SCB EIC, a research centre under Siam Commercial Bank, anticipates increased fragility in the household and business sectors, which combined with the Bank of Thailand's responsible lending practices will pressure loan growth in the banking industry over the next few years.
The banking sector's loan growth target for 2024 is set between 2-4%, depending on each bank's business strategy.
Previously banks used a formula that set the annual loan growth target at 1.5 times the GDP. However, this formula has lost popularity as Thai GDP growth slows, said Thitima Chucherd, head of economic and financial market research at EIC.
Ms Thitima said the increased vulnerability of the household sector and small and medium-sized enterprises (SMEs) will also impact borrowers' access to loans.
Low-income households lack sufficient financial buffers, such as precautionary savings and various types of insurance, she said.
An EIC survey of consumers with monthly income ranging from less than 15,000 baht to more than 200,000 baht found 70% have precautionary savings of less than three months. Notably, those with monthly incomes less than 15,000 baht had no precautionary savings, according to the research unit.
While some SMEs have recovered, others are highly vulnerable, especially those grappling with rising debt amid structural challenges in Thailand's manufacturing sector, stated EIC.
Financial aid measures will take time to yield broad-based benefits, said Ms Thitima.
The debt burden of medium-sized SMEs, including both formal and informal loans, increased from 44.7% in the fourth quarter of 2022 to 63.9% in the first quarter of 2024.
The proportion of informal loans rose from 22.5% in the fourth quarter of last year to 36.4% in the first quarter of this year, according to the survey.
Government assistance measures for SMEs, such as the portfolio guarantee scheme (PGS 11) and the "Ignite Thailand" programme, are expected to benefit SMEs with positive liquidity rather than vulnerable segments, noted the research unit.
Regarding the central bank's persistent debt measure, which addresses personal loan debt, she said it could take 1-3 years for the measure to benefit the household segment.
"Even though vulnerable households can address their debt under this measure, their loan access will remain limited because of low incomes. This scenario will impact both lending and economic growth," said Ms Thitima.
EIC expects the central bank to cut its policy rate by 0.25 percentage points in the fourth quarter of this year to 2.25%, followed by a similar reduction at the beginning of next year. However, banks are likely to be cautious about loan expansion amid the increased fragility of both the household and SME segments, noted the unit.