Bank of Thailand anticipates slower loan growth: Interest rates not main factor

The Bank of Thailand anticipates a slower pace of loan growth in the banking industry due to reduced demand, while asserting that rising interest rates are not the main factor impacting loan expansion. The central bank’s soft loan programme, which aimed to aid small and medium-sized enterprises, largely contributed to the increased borrowing during the post-pandemic recovery period.

Sakkapop Panyanukul, Director of the Bank of Thailand’s Economic and Policy Department, said during the Monetary Policy Forum that businesses took out considerable loans to maintain liquidity amidst the economic downturn. As the country began to reopen, loans were utilised to readjust and develop firms that struggled during the pandemic.

In the first quarter of 2023, bank loan growth slowed to 0.5% year on year, Bangkok Post reported. This deceleration was partly due to the government and large corporations making repayments through soft loan facilities and banks enhancing their portfolio management.

Sakkapop added, “The slowdown was partially attributed to large corporations raising funds through bond issuance because of lower funding costs.”

He also stated that rising interest rates were not a significant factor in dampening loan growth and asset quality, as non-performing loans (NPLs) in the banking industry continued to decline. Central bank data revealed a decrease in commercial bank NPLs from the fourth quarter of 2022, resulting from improved bank loan portfolio management and support for borrowers through debt restructuring.

Despite an increase in special mention loans (SMs), which are loans overdue by more than 30 days but not exceeding 90 days, in the first quarter of this year, the growth rate was lower compared to the final quarter of 2022. The Bank of Thailand attributed this slowdown to debt relief measures for retail borrowers and small enterprises.

Surach Tanboon, Senior Director of the Central Bank’s Monetary Policy Department, also clarified that rising interest rates were not the primary factor in the decrease of SM loans for auto loans. Demand for new cars is expected to decline as the first-time car buyer scheme ends, and stricter government regulations on consumer lending could encourage competition from captive finance operations.

Surach also noted that the effective interest rate remains low, as borrowers continue to benefit from the previous quarters’ low average interest rates. As interest rates rise, the central bank will monitor the situation to ensure stability within the financial system.