The Thai banking system is strong, with high levels of capital and liquidity. Profitability improved in Q1 2024, but monitoring is needed for small SMEs and vulnerable households to prevent NPLs.
Summary
- The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity.
- The banking system’s profitability in the first quarter of 2024 improved from the previous quarter.
- However, there remains a need to monitor the debt serviceability of small SMEs and certain vulnerable households with slow income recovery, which could influence a gradual increase in NPL but remains manageable with no immediate risk of an NPL cliff.
The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity. In the first quarter of 2024, the banking system’s loan growth turned slightly positive at 0.7% YoY, attributed to the expansion of large corporate loans in manufacturing sector, notably in food, petroleum, and chemical products. Consumer loans continued to grow at a slower pace across all portfolios, except auto loans which remained contracted.
The banking system’s gross non-performing loans (NPL or stage 3) in the first quarter of 2024 increased to 502.6 billion Baht, equivalent to the NPL ratio of 2.74%, primarily from corporate loans (partly due to qualitative criteria of the asset classification) and mortgage loans.
Meanwhile, commercial banks continue their loan portfolio management and provide assistance to debtors. In addition, the ratio of loans with a significant increase in credit risk (SICR or stage 2) stood at 6.13%, increased from the previous quarter, including debtors who still meet their contractual debt obligation but have been qualitatively classified.
The banking system’s profitability in the first quarter of 2024 improved from the previous quarter, mainly driven by the reduction of operational costs and provisioning expenses, despite a decline in net interest income due to higher costs of funds. As a result, the net interest margin (NIM) of the banking system declined.
However, there remains a need to monitor the debt serviceability of small SMEs and certain vulnerable households with slow income recovery, which could influence a gradual increase in NPL but remains manageable with no immediate risk of an NPL cliff. The household debt to GDP ratio in the fourth quarter of 2023 slightly increased from the previous quarter, while the corporate debt to GDP ratio remained unchanged due to a gradual economic recovery and a marginal increase in new debt creation.
The overall corporate profitability continued to improve from the previous year but decreased from the previous quarter, led by a slowdown in manufacturing and export-related sectors. Meanwhile, certain firms in service sector have experienced pressure from high costs.
Source : https://www.bot.or.th/en/news-and-media/news/news-20240521.html
