Central bank shrugs off NPL suggestions

       The Bank of Thailand (BOT) yesterday dismissed requests from the Finance Ministry and the business sector for a temporary relaxation of the definition of non-performing loans (NPL), saying the move would not really benefit the economy.

       Assistant governor Krirk Vanikkul said the relaxation could worsen the banking system's balance sheets and commercial banks would be in trouble if NPLs escalated.
       Finance Minister Korn Chatikavanij told a seminar on Thursday that he had asked central bank chairman MR Chatu Mongol Sonakul to consider easing the NPL regulations. Banks should be able to define loans as NPLs only when mispayments are longer than 6 months. Korn said that he believed that if it took more time for the NPL portfolio to grow, with the corresponding requirement for loan-loss provisions, banks would lend more.
       Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, called on the central bank to loosen regulations such as the Basel II banking standard.
       Krirk said that so far the banking system's NPLs had not increased significantly, despite the economic slowdown.
       "[But] if we widen the definition and things get worse, the banks with high NPLs would have to spare profits as loan-loss provisions. As the bad loans are in their accounts, changes in the definition would mean that we continued to lie. The more we delay actions on the bad things, the worse," he said.
       As of June, the NPL ratio was 5.4 per cent, slightly lower than 5.5 per cent in the first quarter. It was 5.3 per cent in 2008 and 7.3 per cent in 2007. The provision for loan loss was 120 per cent of the requirement.
       Delinquent or "special mention" loans were 3.6 per cent, compared with 4 per cent in the first quarter.
       Krirk said instead of relaxing the regulation, the banks should resolve the NPLs like cleaning out a dirty house. To help them, the central bank allows banks to reschedule the debts in advance before the customers became NPLs, which helps reduce the bad debts in the balance sheets.
       "There is no reason to change the definition," Krirk insisted.
       The BOT insisted that it did not interfere with the banks' lending criteria or product launches although the economy has picked up. It has encouraged the banks to give loans under sound risk-management. The NPLs will continue to put pressure on the banks' balance sheets for the rest of the year, as the economic recovery has yet to strengthen.