The Bank of Thailand is striking a confident note, assuring everyone that the nation’s banking system is rock solid despite some worrying dips in loan growth. Their latest statement paints a picture of moderately strained resilience, with banking capital, liquidity, and loan-loss provisions standing firm.
Loan growth took a hit in the third quarter of 2024, shrinking by 2% compared to last year. This drop is mainly down to a hefty wave of debt repayments, particularly coming from the government and big businesses.
Even though fresh loans are still flowing into major corporate players across the service, real estate, and trade sectors, not to mention personal and mortgage lending, the pace is noticeably lagging. Struggling industries, especially in the petrochemical, electronics, and automotive sectors, are pulling back, leading to a dip in business loans.
Nudging up the worryometer, non-performing loans (NPLs) in the system shot up to a staggering 553 billion baht in Q3, hitting an NPL ratio of 2.97%. The blame for this spike is twofold: a shrinking loan base and growing NPLs from both businesses and consumers.
Yet, banks are on the ball, actively managing their loans and supporting debtors. Notably, the ratio of loans with rising credit risks climbed to 6.86%, a hike linked to mortgages and business loans tagged with professional asset classifications. Still, most debtors are keeping up with their payments.
It’s not all doom and gloom, though. Banking profitability improved year-on-year for the third quarter, thanks to gains in fair value through profit or loss. That said, net profit took a dip from the previous quarter due to a seasonal drop in dividend income combined with lower provisioning expenses.
The central bank is keeping an eye out, though, particularly on small businesses and some households still wrestling with sluggish income recovery and towering debt loads. There’s chatter about structural issues and the competitively-challenged businesses potentially nudging NPLs upwards, but the risks are currently seen as manageable without any immediate threat of a major NPL surge.
On the household front, some good news as the debt-to-GDP ratio saw a slight dip in the second quarter, reported Bangkok Post, suggesting a deceleration in credit growth as households chip away at debt. Similarly, the corporate debt-to-GDP ratio has dropped due to loan contractions and cutbacks in debt securities.
So, while there are bumps on the road ahead, Thailand’s banking system appears well-placed to weather it all, keeping its balance amid the ebb and flow of these financial tides.
What Other Media Are Saying
- Bank of Thailand reports the banking system’s resilience despite a 2% contraction in loan growth due to high debt repayments, emphasising ongoing support for debtors amidst rising non-performing loans and structural challenges. (read more)
Frequently Asked Questions
Here are some common questions asked about this news
Why is there a decline in loan growth despite new lending activities?
Substantial debt repayments by the government and major corporations outpaced new lending, causing the contraction.
How do structural issues in certain sectors affect the banking system’s stability?
Reduced competitiveness can increase NPLs, posing challenges to the banking system’s resilience.
What if the trend of rising NPLs continues in the banking system?
Continued NPL growth could stress financial institutions, necessitating enhanced risk management strategies.
How does a shrinking loan base contribute to the rise in NPL ratio?
A reduced loan base mathematically increases the NPL ratio, even if NPLs remain constant or grow slightly.
Why is monitoring small businesses’ debt serviceability crucial for economic stability?
Small businesses’ financial health directly impacts overall economic growth and can influence NPL trends.
Latest Thailand News
Business NewsThailand News
