Bank loan growth is expected to contract this year, although it picked up slightly in the fourth quarter, with banks continuing their credit tightening in 2025-26 amid subdued GDP growth, say analysts.
With a rising underperforming loans ratio for retail lending products, banks will continue to tighten retail credit standards in the fourth quarter, said Weerapat Wonk-Urai, an analyst at CGS International Securities (Thailand), citing the Bank of Thailand's senior loan officer survey.
On Nov 29, the central bank disclosed the banking sector's asset quality conditions for the third quarter, with more deterioration in personal consumption, wholesale and retail loans.
In retail lending, while the non-performing loan (NPL) ratio rose for all key products, the significant increase was in credit cards and housing loans.
The NPL write-off amount rose 27% year-on-year in the third quarter, but declined 10% quarter-on-quarter.
Debt restructuring rose 15% year-on-year and 18% from three months earlier, which CGS believes "reflects efforts to clean up balance sheets".
"We believe the demand for retail loans in the last three months of this year will be driven by auto loans, with the motor show in December, and credit cards during the high season for domestic spending," said Mr Weerapat.
Meanwhile, business loan demand will come from working capital loans. Overall, loan growth will slightly increase from the previous quarter, but 2024 loan growth will likely be negative as total loans contracted in the first nine months, he said.
In CGS's view, bank loan growth is estimated at 2.6-3% next year and in 2026 as banks retain cautious lending criteria and GDP growth is subdued. The brokerage anticipates GDP expansion of 3% in 2025, said Mr Weerapat.
With one more rate cut expected in the first half of next year, banks' net interest margin will decline to 3.45% and 3.41% in 2025 and 2026, respectively, from 3.51% this year, according to CGS.
"A policy rate cut will be negative for banks' net interest margin as they benchmark lending rates against policy rates," he said.
"Corporate, small and medium-sized enterprise and housing loans are typically floating-rate loans, while credit card loans, auto loans and unsecured personal loans are fixed-rate loans."
Chalie Kueyen, a bank analyst at KGI Securities (Thailand), anticipates the pace of NPLs to pick up in the final quarter as there have been steep rises in loans overdue by more than three months at most banks.
"These loans will likely deteriorate into NPLs in the fourth quarter," he said.
The government and the central bank are cooperating to devise assistance measures to help problem loans, such as special mention loans and NPLs of more than one year.
"The measures indicate the bad debt situation is worse than previously estimated and banks are forced to provide assistance to troubled debtors in exchange for allowing the bank to delay troubled loans turning into NPLs," Mr Chalie said.