Tuesday, May 19, 2009

Thailand's delinquent loans soar in first quarter

Delinquent loans surged by Bt14.9 billion in the first quarter from the previous three months, bringing their share of outstanding lending up to 4 per cent, the Bank of Thailand reported yesterday.

Nawaporn Maharagkaga, senior director of the Financial Institutions Strategy Department, said the rising delinquency rate was a result of debtors' weakening ability to pay debts due to the global and local economic downturns.

This put pressure on the central bank to closely monitor the figure, as net non-performing loans also jumped Bt18.4 billion from the previous quarter.

"Normally, some debtors could not repay their debts for a few months. But not all delinquent loans would become NPLs," she said.

Lenders classify delinquent loans as NPLs when they are serviced for longer than three months.

She said the NPL outlook should improve along with the economic recovery, while lower interest rates should also ease the pressure on loan payback.

The Monetary Policy Committee will today consider whether the policy rate should be cut again. It currently stands at 1.25 per cent.

Finance Minister Korn Chatika-vanij said there was room to shift the key rate down another gear, as inflationary pressure remained subdued.

Delinquent loans were only 2.3 per cent of total lending in 2006. They had increased markedly in the first quarter of last year and hit 3.9 per cent in the last quarter of 2008.

Both gross and net NPLs escalated to 5.5 per cent and 3.1 per cent respectively in the first quarter, from 5.3 per cent and 2.9 per cent in the previous quarter. NPLs in the construction sector rose to 13 per cent of total loans, compared with 12.1 per cent in the fourth quarter of last year.

Property sector NPLs edged up to 11.6 per cent from 11 per cent, while manufacturing sector NPLs jumped to 9 per cent from 7.1 per cent.

The financial industry's credits grew 5.8 per cent on year, compared with an 11.4-per-cent hike in the fourth quarter of last year. However, they contracted 2.6 per cent on quarter, due to the thin growth of 0.8 per cent in consumer loans and a contraction of 3.7 per cent in corporate loans.

Loan growth could pick up if demand returned with acceptable risk, Nawaporn said. Lending factors have already improved from last quarter, such as fiscal policy and the first signs of a global economic recovery.

Banks have sufficient liquidity to extend more loans, as their loan-to-deposit ratio is only 84.1 per cent. They are also financially strong with an average capital adequacy ratio of 14.9 per cent and improved risk management.

Supak Sivarak, CEO of CIMB Thai Bank, has proposed to the government to introduce a "principal-free" programme for six months to help lower the burden on borrowers.

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