Bangkok to buy banks' bad debts By Amy Kazmin in Cha-Am, Thailand Published: February 25 2001 20:31GMT | Last Updated: February 26 2001 01:00GMT
Thailand's new government is to tackle the country's bad-debt problem and promote industrial restructuring by creating a state agency to buy up most non-performing loans from private commercial banks.
The agency will buy and manage about Bt300bn ($7bn) in non-performing loans from private banks and Bt900bn in bad loans from state banks. For private banks the scheme will apply to bad debts that have more than three creditors.
The move follows intensive discussions at the seaside resort of Hua Hin over the weekend between top bankers and the government's economic team led by Thaksin Shinawatra, Thailand's newly installed prime minister (pictured).
Somkid Jatusripitak, finance minister, said that the government intended to use its leverage as major creditor to promote a fundamental corporate restructuring.
This would include consolidating fragmented sectors such as Thailand's steel industry into stronger units that could compete globally. Deal-making has been impossible because so many creditors are involved.
Crucial questions about pricing and loss-sharing formulas have yet to be decided. However, Mr Thaksin said the government agency would pay net book value for the bad loans, minus an as yet unspecified discount, issuing long-term bonds to finance the buyout.
He added that the assets would be managed by outside professionals, not by government bureaucrats.
Critics have expressed concern that the bad-debt buyout would mean taxpayers shouldering the burden for the mess made by banks and powerful corporate interests during the boom years before the 1997 economic crash.
However, Mr Thaksin, who promised in his election campaign to return struggling banks to financial health, said the government would not relax pressure on defaulting borrowers to pay back their debts.
"They will not get off the hook easily," Mr Thaksin said. "This is not a bail-out."
Mr Thaksin said the idea was to resuscitate potentially viable businesses to help get the economy moving. "We can help to revive businesses which can be the instrument for creating jobs."
Supavud Saicheua, head of research at Merrill Lynch Phatra Securities and an informal adviser to the new government, said: "If you are the creditor to a big portion of the industry, you can push to rationalise. Bank bail-out is the last thing on their minds."
Mr Thaksin said the transfer of bad loans would not get banks lending again right away. "This is just to prepare them to jump into the economy if it were to recover," he said. "But we have to revive the real economy also."
However, bankers said there was an understanding that banks would reduce their large spreads between lending and deposit rates once the bad-debt burden had eased.
Mr Thaksin has expressed concern about low deposit rates, which he said has squeezed people living on a fixed income and undermined consumer confidence. Banks say large interest margins are necessary because of the high level of non-performing loans.
Bankers also said Mr Thaksin surprised them by expressing support for strengthening bankruptcy and foreclosure laws to make it easier to seize recalcitrant borrowers' assets. "It is another step towards tightening the bolts," the prime minister said after the meeting.