Thai loan growth hits 15-year low amid economic concerns

Loan demand contracted in 2024 as banks tightened lending criteria

 

The Bank of Thailand (BOT) has reported the lowest commercial bank loan growth in 15 years, with a 0.4 per cent contraction in 2024.

 

This marks the sharpest decline since 2009 and follows a 0.3% fall in 2023, raising concerns about the health of the Thai economy.

 

The BOT attributes the slump to reduced loan demand from both retail and small and medium-sized enterprise (SME) borrowers, as banks tighten lending criteria in response to growing credit risks. 

 

This comes despite a fall in non-performing loans (NPLs), which dropped to 2.78% in the fourth quarter of 2024 from 2.97% in the previous quarter.

 

BOT assistant governor of supervision group, Suwannee Jatsadasak, highlighted that nearly all loan categories experienced weak or negative growth, with the exception of large corporate loans. Retail lending was particularly affected, contracting by 1.9%, driven by a significant 9.9% decline in hire purchase agreements.

 

This cautious approach by banks reflects concerns about rising NPLs. While the BOT has noted a decrease in car repossessions and a subsequent improvement in used car prices, it remains vigilant.

 

SME lending also contracted, while consumer loans continued their downward trend, especially hire-purchase loans, which are suffering from structural issues and slow recovery of incomes among vulnerable groups.

 


"The decline in lending is partly attributable to banks' cautious lending practices due to heightened credit risks," Suwannee explained. "Loan growth had been very strong in recent years despite sluggish GDP growth, including negative growth during the Covid-19 pandemic."


  

While overall NPLs have decreased in both volume and proportion, falling to 550 billion baht (2.78% of total loans) in the fourth quarter of 2024 from 530 billion baht (2.97%) in the previous quarter, concerns remain.

 

This is the first quarterly decline in several periods, excluding housing loans, where NPLs increased from 3.82% to 3.88%. The BOT anticipates its "You Fight, We Help" programme will improve housing loan NPLs in the next quarter.

 

Other loan categories experiencing a reduction in NPLs include business loans (down from 3.24% to 3.20%), SME loans (from 7.01% to 6.92%), large corporate loans (from 1.18% to 1.00%), and retail loans (from 3.24% to 3.20%). 

 

Hire purchase loan NPLs fell from 2.34% to 2.17%, while credit card NPLs decreased from 3.65% to 3.12%, partly due to the continuation of minimum payment measures.

 

However, the NPL reduction is partly due to end-of-year debt reduction efforts and increased debt restructuring by financial institutions for large businesses, SMEs, and retail clients.

 

This has resulted in a shift of some borrowers from Stage 3 (NPL) to Stage 2 (special mention loans), which now account for 6.98% of total loans.

  

Cumulative debt restructuring figures reach 7.18 million accounts, representing a total debt value of 2.66 trillion baht.

 


"While NPLs have fallen, we are still concerned," Suwannee cautioned. "We need to monitor the situation closely, as Q4 is typically a period when financial institutions manage NPLs for reporting purposes. Income recovery is also essential for long-term debt resolution. We are particularly concerned about housing loans, where NPLs continue to rise."


 

The banking system remains stable, with high levels of capital, reserves, and liquidity. The capital adequacy ratio is a healthy 20.4%, while the liquidity coverage ratio (LCR) has increased to 206.4%, largely due to higher liquid assets. The NPL coverage ratio has also risen to 177.1%, mainly due to the decrease in NPL volume.

 

However, loan and bond issuance growth rates have contracted. Corporate bond issuance has fallen for the third consecutive quarter, declining by 2.5% in the latest quarter due to weaker demand across most sectors, excluding utilities.

 

The overall slowdown in bond issuance is partly due to factors impacting investor confidence, leading to increased caution and a preference for higher-quality bonds.

(2025/02/19-00:00)