As the 15 January deadline looms for banks to find fresh capital or risk government intervention, the Thai central bank has announced that bad debts ammassed by commercial banks have risen even further, now totalling 46% of lending.

Analysts predict that the banks are now almost certain to miss the deadline and fear that the original plan to auction off the bad debts has been a disaster.

Russell Copp, the head of research at investment bank Dresdner Kleinwort Benson said: "The biggest problem is there is only one stick the Bank of Thailand has. Suspend the banking licence or take them over.

"They don't want to do either, so what can they do except let the deadline slide. You can't prop up two-thirds of the banking system."

The Bank of Thailand's deputy governor, Kitti Patpongpibul, said that non-performing loans held by Thai banks had risen to nearly 2 trillion baht ($58bn) at the end of October - nearly half of the country's outstanding loans. Thailand's eight private banks have bad debts worth 39% of their total loans, while the eight state-owned banks worry about 58% of their loans. The 24 private finance companies have seen more than 55% of their debt gone bad.

Finance minister Tarrin Nimmanahaeminda announces rescue plan

The figures reflect the depth of the problems affecting Thailand's financial system after an economic meltdown triggered by the flotation of the nation's currency in mid-1997.

Thai authorities have closed half of the finance companies and taken over or consolidated a third of the banks. But many cash-strapped firms are still unable to pay their loan installments.

An attempt early in December to sell off $10bn of bad debts from closed businesses failed when only 10% of the loans on offer found buyers.

Bank bail-out

The Bangkok Bank, Thailand's largest, has announced plans to join the government bail-out scheme which was set up in mid-August. The bank's board has agreed to apply for a 5bn baht injection to boost its capital base.

The bail-out scheme allows commercial banks to seek capital support by issuing preferred stock to the finance ministry. But most banks have shown little interest in the scheme.

Thailand's banks and financial institutions have been devastated by a mass of bad loans as south-east Asia was gripped by economic turmoil. A collapse in the Thai currency set off the downturn over a year ago.