Thai banks see improved profits, lower bad loans in Q2

It also laid out plans aiming to reduce household debt.

The Thai banking system saw improved profits and lower gross non-performing loans in the second quarter of 2023, although loan quality of SMEs and consumer loan deteriorated.

According to data from the Bank of Thailand (BOT), the banking system’s gross NPLs declined to approximately $13.97b (THB492.3b), or an NPL ratio of 2.67% in Q2.

The ratio of loans that recorded a “significant increase in credit risk” rose to 6.08%, from 6% in the previous quarter.

Profitability also improved in the second quarter thanks to higher net interest income, which offset higher costs of funds from the rising deposit rate, increased operational costs, and provisioning expenses, the BOT said.

“Comparing with the previous quarter, net profit increased mainly due to seasonal dividend income and net interest income,” Thailand’s banking regulator said.

However, there remains a need to monitor the debt serviceability of some vulnerable SMEs and households with higher debt burden and slow income recovery. 

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Whilst household debt to GDP ratio, and corporate debt to GDP ratio both declined in the past quarter, risks could arise from the global economic slowdown on experts, recovery pace of tourism, and effect of policies on the construction sector.

Noting this, the BOT said that it will expedite new measures to “sustainably address household debt problems.” This will reportedly be tackled throughout households’ debt journey, and in a manner without raising more debt burden in the long run.

The household debt conundrum
The BoT also laid out expectations for local financial institutions to continue supporting debtors suffering from repayment difficulties through debt restructuring, “regardless of the expiration of the long-term debt restructuring measure by the end of this year.”

“Basically, debt restructuring remains as normal practice to assist vulnerable debtors, the expiring part will be just the partial relaxation of regulatory requirements during the COVID-19 to help reduce costs for financial institutions,” the BOT said.

The BOT will also implement additional measures going forward by allowing creditors to adopt risk-based pricing (RBP) for retail borrowers through the regulatory sandbox and applying debt service ratio (DSR) limits for new lending. 

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These measures are expected to enhance the behavior of both creditors and debtors throughout their debt journey. 

“Hence, the new household debt measures will reduce household debt in Thailand to a more sustainable level, but the process will take time to bear fruit and will require cooperation from all parties as well as thorough consideration of all possible impacts,” the BOT said.