The surge in bad loans is expected to peak in the third quarter and take a bite out of commercial banks' quarterly earnings, says a senior central bank official.
Non-performing loans (NPLs) associated with small and medium-sized enterprises (SMEs) and housing are expected to rise as the tepid economic recovery dampens business, said Don Nakornthab, senior director of the financial institutions strategy department at the Bank of Thailand.
The central bank has asked commercial banks to assist SMEs deemed to have a good debt-servicing ratio in the long run, he said.
NPLs climbed higher in the second quarter on the back of re-entry bad debts and further deterioration in consumer and business loans.
Commercial banks' gross NPLs rose to 2.72% of loans outstanding at the end of June, up from 2.64% registered in the first three months, according to central bank data.
The outstanding value of distressed loans was recorded at 374 billion baht in the second quarter, up from the first quarter's 357 billion.
"New NPLs have declined for a certain period, but the rise [in bad debts] is attributed to re-entry NPLs, which are bad debts that have been restructured before," Mr Don said. "If re-entry NPLs can be stopped, an improvement could be seen for the NPL outlook." Re-entry bad loans are mostly associated with business and consumer loans, he said.
Bad loans related to SMEs climbed to 3.77% in the second quarter, up from 3.69% in the preceding quarter.
Business loans deteriorated in every loan segment in the second quarter, particularly loans associated with the industrial sector coupled with property and construction loans.
Industrial bad loans surged to 5.35% of total loans from 4.87%, while property and construction NPLs climbed to 4.5% from 4.33%.
Consumer bad debts rose slightly to 2.6% in the second quarter, up from the previous quarter's 2.58%.
But credit card NPLs declined to 4.25% from 4.66%, attributed to commercial banks managing debt-restructuring programmes in this loan segment, Mr Don said.
Overall bank loan growth, meanwhile, expanded by 3.3% year-on-year in the second quarter with an outstanding value of 11.8 trillion baht, unchanged from the first quarter's 3.3% valued at 11.6 trillion baht, central bank data showed.
Total loan growth among commercial banks also grew by 3.3% on year in the first half.
Lukewarm loan growth in the first half was attributed to low loan demand and commercial banks remaining cautious on providing loans, Mr Don said.
Loan growth in the second half is expected to expand by 3-4% supported by improved economic recovery, accelerated public expenditure, robust tourism and state assistance programmes provided to SMEs, he said.