The banking sector is expected to face greater pressure for the remainder of the year as asset quality continues to deteriorate, with the new government seeking to lower lending rates, while risks from bad personal loan and credit card debt rise, say analysts.
Weerapat Wonk-urai, an analyst at CGS International Securities (Thailand), said the new government is expected to announce several economic stimulus policies after ministers are sworn in today.
For commercial banks, the new government will seek to lower lending rates to help borrowers by cutting the fee contribution to the Financial Institutions Development Fund from 0.46% of total deposits.
"We believe the new fee rate will be 0.23% of total deposits, the same level as during 2020-23 when many Thai borrowers were burdened by the pandemic," said Mr Weerapat.
Citing Bank of Thailand data, he said the industry's asset quality continued to deteriorate in the second quarter, driven mainly by consumer retail loans and loans in the wholesale and retail trade sectors.
Meanwhile, non-performing loan (NPL) ratios in the manufacturing and service sectors were fairly flat compared with three months earlier.
The banking sector's total NPLs tallied 112 billion baht in the second quarter, up from 109 billion the previous quarter and 101 billion in the same period of last year. There were year-on-year and quarter-on-quarter increases in relapsed or re-entry NPLs to 28 billion baht.
However, new NPLs were slightly lower on a quarterly basis at 84 billion baht.
"We believe the year-on-year and quarter-on-quarter increase in relapsed NPLs came mainly from SME [small and medium-sized enterprise] and retail loans restructured during the pandemic that were not serviced so far this year as a result of an uneven economic recovery," said Mr Weerapat.
Looking forward, downside risks remain for the sector as "further asset quality deterioration could result in elevated credit costs" despite banks' efforts to manage NPLs by writing off and selling NPLs to external distressed asset management companies, noted the brokerage.
"A policy rate cut will be negative for banks' net interest margins as they benchmark lending rates against policy rates," he said.
Corporate, SME and housing loans are typically floating-rate loans, while credit card, auto and unsecured personal loans are fixed-rate loans, said Mr Weerapat.
Chalie Kueyen, an analyst with KGI Securities (Thailand), said while hire-purchase loans showed signs of improvement, industry NPL data indicates risk areas from mortgages, credit cards and personal loans.
NPLs showed signs of further deterioration in mortgages and unsecured loans, with upticks in new NPL inflows for four straight quarters.
"NPLs from consumer loans went up in the first six months," Mr Chalie said. "To help stabilise NPL ratios, banks are expected to raise credit costs in the second half to clean up their balance sheets."
Banks' credit costs in the second half are expected to peak in the fourth quarter, he said.