The deputy governor of the Bank of Thailand, Kitti Patpong-Pibul, told a news conference the small commercial bank Union Bank of Bangkok would be taken over by partly state-owned Krungthai Thanakit Finance and Securities, while Laem Thong Bank would merge with state-owned Radhanasin Bank.

Kitti said once the merger of Krungthai Thanakit and Union Bank was complete, the new institution would absorb five smaller finance firms. The five firms, along with Union Bank and Laem Thong, were taken over by the central bank on Friday for failing to boost their capital bases while problem loans rose.

"If these financial institutions are allowed to continue their operation underthe present condition, it will be harmful to the public," Kitti said.

The five were Dhana Siam Finance and Securities, First City Investment Plc, IFCT Finance and Securities, Vajira Dhanathun Finance Co Ltd and Thai Summit Finance and Securities.

"We have to intervene today because of their insufficient capital. Other financial institutions still do not fall into this category," Kitti told the news conference.

Thai banks have massive problems with non-performing loans, estimated to be about a third of their total assets, and are in dire need of fresh capital.Analysts say they need to raise $15 billion to $25 billion over the next two years to meet their provisions for bad loans.

Kitti said it would cost the authorities over 27 billion baht ($646 million) to recapitalise Union Bank and Laem Thong Bank before they joined their new state-owned partners. But he declined to reveal the details of how much it would cost to take over the five other financial institutions.

A Bank of Thailand unit, theFinancial Institutions Development Fund (FIDF), would inject new equity funds of about 15.065 billion baht into Laem Thong before it is merged with Radhanasin.

The central bank unit would absorb another 12.332 billion baht of new shares of Union Bank before it merged with Krungthai Thanakit, he said.