Banking Sector Insights
In the third quarter of 2024, the Bank of Thailand (BOT) reported that the overall condition of the commercial banking system remains stable. However, Suwannee Jetsadasak, assistant governor of the Financial Institutions Policy and Supervision Department, cautions that close scrutiny is needed on lending practices and the repayment capabilities of small and medium-sized enterprises (SMEs). There has been a notable increase in non-performing loans (NPLs) throughout this sector.
Interestingly, total lending by commercial banks contracted by 2% year-on-year. This marks the first quarterly decline in lending noted in the last 14 years, a troubling trend reminiscent of the 2008 global financial crisis, often referred to as the “Hamburger Crisis.” The decline in lending can be attributed to several factors, including the government’s loan repayments ahead of the fiscal year-end and large businesses repaying debts secured through bond issuances.
Understanding the Decline in Lending
While commercial banks faced a downturn in overall lending, sectors such as service, real estate, commerce, and manufacturing continue to secure new loans, especially among larger businesses. However, sectors like petrochemicals, electronics, and automotive are witnessing slowed growth in business loans due to waning competitiveness.
Consumer loans also show signs of a downturn, particularly in personal and mortgage loan categories, while auto loans and credit card lending continue to decline. ‘This decline in lending marks a significant shift,’ Suwannee noted. ‘While it mirrors trends observed globally, we anticipate potential for loan growth in the future.’
Rising Non-Performing Loans
As of the third quarter of 2024, the NPL ratio escalated to 2.97%, up from 2.84% in the previous quarter. This increase is observed across all loan categories, with outstanding NPLs now totaling 553 billion baht. Business loan NPLs have surged to 2.84% from 2.70%, alongside a rise in consumer loan NPLs from 3.13% to 3.24%. The Special Mention category, indicating loans at risk of becoming non-performing, increased to 6.86% from 6.50%, demonstrating the rising strains in the lending landscape.
Impact on Vulnerable Borrowers
Concerns about NPLs are especially pronounced among vulnerable groups, including low-income earners and specific retail loan segments. The BOT highlighted that most of these borrowers had received support during the COVID-19 pandemic. There has been a disturbing increase in NPLs within housing, personal, and credit card loans, particularly among individuals earning less than 30,000 baht per month. Suwannee stated, ‘We are deeply concerned for vulnerable groups, especially those with incomes below 30,000 baht. These individuals are at significant risk of financial strain.’
To combat these issues, the BOT plans to announce measures focused on debt relief for households by the end of 2024. These initiatives will aim to provide assistance to vulnerable populations, mitigating the risk of moral hazards from loan defaults. ‘We anticipate that these relief measures will aid in reducing household debt levels,’ Suwannee added.
Conclusion
The BOT’s outlook indicates a cautious path ahead, with the expectation that while NPLs may continue to rise, they will remain manageable. Addressing the welfare of vulnerable borrowers remains a priority, as the banking sector navigates these challenges.
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