- The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity.
- The banking system’s profitability in the third quarter of 2023 improved from the previous year.
- However, there remains a need to monitor the debt serviceability of SMEs and some vulnerable households with slow income recovery.
The Bank of Thailand (BOT) has published a quarterly briefing of Thai banking system for the period from July to September, stating that the overall outlook remains resilient while also recording improving profitability when compared to the previous year.
The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity. In the third quarter of 2023, the banking system’s loans slightly contracted for 0.9% YoY due to the gradual repayment of business loans, following the accommodative growth in liquidity facilities during the COVID-19 period, particularly from SMEs, export-related large corporates, and the government, combined with the banks’ portfolio management. Nevertheless, banks’ lending continued to expand in some sectors, mainly in holding businesses and construction. Consumer loans continued to grow at a slower pace across most portfolios. Loan quality slightly deteriorated, particularly from consumer loans, while banks continued with their loan portfolio management and assisted debtors through debt restructuring. As a result, the banking system’s gross non-performing loans (NPL or stage 3) slightly increased to 494.6 billion Baht, equivalent to the NPL ratio of 2.70%. Meanwhile, the ratio of loans with significant increase in credit risk (SICR or stage 2) stood at 5.84%, decreased from 6.08% in the previous quarter.
The banking system’s profitability in the third quarter of 2023 improved from the previous year mainly driven by the higher net interest income, despite higher costs of funds from rising deposit rate and FIDF fee normalization together with the increased operational costs and provisioning expenses. However, compared to the previous quarter, net profit declined primarily due to a reduction in seasonal dividend income and a decline in FVTPL profit resulting from losses in the sale of derivatives.
However, there remains a need to monitor the debt serviceability of SMEs and some vulnerable households with slow income recovery. The household debt to GDP ratio in the second quarter of 2023 remained unchanged from the previous quarter, while the corporate debt to GDP ratio slightly increased. Overall corporate profitability was stable, with a slight improvement in the chemical manufacturing sector in contrast to the performance of other manufacturing sectors. However, the profitability of tourism-related sectors experienced a negative impact from the low season.