Analysts are reluctant to say the reform package unveiled by finance minister Tarrin Nimmanahaeminda on Friday will quickly get Thai banks to resume normal lending or to bring foreign investors back to the country.

But the plan has the backing of the International Monetary Fund (IMF), which wants the market to look beyond the immediate problems of implementing the package and help pull the banks and the economy out of its crisis, sources close to the fund say.

"It's absolutely crucial for Thailand to move to the recovery stage and clear recovery will not happen unless banks resume lending and restructuring of corporate debts take place," a senior economist involved in the current talks between the IMF and Thailand said on Saturday.

Thai banks are saddled with surging non-performing loans (NPLs)averaging 30-35 per cent of total lending and the figures could peak at 40-45 per cent early next year. Analysts have estimated Thai banks need to raise $15billion to $25 billion in fresh funds to meet capital and provisioning requirements over the next two years.

A foreign analyst who declined to be identified said he did not anticipate the package would bring a flood of new foreign investment. "I think it's more complicated than that. A lot of people are looking far beyond Thailand now ... foreign investors would take a much more wait-and-see approach. I don't see a real hurry for them to come in. Things still don't seem to have bottomed out.

"I don't expect people to jump right back in (to the Thai market) just because of the government announcement. It's clear a lot of details have not been worked out yet," he said. Crippling NPLs and costly provisioning forced Thai banks to post heavy net losses totalling 113.3 billion baht ($2.7 billion) in the first-half of this year against a combined 29.9 billionbaht profit for the 15-bank sector a year ago.

Tarrin's package highlight was a government plan to swap up to 300 billion baht of domestic bonds with preferential shares or subordinated loans in the next two years. Hard-pressed Thai banks would have a tough job raising this money otherwise. The minister said government equity and loan injections would not necessarily risk fiscal investment. He said the preferential bank shares and subordinated debt would carry higher dividends and yields than government bond coupons.

The government offer was made along with a move to ease the burden of bank recapitalisation Tarrin adjusted the proportions of equity and loan capitals that Thai banks are required to maintain. It rejigged their first and second tier capitals to a 50:50 ratio from 70:30.

The change makes it less urgent for banks to float more shares to meet their first tier requirements. First tier capital comprises mainly common and preferential stocks and warrants, and the second tier is made up mainly ofsubordinated debt.

Political professor Somjai Phagaphasvivat of Thammasat university expects the package to produce positive results. "It aims to achieve a dual target of using bonds to help banks tide over capital adequacy problems to 2000 and get them to contribute to economic recovery at the same time," he said.

Sources involved in Thai-IMF talks said the adjustment to the composition of the 8.5 per cent capital adequacy ratio brought Thailand on par with international standards.It would not erode the protection of the government or new private investment in Thai banks.

Tarrin's package requires banks seeking government assistance to make full NPL provisions, produce progress in restructuring weak loans in their portfolios and exempt new investors from absorbing bad debt incurred prior to their takeovers.Sources close to the Thai-IMF talks said all Thai banks would need to meet the performance criteria including Siam Commercial Bank Plc, Bank of Ayudhya Plc and Thai Military Bank Plc.

These threemajor banks are among those facing recapitalisation problems because of rising NPLs. Tarrin said a powerful Financial Restructuring Advisory Committee would be formed by the government to monitor the performance of banks seeking government bailouts.

They said Thai public sector debt, at about 30 per cent of gross domestic product, remained relatively low compared with some Latin American and European countries.