Credit crunch: Thai economy faces stormy skies
The Bank of Thailand (BoT) is sounding the alarm over slipping asset quality among wealthier borrowers, echoing a worrying trend seen in middle- and low-income groups as the Thai economy slows to a crawl.
Minutes from the recent Monetary Policy Committee (MPC) meeting reveal mounting concerns about loan quality deteriorating across the board. This could lead banks to become even more cautious, particularly with mortgages and hire-purchase loans.
Already, financial institutions have tightened the reins on high-value mortgage approvals, with the regulator planning to keep a vigilant eye on developments.
Despite a flicker of stability in loan growth and credit quality, there’s unease in the air. Business loan growth remains carried by large corporations, while small and medium-sized enterprises (SMEs) struggle, especially in sectors grappling with structural problems.
“SMEs are facing additional liquidity pressures due to the deterioration of trade credit, with most experiencing longer receivable credit terms,” the minutes disclose.
Retail loans are also on the decline, hampered by households not yet recovering from hefty debt burdens. This situation demands careful scrutiny of loan growth and credit quality, particularly for SMEs and the more vulnerable households.
Some members of the MPC suspect that the sudden uptick in loan growth at the end of last year might have been spurred by a last-minute push from banks to hit annual targets. Nevertheless, the steady reduction in household debt has helped cushion longer-term financial stability risks.
Bangkok Post reports that the MPC is taking a dim view of Thailand’s economic prospects for 2024, with growth now predicted to be just over 2.5%. Slow domestic demand and manufacturing troubles contribute to this downgrade, though tourism and exports are holding up.
Structural challenges and fierce competition, especially in the automotive and petrochemical sectors, add to the woes. Meanwhile, uncertainty looms large over US trade policies, with potential tariff hikes a significant threat.
If the US turns up the heat with a 30% tariff on Chinese goods and 10% on those from high-risk countries like Thailand, the economic outlook could darken further, trimming growth by 0.3-0.5 percentage points. These impacts are expected to hit in the latter half of the year, the MPC warns.
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