As part of its effort to mend Thailand's ailing finance sector, the central bank proposes to sell 75 per cent stakes in three banks, starting with Radhanasin Bank. The bank is the country's smallest commercial bank, with assets of 48 billion baht ($1.3 billion) and a small network of 62 branches concen trated in Bangkok.

The Bank of Thailand, the central bank, last week finished winnowing the list of interested bidders for Radhanasin Bank down to four foreign banks, clearing the way for them to carry out due diligence on the bank's loans, an executive at the central bank said. Their examination is expected to last up to two months, raising hopes that Radhanasin Bank could be sold as soon as August. The four banks are HSBC Holdings PCL, Union Overseas Bank of Singapore, Citigroup's Citibank NA and aFrench bank, according to people in the banking industry.

Proceeding on Two Other Banks

The central bank also expects to complete an information memorandum for the sale of two other nationalized banks, Bangkok Metropolitan Bank and Siam City Bank, in the next two to three weeks, and to decide which foreign banks can bid for them in the following month to six weeks. "The whole process is going beautifully," the central-bank executive said. "We do have a real sale here. There are people coming forward." Chatichai Thiradarma, an adviser to Bangkok Metropolitan's president, identified HSBC as a leading contender for the bank, putting it in the running for at least two of the three banks up for sale. An HSBC spokesman in Hong Kong, David Hall, declined to confirm reports linking it to negotiations for any Thai institution, commenting, "We have no target list, no shopping list and no agenda."

The timing of the sales looks increasingly favorable for the central bank, analysts said. Foreign institutionshave bought two Thai commercial banks in the past year, and Bangkok has been awash with rumors of other possible takeovers as Thai banks struggle to recapitalize. Until now, potential buyers have been in no hurry as local banks' floundered under a fast-rising burden of nonperforming loans. But signs that consumer spending and manufacturing output are growing are whetting the appetites of foreign investors. "It does change the whole perception; interest levels have increased quite dramatically," an analyst with a Western brokerage house said.

Non-performing Loans Peak

Although nonperforming loans now average a daunting 43% at Thai banks, central-bank reports showing nonperforming loans peaking in March are among the key indicators that Thailand's economy has hit bottom and is set for recovery. "Now that [nonperforming loans] have peaked, there's a rush to get in there. If you really want a bank in Thailand, you don't want to wait too long," said Kenneth Ng, banking analyst for ING Barings inBangkok.

A further prod to potential bidders has come from the agreement announced by U.K.-based Standard Chartered Bank last month to take a 8.4% stake in Thailand's second-smallest bank, Nakornthon Bank, for an initial investment of 6.2 billion baht, with the expectation that the U.K. bank would increase its stake to around 80% in five years. "They all have the same mandate, to increase market share," a Western bank analyst said of rival contenders such as HSBC and Citibank. "Standard Chartered's success is their failure."

The completion of Standard Chartered's deal has become snagged on political sensitivities and technical issues, however. The central bank's Financial Institutions Development Fund resisted the deal, which called for it to inject 13.3 billion baht in Nakornthon, more than double Standard Chartered's investment, for a much smaller shareholding of 20%. There is "no significant problem with the transaction value," a central-bank official suggested, but completion may need some changes tothe regulations and a decision by Minister of Finance Tarrin Nimmanhaeminda to allow the fund to take part.

Negotiations are proceeding "quite happily," said Paul Dowling, Standard Chartered's head of external affairs. The bank has "every expectation" its takeover will be finalized by the end of June, in line with its original agreement, he said.