Bank loan growth to shrink despite Q4 rise in retail lending
Bank loan growth is anticipated to shrink this year despite a slight rise in the fourth quarter, as banks maintain their cautious lending practices into 2025 to 2026 due to sluggish GDP growth, analysts report.
Analyst Weerapat Wonk-Urai from CGS International Securities (Thailand) highlighted a rising ratio of underperforming loans in retail lending, prompting banks to enforce stricter credit standards in the fourth quarter. This analysis references the Bank of Thailand‘s senior loan officer survey.
Today, December 6, the central bank revealed the banking sector’s asset quality status for the third quarter, showing further deterioration in personal consumption, wholesale, and retail loans.
Retail lending experienced a rise in the non-performing loan (NPL) ratio across all major products, with credit cards and housing loans seeing the most significant increases. The amount of NPL write-offs increased by 27% compared to last year, although it dropped by 10% from the previous quarter.
Debt restructuring surged 15% year-on-year and 18% from three months ago, which CGS interprets as an effort to improve balance sheets, said Weerapat.
“We believe the demand for retail loans in the last three months of this year will be driven by auto loans, with the motor show in December, and credit cards during the high season for domestic spending.”
Bank loan
Business loan demand is expected to originate from working capital loans. Overall, while loan growth will see a slight uptick from the previous quarter, it is projected to be negative in 2024, as total loans have contracted over the first nine months.
CGS projects bank loan growth to be between 2.6 to 3% next year and in 2026, with banks adhering to prudent lending guidelines amid moderate GDP growth. They forecast a GDP expansion of 3% in 2025.
A further interest rate cut anticipated in the first half of next year is predicted to reduce banks’ net interest margins to 3.45% and 3.41% in 2025 and 2026 respectively, down from 3.51% this year.
A policy rate cut will be negative for banks’ net interest margin as they benchmark lending rates against policy rates, Weerapat said.
Corporate, small and medium-sized enterprise and housing loans are typically floating-rate loans, while credit card loans, auto loans and unsecured personal loans are fixed-rate loans, he added.
Chalie Kueyen, a bank analyst at KGI Securities (Thailand), foresees an increase in NPLs in the final quarter due to a sharp rise in loans overdue for more than three months at many banks.
“These loans will likely deteriorate into NPLs in the fourth quarter.”
Chalie added that to address problem loans, including special mention loans and NPLs over a year old, the government and central bank are working together to implement assistance measures, reported Bangkok Post.
“The measures indicate the bad debt situation is worse than previously estimated and banks are forced to assist troubled debtors in exchange for allowing the bank to delay troubled loans turning into NPLs.”
Latest Thailand News
