Bond yield spikes in anticipation of a faster pace of US interest rate hikes will take a larger toll on big companies than on other types of borrowers because debt instruments are these firms' main source of fund mobilisation, says Kasikorn Research Center (K-Research).
Large companies are the major fundraisers in the bond market, while small and medium-sized enterprises and retail borrowers largely rely on bank loans, said Thanyalak Vacharachaisurapol, assistant managing director of K-Research.
The government's bond yield for the five-year maturity has surged by around 70-80 basis points from the middle of this year, and the Fed rate prospects will continue to pressure the bond yield next year, she said. Banks' interest rates, which are largely based on the policy rate, are expected to be kept steady in line with the benchmark rate, said Mrs Thanyalak.
K-Research expects the central bank to keep its policy rate unchanged at 1.5% throughout next year to accommodate the country's economic momentum.
The Bank of Thailand's Monetary Policy Committee stood pat on the policy rate yesterday at this year's final meeting. The rate-setting panel last cut the policy rate by 25 basis points to 1.50% in April 2015.
SET-listed companies' debt outstanding is estimated at 55.3% of the country's GDP this year and it is expected to decrease to 54.6% next year, she said.
The higher borrowing costs, however, should not adversely depress listed companies' financial positions and profitability as interest costs are 2.4% of total expenses, said Mrs Thanyalak.
For household debt, the higher interest rate should not hurt individual borrowers as most retail loan rates are fixed.
Household debt represents nearly 82% of the country's GDP and the ratio is expected to remain stable next year.
She forecasts gross non-performing loans (NPLs) in the banking industry to peak at 3.01% of total loans outstanding at the end of third quarter next year.
Given that bad loans have a lag time of one to two quarters, the banks' gross NPL ratio is expected to start falling from the end of 2017 at 2.95%.
Under K-Research's coverage, the NPL ratio of the banking industry, comprising local and foreign banks, stands at 2.82%.
"Debt restructuring together with NPL divestment is expected to tally around 50 billion baht per quarter," Mrs Thanyalak said.
K-Research predicts 2017 banking loan growth of 4% assuming Thai GDP growth of 3.3%.