Q2 jump in special mention loans bodes ill

Q2 jump in special mention loans bodes ill

Surge attributed to economic slowdown, banks' adjustment of lending classification

Commercial banks' special mention (SM) loans surged significantly in the second quarter, suggesting that more loans could turn sour amid the stuttering economy.

Outstanding SM loans of commercial banks increased to 419 billion baht at the end of June from 396 billion baht three months earlier, attributed to all loan categories, said Tharith Panpiemras, senior director for banking supervision and risk assessment at the Bank of Thailand.

But SM loans declined to 2.47% of loans outstanding at the end of June from 2.56% at the end of March.

SM loans, those between one and three months overdue, are an indicator of future non-performing loans (NPLs).

Rising SM loan amounts could be largely due to the country's economic slowdown, while banks' adjustment of loan classification in line with customer risk also played a role, Mr Tharith said.

The central bank said NPLs in the banking sector fell by 3.3 billion baht from the previous three months to 450 billion baht, representing 2.95% of the total loan portfolio at the end of June.

The banking industry's lending in the second quarter expanded by 4.2%, a slower clip than the 5.6% in the first quarter, in accordance with economic circumstances. The slower loan growth came from all business segments, particularly commercial and consumer loans.

"Total loan growth this year could be lower than the projected 6%," Mr Tharith said. "However, we need to wait for the government's stimulus packages."

Corporate loans, representing 65.1% of total loans, grew by 1.7% year-on-year in the second quarter.

Annual growth of large corporate loans, excluding financial business, expanded at a slower pace of 2.6% in the second quarter, down from 4.4% in the first, because of some loan repayments of manufacturing, commerce and service businesses. But loans continued to expand strongly in the public utility and real estate sectors.

SME loans excluding financial business for the three months through June shrank 0.1%, compared with a 1.5% year-on-year growth three months earlier, in line with economic conditions coupled with loan repayments of large SMEs that had raised funds through the bond market.

Consumer loans, representing 34.9% of total loans, in the second quarter expanded by 9.2%, up from 10.1% in the previous quarter, mainly due to slower growth in mortgage lending after accelerated loan extension ahead of the implementation of loan-to-value curbs starting in April, plus slower growth in auto loans consistent with ebbing domestic car sales.

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