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July 25, 2007

Banks urged to lend with greater caution
The Bank of Thailand has urged commercial banks to extend loans with greater caution after a latest figure shows non-performing loans in the whole financial system rose by more than 14 billion baht in the second quarter of this year.

BoT deputy governor Bandid Nijathaworn said NPLs incurred by commercial banks had increased since they were required to set loan-loss provisions under the new rule.

He said NPLs had surged mainly because the country’s overall economy slowed down in the first half of this year, re-entry NPLs existed following the debt restructuring, and the new loan-loss provision rule was adopted.

The BoT deputy governor said he believed lending by commercial banks would not increase considerably in the second half of the year. He projected NPLs would continue to increase this year because economic conditions are unfavourable.

Because of this, the lending would not increase in the second half of the year, but would begin to improve next year.

Given these factors, Mr. Bandid said, the commercial banks should not compete to lend because it could fuel NPLs in the system. Rather, they should be selective in lending by focusing on quality of borrowers.

However, he said, the central bank set a target of NPLs in the whole system at 2 per cent of outstanding loans for this year. TNA

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