SCB EIC, the research centre under Siam Commercial Bank (SCB), says the government should establish a national asset management company (AMC) to prepare for a potential increase in non-performing loans (NPLs) within the banking industry.
Given Thailand's rising level of household debt and the growing trend of NPLs post-pandemic, establishing a national AMC could help the banking industry manage bad assets more effectively. Simultaneously, the initiative could provide vulnerable borrowers with a way out of the debt cycle or better access to funding sources, according to Somprawin Manprasert, chief economist at SCB EIC.
"The preparation for a national AMC is one option to help the banking sector address the NPL problem amid increasing economic risks both domestically and globally. If the problem escalates, banks would have an immediate tool to address it. However, caution is necessary to avoid creating a moral hazard," Mr Somprawin said.
SCB EIC reports that NPLs in the banking sector have continued to rise since the end of the pandemic, approaching levels seen during the 1997 financial crisis. The weak recovery of both the Thai economy and household income, especially among lower-income groups, is contributing to this increase in NPLs.
The Thai government established the Thai Asset Management Corporation (TAMC) to address the NPL problem and stabilise the financial system following the 1997 crisis.
With government backing, TAMC purchased bad debts amounting to 780 billion baht between 1999 and 2003, achieving a 73.4% disposal rate by June 2003.
Mr Somprawin noted that the current NPL situation differs from that encountered in the 1997 crisis. Today, much of the bad debt stems from individuals, with around 1 million affected, making the issue more complex and intertwined with social concerns. Meanwhile, during the 1997 financial crisis, NPLs were largely attributed to large local corporate companies, making the issue less complex.
Moreover, the problem of income not covering expenses has expanded from the lower-income segment to the middle-income segment. Previously, households earning less than 20,000 baht per month were most affected, but now the issue has spread to those earning 50,000-60,000 baht per month.
Mr Somprawin also noted that the current joint-venture AMC model may not be sufficient to manage the rising trend of NPLs if the situation deteriorates significantly.
Presently, one JV-AMC operates under the central bank's regulations, with two additional JV-AMCs in the process of being established.
Bundit Anantamongkol, chief executive of Bangkok Commercial Asset Management, the country's largest AMC with around 500 billion baht in bad assets under management, said a national AMC could be an effective tool for addressing household debt and the NPL issue. However, its establishment would require collaboration between the public and private sectors, as well as regulatory changes, such as amendments to the National Credit Bureau's credit record rules.