The banking sector is poised for higher non-performing loans (NPLs) in the first quarter this year, stemming from retail and small and medium-sized enterprises (SMEs), according to brokerages.
Krungsri Securities expects banking NPLs to escalate to 3.11% in the first quarter, rising four basis points year-on-year and 10 basis points quarter-on-quarter. The decline in asset quality following the expiration of the Bank of Thailand's debt relief measures is a significant factor exerting pressure on the sector's loan quality, noted the brokerage.
Banks are scheduled to announce 2024 first-quarter results between April 17-22.
The central bank reported banks approved loans under debt assistance measures totalling 348 billion baht, representing 99.4% of the total allocated budget of 350 billion. The loans were granted to 67,725 borrowers affected by the pandemic, offered through two programmes: debt recovery and asset warehousing.
The debt assistance schemes started in April 2021 and expired on April 9, 2024.
The central bank adapted the debt recovery programme to a debt transformation scheme to support the green transition, as well as digital technology and innovative development of SME businesses.
Despite these challenges, Krungsri Securities anticipates an 8% year-on-year increase in the combined net profit of the banking industry in the first quarter, with quarter-on-quarter growth rising 24%, driven by retail and international businesses. However, the industry is expected to record stagnant loan growth rates for both year-on-year and quarter-on-quarter comparisons, noted the brokerage.
Asia Plus Securities also predicts ongoing weakness in the asset quality of the banking sector, forecasting the NPL ratio to reach 3.6% in the first quarter, rising from 3.5% in the previous quarter. The surge in bad debts is primarily attributed to retail and SME loans, said the brokerage.
There is uncertainty surrounding corporate loans in the construction and contractor-related sector, according to research by the securities firm.
The combined net profit of the banking sector is projected to reach 61 billion baht in the first quarter of 2024, representing gains of 20% quarter-on-quarter and 32% year-on-year, said Asia Plus.
Despite a slight decline attributed to higher costs of funds resulting from fixed-deposit repricing, net interest income is expected to remain positive and bolster banks' financial performance, said the brokerage.
Asia Plus predicts flat loan growth year-on-year in the first quarter as customers adopt a wait-and-see approach regarding the policy rate direction. The market believes policy rates may begin to decrease by mid-year, said the brokerage.