An increase in non-performing loans (NPLs) for automobiles in the second quarter can be attributed mainly to used-car owners, but the rise is not worrisome, says Salinee Wangtal, the Bank of Thailand's assistant governor of the supervision group.
"There has been an increase in NPLs, but this is not a major concern destabilising financial institutions, as the current NPL rate is not high compared with bank loans, and commercial banks have prepared enough loan-loss reserves to cushion against future financial risks," she said.
Bad car loans climbed to 1.7% of the total in the second quarter from 1.5% in the first, while special-mention loans for cars also rose to 6.8% in the period from 6.2%, central bank data showed.
As the Thai economy grows moderately, household debt has increased and bank NPLs have risen. These factors prompted Thanachart Bank (TBank), the country's largest auto lender, to tighten its loan approval criteria for used cars.
The bank's net NPLs as of June 30 had risen to 4.45% of outstanding loans worth 789 billion baht. To alleviate its borrowers' debt payment burden and prevent the bad loans from rising, TBank adopted payment rescheduling.
It also has high loan-loss reserves to mitigate the problem, setting aside 5 billion baht last quarter, of which 2 billion were for used-car loans, to cushion against future economic uncertainties as requested by the central bank.
The country's sixth-largest lender recently said the sharp fall in used-car prices came after the government offered a tax rebate for first-time car buyers, adding this eroded the bank's asset quality.
Meanwhile, Krirk Vanikkul, the central bank's deputy governor for financial institutions' stability, said commercial banks now evaluate credit bureau reports for borrowers twice a year, up from once a year.