Central bank expects spike in NPLs

Central bank expects spike in NPLs

BoT anticipates bad loans will be contained under banking sector's strong risk management

The Bank of Thailand (BoT) expects higher non-performing loans (NPLs) in the local banking system after banks relaxed debt assistance measures, but the bad loans are expected to be contained under the strong risk management of the banking sector.

The central bank on Friday announced the NPL ratio of the commercial banking industry for the third quarter at 6.69%, rising from 6.34% in the second quarter and 6.42% in the first.

The ratio is expected to gradually increase, in line with a relaxation and an expiration of the existing debt aid schemes. The central bank's debt restructuring will expire at the end of 2023, said the BoT's senior director, Suwannee Jatsadasak.

The higher NPL ratio of the commercial banking industry in the third quarter mainly came from the commercial loan increase from 3.17% in the second quarter to 3.25% in the third quarter.

The NPL rate of consumer loans dropped from 2.92% in the second quarter to 2.89% in the third quarter.

Despite the upward trend of NPLs, the BoT expects the bad debt will not surge significantly because the central bank has been monitoring the situation. The strong risk management of the commercial banking sector will help curb NPLs, Ms Suwannee said.

The BoT and commercial banks have been preparing to slow down the debt aid measures gradually, in accordance with the trend of the economic recovery. From now on, the central bank will focus on long-term debt restructuring rather than the short-term debt moratorium.

The long-term debt restructuring will help borrowers manage their debts and financial plans, in line with their income under the uneven economic recovery.

Ms Suwannee said the higher NPL ratio in the third quarter this year was also in line with the higher loan growth of the banking sector.

In the third quarter, the banking sector posted total loan growth of 5.6%, up from 3.7% in the previous quarter.

The loan expansion was largely contributed by loans to corporate and small and medium-sized enterprises, and was also partly supported by the central bank's soft loan scheme.

As of Nov 8, soft loan approval amounted to 124.83 billion baht.

Loan loss provision of the banking sector increased to 54 billion baht in the third quarter from 50 billion baht in the previous quarter.

The loan loss reserve of the industry in the third quarter declined by 8.6% year-on-year after the banking sector set aside a huge loan loss provision of 230 billion baht in 2020 to cope with unexpected situations.

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