkasem

The Nation