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'Here's some fruit - now pay up,' say Thai debt collectors

[BANGKOK] When Piya Pong-acha's employees chase payments from Thai debtors there are no strong men pounding on doors or threatening letters from lawyers.

A basket of fruit and a polite home visit does the trick. "We go to their houses with oranges or mangosteens," Piya, who runs one of the growing number of firms in Thailand seeking profits from recuperating bad debt. "We don't talk about the money but they know why we are there."

Piya's firm, JMT Network Services, is the largest consumer loan collector among the 42 asset management firms that have sprung up in Thailand since 1998, with dozens of them set up in recent years.

Southeast Asia's second-largest economy has become a new frontier for distressed debt players, mirroring a business model that has a long history in Europe and the United states and has recently taken off in emerging markets such as China and India.

The market is seen so profitable that state-owned Bangkok Commercial Asset Management, the country's biggest debt collector, plans an IPO valued at up to US$1 billion.

The firm, established in the wake of the Asian financial crisis in the 1990s, plans to acquire about 10 billion baht (S$386.11 million) of bad housing, retail and corporate debt this year, a senior company official told Reuters.

Thailand's debt collectors are feasting on a growing portfolio of non-performing loans as the country's economy struggles.

NPLs rose to 2.64 per cent of total lending, or 357.4 billion baht, at the end of March, from 2.55 per cent at the end of 2015.

The Bank of Thailand is bracing for more. "NPLs are likely to rise further as the economic recovery is slow, putting pressure on banks," senior central bank director Don Nakornthab told Reuters.

Top lender Bangkok Bank's first-quarter profit fell 12 per cent on the year, in part due to increased provision for souring loans. Siam Commercial Bank's profit tumbled 20 per cent.

Corporate debt defaults are less of a problem than consumer debt but are on the rise. Small and medium enterprises are struggling the most, accounting for just under half of all defaults according to Reuters calculations.

Foreign firms are quietly making inroads into the corporate debt collection business.

Inter Capital Alliance Management Co, part of Morgan Stanley, buys big business loans and seeks to recover them, said a company executive, who declined to be named as he was not authorised to speak to the media.

"Many foreign investors are interested in this business but nobody wants to do it openly," he said. "Foreigners buying distressed Thai assets can be sensitive." Most Thai banks prefer keeping distressed corporate debt in house to avoid expensive write-downs.

Some have given up on the worst of the bad debt. Thanachart Bank, sells a few billion baht of sour consumer and syndicated loans each year to cut NPLs, the bank's executive vice-president Anuwat Luengtawekul said. "If the debt isn't worth chasing, we will sell it," he said.

DEBT HANGOVER

Thais are deeper in the red than most in Asia, with record household debt at 81.5 per cent of GDP. Consumers are struggling to pay after splurging on cars, houses and electronic goods, encouraged by the populist policies of former Prime Minister Yingluck Shinawatra.

The debt hangover has stymied attempts to stimulate consumption by the junta that seized power from Yingluck's government in 2014. It has also made the central bank reluctant to cut rates for fear of encouraging more borrowing.

JMT is making the most of bad times, snapping up distressed debt at just 5 per cent of its nominal value. It plans to amass nearly 110 billion baht by the year's end, up over 20 per cent from 2015, Mr Piya said. "It's a good time to buy bad loans," he said. "There are plenty of them out there."

REUTERS