Central bank to monitor lending
The Bank of Thailand intends to focus on asset quality in the banking industry as non-performing loans (NPLs) remain at elevated levels, attributed in part to the impact of the Middle East conflict, says the central bank’s chief.
In response to repercussions from the US-Israel war against Iran, the regulator required banks to conduct stress tests in May to evaluate their resilience against risks and shocks.
The results showed an improvement from the April figures, said central bank governor Vitai Ratanakorn.
Risks stemming from the lingering Middle East conflicts have affected both corporate and retail borrowers, reducing the debt repayment ability of households and small and medium-sized enterprises (SMEs).
“We are monitoring the migration of special mention [SM] loans to NPLs, particularly among vulnerable household and SME segments,” said Mr Vitai.
“If this migration exceeds our expectations, additional targeted measures will be deployed.”
SM loans are defined as overdue by 31-90 days, while NPLs are overdue by more than 90 days.
For the first quarter, the SME NPL ratio increased to 9.16% from 9.03% in the previous quarter. Among this segment, the ratio of SM loans inched up to 15.8% from 15.6%, according to central bank data.
Meanwhile, SME loans contracted by 4% in the first three months of the year, following a 3.9% contraction in the previous quarter, and shrinking for 15 quarters in a row.
According to the central bank’s Monetary Policy Committee (MPC), although the overall credit quality of the banking sector remains stable, the debt repayment ability of SMEs and vulnerable households should continue to be monitored.
The committee encouraged financial institutions to continue implementing targeted financial measures to support these vulnerable groups.
Don Nakornthab, secretary of the MPC, said after the rate-setting meeting on Wednesday that SME NPLs remain at a high level and are increasing due to weaker debt repayment capability among corporate borrowers, in addition to a continued contraction of loan offerings.
Regarding the ongoing war, its impact has been less severe than the central bank previously anticipated, with large businesses demonstrating greater adaptability than expected.
Large companies identified new sources of raw materials and adjusted transport routes, he said.
However, SMEs’ adaptation capability is lower than that of their larger peers, said Mr Don.
While tension in the Gulf has eased, SMEs will continue to face limitations in adaptation and are constrained by intense competition, he noted.
Most households are pressured by decelerating income growth and rising living costs, which will weigh on private consumption once government relief measures phase out, said the MPC.
Cost pass-through by firms warrants monitoring amid elevated costs, as well as medium-term inflation expectations, said Mr Don.