The government's recently unveiled debt relief scheme is expected to reduce interest income for the banking industry, but should improve asset quality in the long term, say analysts.
According to research from Phillip Capital Securities, the debt aid programme, named "You Fight, We Help", suspends loan interest for three years and is expected to reduce interest income for banks.
If borrowers participating in the debt restructuring programme successfully service their debt throughout the period, their accumulated interest is waived.
On Wednesday, the cabinet approved a range of debt support measures, including interest suspensions and reduced principal payments, addressing household and small and medium-sized enterprise (SME) debts.
The scheme applies to borrowers with debts overdue by up to one year, covering mortgages of up to 5 million baht, car loans up to 800,000 baht, and small business loans up to 5 million baht.
The debt assistance is available to borrowers at state-owned banks, commercial banks, and non-bank financial institutions that are subsidiaries of these banks.
Phillip expects Kiatnakin Phatra Financial Group (KKP) and TMBThanachart Bank (ttb) to experience the greatest reduction in interest income, as both have significant exposure to the three loan products, particularly auto loans.
In the third quarter of 2024, the three loan products accounted for 77% and 64%, respectively, of the total outstanding loans at KKP and ttb, according to Phillip's research.
In contrast, Krungthai Bank (KTB) and Bangkok Bank (BBL) are expected to experience a reduced impact on interest income. For the same period, the proportion of these loans was 29.8% for KTB and 31% for BBL.
Yuanta Securities Thailand said while banks' interest income would decline under the debt relief measures, the asset quality of the banking sector should improve over the long term.
The sector is also likely to see a reduction in provisions for bad debt, according to the brokerage.
Among the country's major banks with significant exposure to mortgage and SME loans, Kasikornbank is expected to reduce its expected credit losses (ECL) by 3.06 billion baht, the largest reduction over the three years of the debt scheme.
BBL is projected to reduce its loan-loss reserves by 2.88 billion baht, Siam Commercial Bank by 2.27 billion, and KTB by 1.74 billion baht, according to brokerage estimates.
Meanwhile, ttb, Tisco Financial Group, and KKP, which have significant exposure to auto loans, are expected to benefit from ECL reductions of 705 million baht, 542 million baht and 693 million baht, respectively.