Commercial lenders' bad loans will peak at just above 3% of loans outstanding this quarter, says a senior Bank of Thailand official.
"Commercial banks' bad loans reached nearly 3% [at the end of September], and we expect the ratio to continue to climb higher and peak in the fourth quarter," said Daranee Saeju, senior director for the financial institutions strategy department at the central bank. "We still see an increase in both new and re-entry non-performing loans (NPLs), but the pace is slowing down."
She said the NPL ratio should stabilise at the peak for a while before gradually decreasing, depending on economic conditions and loan growth next year.
"Looking ahead, if the economic grows robustly and loans expand at a faster clip, NPLs will be relatively much smaller," Ms Daranee said.
Commercial banks' gross NPL ratio at the end of September stood at 2.97%, edging up from 2.95% at the end of June, according to central bank data.
In terms of value, distressed loans totalled 428 billion baht at the end of June, up from 416 billion in the preceding three months.
According to filings with the Stock Exchange of Thailand, five of the 11 SET-listed banks saw their gross bad-loan ratios continue to rise in the third quarter. The five lenders were Bangkok Bank, Krungthai Bank, Siam Commercial Bank, CIMB Thai Bank and Land and Houses Financial Group.
Bad small and medium-sized enterprise (SME) loans rose to 4.63% of loans outstanding at the end of September from 4.42% at the end of June.
Ms Daranee said SMEs are still struggling, especially those in the commerce sector, but after a period of time, the economic recovery, which has mainly been concentrated in exports and tourism, should spread to the overall economy.
Bad loans at large corporations fell from 1.81% to 1.69% at the end of September.
Distressed consumer loans inched up from 2.66% to 2.74% of outstanding loans at the end of September, mainly from deteriorating mortgage quality -- NPLs in that segment rose from 3.06% to 3.26%.
Ms Daranee said the rise in bad loans for mortgages could be attributed to teaser interest rates that were introduced amid strong competition in the mortgage market.
Commercial lenders' outstanding loans grew by 3.3% year-on-year in the third quarter, matching second-quarter growth.
Ms Daranee said the economic recovery should help drive full-year loan growth to 4% in 2017, up from 2% last year.
In the third quarter, commercial banks' net profit amounted to 47 billion baht, down 6.4% year-on-year, due to higher provisions for loan losses set aside in the period.
The banks' combined impairment charges stood at 44 billion baht, while the coverage ratio rose to 166.2% from 160% at the end of 2016.
Ms Daranee said commercial banks' 2017 net profit is expected to fall from last year, owing to higher provision expenses caused by the deterioration of loan quality.
During the first nine months of this year, the 11 SET-listed banks' aggregate net profit was 150.3 billion baht, down 3.3% from the same period last year.