Finding solutions to this problem is not going to be easy. But this is where efforts to revive the domestic economy will need to focus on. New lending is perceived as risky given the current negative factors on the macro fronts and external factors, while NPL overhang preoccupied bankers’ attention and kept them from renewing their client relationship. To address this problem, the authorities have chosen to approach the problem in three ways:  BIS Review 70/2001  3  ·  First, to further accelerate corporate debt restructuring by improving the legal frameworks and by setting up a national asset management corporation to deal with the remaining unresolved problem loans. Progress on this front is most visible. The law establishing the Thai Asset Management Corporation, or TAMC, was passed and operations set to begin soon with all asset transfer to be completed by September. A key benefit of TAMC is the advantage of being a single creditor of the transferred asset. This would allow TAMC to deal effectively and speedily with the unresolved debts that involve multiple creditors. Also, the vast executive powers given to TAMC by law would make it easier for TAMC to take a comprehensive approach to debt restructuring, and have the ability to deal with cases that might warrant corporate restructuring and change of management. ·  Second, to introduce a scheme of credit guarantees which would provide a facility of risksharing between corporate borrowers, the Government, and banks based on market mechanism.
To restore stability to the financial system, the most immediate step taken was to ensure that financial institutions have adequate capital to withstand future risks. The sources of capital were to come from the private sector including the original shareholders and new partners, both Thai and foreign. As it turns out, in some cases, the authorities did eventually provide a recapitalisation scheme. Nevertheless, this scheme was not much utilized by banks. In fact, only 74 billion baht of the scheme was actually used. Another important step taken to stabilize the financial system was to raise the prudential and supervision standards such as the rules on loan classification, provisioning, asset valuation, just to name a few examples, to be in line with international standards. As a result, commercial banks in Thailand have gradually recovered from the crisis. Here are some facts and numbers. ·  The banking sector now has a capital adequacy ratio of 11.9%. ·  The Thai banks recorded a better result in the first quarter of this year. They turned in a profit of 1.9 billion compared to a loss of 39 billion baht in the same period last year, as loan provision expenses declined significantly. This is partly due to the large provisioning and loss recognition, which were already taken last year. In addition, there has been substantial progress in debt restructuring the Thai banks recorded.