Soured small and medium-sized enterprise (SME) loans show no sign of declining as a lack of competitive edge and uneven economic recovery hinder debt-servicing ability, says a senior Bank of Thailand official.
"Financial stability remains sound, but there remain pockets of risk that warrant monitoring such as the debt-servicing ability of SMEs that have yet to improve, which in part reflects competitiveness issues," said Jaturong Jantarangs, the central bank's assistant governor for the monetary policy group and secretary of the Monetary Policy Committee (MPC).
Bad SME loans climbed to 4.48% of outstanding loans at the end of March from 4.35% in the fourth quarter of 2016, according to central bank data.
He said the central bank had expected earlier that non-performing loans (NPLs) of SMEs would start to fall after two quarters of economic recovery, which is a normal pattern for bad loans -- considered a lagging indicator.
"But when it tends to be more about the structural issue, which is Thai SMEs' lack of competitiveness, it might take longer than two quarters for NPLs to stop increasing," Mr Jaturong said. "So right now no one can really pinpoint when the increase in NPLs of SMEs will stop or when it will start to decrease."
He said the uneven economic recovery and structural problems faced by some business sectors undermined the debt-servicing ability of both households and businesses, particularly SMEs.
Looking ahead, Thailand's economic growth is projected to gain further traction this year but the risks to growth remain skewed to the downside from both external and internal factors, he said.
The Bank of Thailand last week raised its forecast for Thai GDP growth this year to 3.5% from 3.4% estimated in March, mainly supported by strong recovery in merchandise exports, whose growth outlook was increased from 2.2% predicted in March to 5% this year.
The external risks include uncertainties surrounding US economic and foreign trade policies, China's economic structural reforms and global geopolitical risks. On the domestic front, the risk is purchasing power that has yet to evenly recover.
"Overall purchasing power has yet to fully recover, as both employment and household income in the manufacturing sector does not benefit much from the export recovery," Mr Jaturong said.
Another risk to the Thai economy is more stringent regulations on migrant workers, which could further tighten labour market conditions and in turn raise the labour costs of businesses.
"As the MPC assessed that the Thai economy still possesses risk in some indicators, including inflation that has not yet reached the lower band of the target, the accommodative monetary policy is still needed in this period," Mr Jaturong said.
He said the central bank's new regulations to tighten standards in the credit card and personal loan business are not expected to have a strong impact on consumption, as they will only affect new users of credit cards and cash cards.
The Bank of Thailand plans to limit credit lines for both new personal loan borrowers and credit card holders earning 30,000 baht a month or less at 1.5 times their monthly salary, while also preventing them from holding more than three credit cards per person.