Thai banking industry faces hurdles amid high auto loan rejections

Last year’s robust profits from the Thai banking industry stirred debates, as critics pointed to excessively high interest rates. The sector witnessed a 17.8% surge in net interest income (NII) to 727 billion baht (US$20.2 billion) in 2023, up from 617 billion in 2022. The five biggest banks by assets contributed significantly to this rise with an increased net interest margin.

However, potential challenges loom this year for commercial banks’ profitability, particularly due to anticipated non-performing loans (NPLs) in the auto sector. The auto loan rejection rate is predicted to stay high, currently sitting between 30-50% of total loan applications. This strict criterion is intended to minimise car seizures, as per industry analysts.

Electric Vehicle (EV) sales are anticipated to maintain their upward trajectory this year, following a 600% year-on-year increase to 76,000 registered EVs in 2023. Projections suggest EV sales will hit 100,000 this year. However, it is vehicles with internal combustion engines (ICE), especially pickups, that are expected to contribute to the rise in NPLs in the auto sector.

Bundit Anantamongkol, chief executive of Bangkok Commercial Asset Management Plc (BAM), the largest asset management company (AMC) in Thailand, predicts banking NPLs to rise this year due to the sluggish Thai economy. As a result, consumer purchasing power will decline, adversely affecting borrowers’ debt repayment ability.

Kanjana Chockpisansin, head of research, banking and the financial sector at Kasikorn Research Center (K-Research), anticipates the NPL ratio to increase from 2.68% in 2023 to 2.85% this year despite measures by commercial banks to address the growing level of bad debt. Total outstanding NPLs exceed 500 billion baht (US$13.9 billion), reported Bangkok Post.

The banking sector is expected to record lower net profit in 2024 than last year, in line with the country’s sluggish economic growth. Net profit growth for the banking industry would be 5-6% this year, compared with double-digit growth last year, according to Usanee Liurat, an analyst at FSS International Investment Advisory Securities.

EV car insurance

In the insurance industry, car insurance, particularly for EVs, is posing a challenge. Evaluating the price of EVs and accounting for their depreciation can be more complex than insuring ICE-powered cars. This is partly due to the rapidly evolving technology, the higher initial cost of EVs, and uncertainties regarding battery life and replacement costs.

The Office of the Insurance Commission (OIC) expects EV car insurance companies to increase their risk management plans. If an accident occurs, battery damage can be costly, as the EV battery generally accounts for 75-80% of the price of an EV. As such, around 100,000 EVs are expected to enter the casualty insurance system in 2024, pushing the system gross of insurance policies to 301-304 billion baht (US$8.36 billion – 8.45 billion), an increase of 5-6% from 2023.