Net interest margins weaken profits
Fitch Ratings expects Thai banks’ asset quality to deteriorate further this year, while the negative outlook for the country’s sovereign rating could weigh on the credit profiles of some banks.
The credit rating agency maintained a “deteriorating” outlook for the Thai banking sector for 2026, according to its Peer Credit Analysis report released on Monday.
The banks covered include Thailand’s domestic systemically important banks: Bangkok Bank, Krungthai Bank (KTB), Kasikornbank, Siam Commercial Bank, Bank of Ayudhya, and TMBThanachart Bank (ttb).
According to Fitch, the deteriorating outlook reflects expectations that the major banks’ profitability will be pressured by lower net interest margins and a weak economic environment, which is likely to suppress loan growth.
Despite these challenges, the agency expects earnings and core profitability metrics to remain within the implied “bbb” category, albeit with some deterioration this year.
On July 6, Fitch affirmed Thailand’s long-term foreign-currency issuer default rating (IDR) at BBB+ with a negative outlook, supported by the country’s strong external finances and sound macroeconomic policy framework. The negative outlook reflects mounting fiscal pressures and high household debt.
The agency forecasts Thai economic growth of 1.8% this year, which is expected to constrain banks’ business opportunities.
In addition, lower interest rates following a series of policy rate cuts by the Bank of Thailand from the fourth quarter of 2024 through the first quarter of 2026 are expected to have a lagged negative impact on banks’ net interest margins and profitability in 2026.
“Fitch expects the impaired-loan ratios of major banks to increase this year, while credit costs are likely to remain elevated compared with regional peers,” the report said.
The increase in impaired-loan ratios is expected to be driven mainly by vulnerable borrowers, particularly small and medium-sized enterprises and certain retail segments, which continue to be affected by weak economic conditions.
Fitch said the major banks’ credit profiles remain supported by strong capital positions, with common equity Tier 1 ratios ranging from 16.4% to 18.7%. Past provisioning and management overlays have resulted in high loan-loss allowance coverage, providing a solid buffer against potential downside risks.
The rating agency also noted that Thai banks would be affected to varying degrees by any change in Thailand’s IDR.
KTB and ttb have a negative outlook because their ratings are driven by government support ratings. As a result, any downgrade of Thailand’s sovereign rating would likely have a direct impact on the ratings of these two banks.