Thailand
Thailand: Soured SME loans forecast to drop off by early 2018
Non-performing loans (NPLs) in the small and medium-sized enterprise (SME) sector are expected to peak at 4.6-4.7% of outstanding loans this year, thanks to a recovery in private consumption and stricter commercial bank lending criteria, says TMB Analytics. “We expected this year to be the end of the SMEs’ NPL upsurge cycle, with bad SMEs loans to start declining early next year,” said Benjarong Suwankiri, head of TMB Analytics, the research unit of TMB Bank.
He said Thailand is in the final stage of the rising NPL cycle, driven by a sharp rise in bad consumer loans in 2013.
“As consumer loans started to deteriorate, purchasing power dropped, causing a weakened performance for Thai SMEs, resulting in rising NPLs in that sector,” Mr Benjarong said.
He said bad SME loans in recent years have been the main contributor to overall rising NPLs.
“If NPLs in the SME sector start to fall early next year, we should also see a decline in total NPLs in the system,” Mr Benjarong said.
Bad SME loans climbed to 4.48% of outstanding loans at the end of March, up from 4.35% in the fourth quarter of 2016, according to data from the Bank of Thailand.
Mr Benjarong said he expects NPLs in the SME sector to continue rising to 4.6-4.7% of outstanding loans.
“The performance of Thai SMEs mainly relies on purchasing power in local areas, so when private consumption starts to recover, we expect an improvement in bad loans next year,” he said.
Mr Benjarong said spending on durable goods started to recover early this year, while spending on non-durable goods has also rebounded since late last year.
The spillover effect from robust merchandise exports is expected to be seen in the SME sector soon, he said.
During the long streak of rising NPLs, commercials banks tightened their lending criteria to both keep a lid on bad loans and cut NPLs moving forward.
Separately, SME confidence in the second quarter decreased marginally from the previous three months, according to the TMB SME Sentiment Index.
The TMB SME Sentiment Index surveyed the mood of 445 SMEs nationwide for the three months to June, finding it had dropped slightly to 39.6 from the previous quarter’s reading of 40.6 — remaining under the 50-point threshold separating pessimism from optimism.
Mr Benjarong said the drop in SME confidence during the second quarter was mainly due to weaker confidence in generating revenue, while concern over operating costs slightly subsided.
“The main concern for Thai SMEs continues to be economic conditions and purchasing power, especially in the second quarter, when agricultural prices dropped again,” he said.
Source: http://www.bangkokpost.com/business/news/1303223/soured-sme-loans-forecast-to-drop-off-by-early-2018