Thailand: Held rates to help vulnerable borrowers
While the higher cost of living has impacted vulnerable borrowers and driven some of them back to debt relief measures, banks’ current holding of interest rates unchanged will help ease their financial burden, said an executive of the Bank of Thailand.
The borrowers, both individuals and businesses, who are in the banks’ debt assistance measures were 3.84 million accounts, with a total loan amount of 2.9 trillion baht as of May.
Most of them are in vulnerable segments, especially lower-income individuals and small and medium-sized enterprises (SMEs), the central bank’s senior director Suwannee Jatsadasak said yesterday.
Ms Suwannee added that the rising cost of living is a key factor pressuring the borrowers who had already exited the debt relief programmes to return to the programmes and pressured those who earlier had never entered the schemes to seek debt relief measures.
However, they have yet to be impacted by the central bank’s recent policy rate hike as the banks still maintain key lending interest rates unchanged to help them get through the difficult time.
The central bank does not force financial institutions to increase both deposit and lending rates. The rate movement mainly depends on the assets and liabilities of a bank as well as the market mechanism and business strategy of each bank, she said.
The higher cost of living could erode the ability in terms of debt repayment among the fragile borrowers and the non-performing loans (NPLs) of the banking sector are expected to increase but not to a significant level.
Under their existing long-term debt restructuring and other debt assistance schemes, the banks will be able to manage and contain the NPLs, Ms Suwannee said.
The banking system’s performance in the second quarter remained resilient with high levels of capital fund, loan loss provision and liquidity, according to the central bank’s report yesterday on the performance of the banking system in the second quarter of 2022.
On loan quality, banks continued to support borrowers and manage their loan portfolios in order to maintain overall asset quality. As a result, gross NPLs in the second quarter decreased to 527.9 billion baht, equivalent to an NPL ratio of 2.88%.
The banking system recorded a net profit of 64.7 billion baht in the second quarter of 2022, increasing by 7.2% from the same quarter last year.
This was due mainly to higher net interest income from loan expansion as well as lower provisioning expenses after an elevated level of provision was set aside during Covid-19.
The banking system’s capital fund stood at 3.07 billion baht, equivalent to capital adequacy ratio (BIS ratio) of 19.6%.
Loan loss provision remained high at 909.6 billion baht with the NPL coverage ratio of 166.6%. Liquidity coverage ratio registered at 185.5%.
Banks’ overall loan growth continued to increase by 6.3% year-on-year in the second quarter of 2022, compared to 6.9% in the previous quarter.