Aug. 5--Cabinet ministers today will consider a new proposal from the Finance Ministry directing state-owned banks to accelerate lending plans.

The proposal will introduce the public service accounting (PSA) system to help compensate state banks for any losses incurred as a result of policy-directed loans.

Pradit Phataraprasit, a deputy finance minister, said the system would help facilitate directed lending to key sectors such as tourism, automobiles or labour-intensive industries.

"In economic conditions such as today, it's inevitable that non-performing loans will occur. At the same time, the state needs to encourage lending growth if the economy is to recover," he said.

Commercial bank lending contracted in the first half of the year as local banks cut back credit lines for fear of rising loan defaults.

But business leaders say the more risk-adverse stance of local banks could force more companies out of business due to a lack of liquidity. The government has sought to ease the problem by directing state banks to increase lending and by introducing a loan guarantee programme to help offset credit risks carried by lenders.

Yet even state-owned banks such as the SME Bank or the Export-Import Bank of Thailand have found it difficult to meet lending targets.

In the first half of the year, state banks, excluding Krung Thai Bank, approved 300 billion baht in loans, or less than half of the target of 625.5 billion set by authorities. Disbursements have been even more disappointing, with only 100 billion baht worth of credit drawn down from the total approved.

Last week, the Finance Ministry raised the lending target for state banks for the whole year by another 300 billion baht to 927 billion in total.

Mr Pradit said he was confident that state banks could meet the target of lending up to 800 billion baht in the remaining months of the year.

The PSA system will help reassure executives of the state banks that any losses incurred from directed lending policies would be compensated for by the government.

Complaints that state banks have been slow in approving loan requests in part reflect the reluctance of bank executives to take responsibility for possible future loan losses, Mr Pradit said.

He added that the PSA system would also facilitate moves by state banks to offer relaxed loan terms, payment periods, collateral rules and interest rates for priority sectors.

The state banks that will apply the new system include the SME Bank, the Exim Bank, the Bank for Agriculture and Agricultural Co-operatives, the Government Savings Bank, the Government Housing Bank and the Islamic Bank of Thailand.

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