Thailand: Central bank expects easing of loan growth

The Bank of Thailand expects loan growth in the banking industry to slow as demand eases, though rising interest rates should not be a key factor dampening loan expansion.

Bank loans recently increased as assistance to small and medium-sized enterprises helped them recover post-pandemic, especially through the central bank’s soft loan programme, said Sakkapop Panyanukul, director of the Bank of Thailand’s economic and policy department, at the Monetary Policy Forum on Wednesday.

The business sector borrowed large amounts to support their liquidity as the economy slumped.

As companies attempted to recover from the impact of the pandemic, loans were used to help businesses readjust and develop as the country reopened, he said.

In the first quarter of 2023, bank loan growth was 0.5% year-on-year, easing as loan repayments were made by the government and large corporations via soft loan facilities, while banks also improved their portfolio management, said the central bank.

“The slowdown was partially attributed to large corporations raising funds through bond issuance because of lower funding costs,” said Mr Sakkapop.

“The rising interest rate is not a key factor dampening loan growth and asset quality, as non-performing loans [NPLs] in the banking industry have been declining.”

NPLs declined from the fourth quarter of 2022 as banks continue to manage their loan portfolios and support borrowers through debt restructuring.

According to central bank data, commercial bank NPLs tallied 494 billion baht in the first quarter of this year, declining from 498 billion and 495 billion in the third and fourth quarters of last year, respectively.

Even though special mention loans (SMs), defined as loans overdue by more than 30 days but not exceeding 90 days, increased in the first quarter of this year, the growth rate was lower than the fourth quarter of 2022, attributed to the debt relief measures for retail borrowers and small enterprises, according to Bank of Thailand data.

SMs tallied 1.044 trillion baht in the first quarter of this year, compared with 1.041 trillion and 1.049 trillion in the third and fourth quarters of last year, respectively.

Surach Tanboon, senior director of the central bank’s monetary policy department, said rising interest rates were not the key factor decreasing the SM loan amount for auto loans.

Demand for new cars to replace those bought under the first-time car buyer scheme would steadily be exhausted over the next few years, while increasingly strict government regulation of consumer lending would help stoke competition from captive finance operations, he said.

The effective interest rate is still at a low level because borrowers are benefiting from a low interest rate on average in previous quarters, said Mr Surach.

With interest rates rising, the effective interest rate would continue to increase and the central bank is monitoring the situation to maintain stability in the financial system, he said.