A resurgence of coronavirus infections in Thailand will hamper the country’s economic recovery and raise asset risks for banks in the country.

Yet government measures to support borrowers will limit the deterioration of banks’ asset quality, and banks have sufficient buffers to absorb expected credit losses.

Thailand’s economic recovery will lag that of its ASEAN peers amid a resurgence of coronavirus infections, and this will result in increases in nonperforming loans (NPLs).

Slow economic recovery in Thailand will weigh on asset quality for banks

We project that Thailand’s GDP will grow at the slowest pace among large ASEAN economies in 2021 as the tourism sector continues to suffer from the pandemic amid low vaccination rates.

Loans to small and medium enterprises (SMEs), many of which are tied to tourism, will drive growth in nonperforming loans (NPLs).

Thai banks will maintain adequate solvency

he overall deterioration of banks’ asset quality will be modest, helped by support measures for borrowers, with NPLs to grow to about 5%-6% of gross loans by the end of 2022 from about 4% at the end of June 2020. Thai banks have sufficient capacity to absorb loan losses of this magnitude. Under a worst-case scenario where 50% of loans under relief turn into NPLs in two years, with a high 75% Loss Given Default rate, banks would still maintain adequate capital levels.

Thai banks still have ample potential for long-term growth

Thai banks operate in a large, well-diversified economy, supported by a high degree of policy credibility of key institutions, such as the Bank of Thailand and the Ministry of Finance. As such, Thai banks have abundant potential for growth for the next 10 years, assuming the economic shock from the pandemic fades in 2022-23. In addition to the fundamental foundation for growth, Thai banks will continue to expand through digital and mobile financial services, which have gained significant traction in the past year thanks to social-distancing measures.

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