Rising interest rates boost mortgage NPLs, Bank of Thailand urges debt restructuring

In the first quarter of this year, non-performing mortgage loans (NPLs) experienced an increase due to rising interest rates, prompting the Bank of Thailand (BoT) to encourage banks to assist borrowers through debt restructuring.

The central bank recently revealed a housing loan NPL ratio of 3.16% in the commercial banking system, up from 3.01% in the previous quarter. The primary cause for this increase is the rise in interest rates, according to Suwannee Jatsadasak, assistant governor at the BoT.

While banks typically maintain a buffer to manage increased credit risk from mortgage loans during interest rate hikes, this cushion may be insufficient for some borrowers. Consequently, the central bank mandates that banks employ pre-emptive measures to support borrowers with debt restructuring. Suwannee said…

“The central bank has extended long-term debt restructuring measures until the end of this year, providing the opportunity for banks to help customers in easing their financial burden and controlling NPLs.”

Despite this, she noted that the overall banking system’s NPLs experienced a slight decline in the first quarter of this year, both in terms of amount and ratio. This is attributed to loan portfolio management through ongoing debt restructuring, write-offs, and sales in both corporate and retail loans.

At the end of March this year, the banking industry’s gross NPLs were valued at 498 billion baht, corresponding to an NPL ratio of 2.68%, down from 2.77% in the same quarter of 2022.

With GDP growth and NPL containment, the nation’s household debt-to-GDP in the fourth quarter of 2022 stood at 86.9%, a decrease from the previous quarter. However, the household debt ratio remains high, and the BoT anticipates a gradual decline through comprehensive debt restructuring measures in collaboration with the central bank and other related agencies.

Financial institutions’ special mention loans (SM) also experienced a slight increase in the first quarter of this year, remaining at approximately 660 billion baht. If financial institutions can control SMs through long-term debt restructuring measures, the banking sector’s NPLs could also be managed.

The modest increase in SMs and NPLs is small compared to the significant rise in NPLs during the pandemic. Furthermore, NPLs in the banking sector have already reached their peak, but both the BoT and financial institutions must continue to monitor the situation and employ pre-emptive measures when negative signs emerge, according to Suwannee.

She added that the number of borrowers affected by the pandemic and participating in financial institutions’ debt assistance programmes has been decreasing. However, vulnerable segments, such as non-bank customers, still require assistance.

Overall outstanding loans under the financial assistance programme have declined to around 3.37 trillion baht, in line with economic recovery and increased incomes. The central bank also stated it would monitor the impact of weak global demand and rising costs for certain businesses, particularly the manufacturing sector, reported Bangkok Post.