Central bank: Woes ripple into SME NPLs

Central bank: Woes ripple into SME NPLs

Bad loans rising in mid-sized firms

The faltering economy is spilling over to mid-scale small and medium-sized enterprises (SMEs), as their soured loans keep rising, says a senior official at the Bank of Thailand.

"Small SMEs have felt the pinch from the economic slowdown for a while, and non-performing loans [NPLs] are spreading to mid-sized firms with credit lines ranging from 100-500 million baht per customer," said Tharith Panpiemras, senior director of banking supervision and risk assets.

An NPL uptick for mid-sized SMEs has been spotted in some industries, especially food, electronics, auto parts and chemicals, as these sectors are scrambling because the economy is crippled by external risks, particularly in the trade spat between the US and China, he said.

These businesses are seeing a liquidity crunch amid global economic uncertainties, though most of them still have potential and a competitive edge, said Mr Tharith. The central bank is encouraging banks to help these SMEs via debt restructuring.

Despite the spillover effect to larger SMEs, the banking industry is expected to keep a lid on bad loans at 3% by the year-end, thanks to bad loan disposals and write-offs, he said.

The NPL ratio of the banking sector climbed to 3.01% at the end of September from 2.95% in the previous quarter, largely contributed by SMEs, which saw their soured loans rise to 4.75% of loans outstanding in the period from 4.25% in the second quarter.

For special mention (SM) loans, defined as loans overdue for 1-3 months, the ratio fell to 2.59% at the end of September from 2.74% in the preceding quarter as some corporate SMs were classified as NPLs, said Mr Tharith.

The NPL ratio for consumer finance increased from 2.74% at the end of June to 2.81% at the end of September, with retail loan segments contributing to the increase.

The bad debt ratio for mortgages inched higher to 3.49% at the end of September from 3.34% in the previous three months, auto loans rose from 1.82% to 1.86%, credit card loans were up from 2.48% to 2.65%, and personal loans increased from 2.42% to 2.36%.

Mr Tharith said the central bank's new loan-to-value (LTV) ratio rule that began on April 1 managed to quell speculative behaviour in the property market.

On average, the LTV ratio for first mortgages was 88.7% in the third quarter this year, steady from 88.5% in the first quarter.

The LTV ratio for the second mortgages fell to 81.7% in the third quarter from 88.9% in the previous quarter.

For the first nine months, first housing loan contracts for low-rise residential projects grew by 13.5% year-on-year, while high-rise projects were reduced by 1%, 26.2%, and 40.5% for the first, the second, and subsequent contracts, respectively.

The central bank twice cut interest rates this year, helping borrowers with their financial burden.

The financial cost of commercial loans is estimated to decline by 6.18 billion baht per year or around 16,000 baht per customer per year, and 6.89 billion per year for mortgage loans or around 6,000 baht per borrower per year.

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