Analysts expect the government of prime minister Chuan Leekpai to move on several fronts to speed recapitalisation of the country's banks, probably by helping them improve portfolios laden with non-performing loans (NPLs).

Industry data suggests about a third of total Thai bank loans are classified as NPLs and analysts expect the figure to peak at 45-50 per cent of total loan portfolios during the first half of 1999.

They estimate that battered Thai financial institutions, weakened by rapidly deteriorating assets, will need to raise $13-14 billion in fresh funds by 2000 if they are to meet minimum capital adequacy standards set by the central bank.

Analysts expect the Bank of Thailand to provide about 30 per cent of the fresh funds needed and say a substantial part of the rest will come from foreign investment funds.

Neil Saker, economist at Socgen Crosby in Singapore,said some of the foreign funds would come from the Asian Development Bank and the International Finance Corp, the private investment arm of the World Bank. "They (the government) don't have the money to bail out the banks. There's not enough money in the system," Saker said.

"Without an injection of liquidity, it is very difficult because they won't have any capital to play around with. If that is the case, the government would end up having to step in at some point or the other," agreed Kenneth Ng of ING Baring.

Saker says at least half of Thailand's 15 local banks will be sold to foreign investors, merged, nationalised, or be closed down in the next two years. Prime minister Chuan has said his government will announce tough banking reform measures later this month that could erode his government's popularity. "We will need to take some measures even at the risk of being pelted by bricks and pebbles," the prime minister told reporters last week. One such measure was announced on Wednesday. In a dramaticattempt to woo offshore funds, The Bank of Thailand said on Wednesday it would guarantee foreign equity investment in Thai banks by allowing major foreign shareholders to sell stock back to the central bank within five years at the original price.

The central bank said the move would calm foreign investor concerns that they could lose out by taking stakes in Thai banks, whose stock prices have plunged this year.

Sharp price falls in Thai bank stocks in the past few months have kept foreign fund managers away from the Thai market and further complicated efforts by Thai banks to recapitalise by floating more shares.

Foreign investors paid for Bangkok Bank Plc and Thai Farmers Bank Plc shares at 93 baht and 88 baht, respectively, at their recapitalisation exercises in April. The two banks closed on Wednesday at 48 baht and 27 baht on the Thai bourse's foreign board.

"There is no hurry. Foreign investors are reluctant to buy Thai banks because their balance sheets are still extremely uncertain," Sakersaid.

Kenneth Ng of ING Baring said the success of Bangkok Bank and Thai Farmers in recapitalising in April bought themselves time to restructure their loans without government intervention.