SCB EIC, the research centre of Siam Commercial Bank (SCB), expects the banking sector to tighten loan growth to its highest level in a decade in 2025, amid rising credit risk and weaker economic growth.
According to EIC's chief economist, Somprawin Manprasert, total loan growth in the banking industry is expected to be flat or see only marginal expansion of around 1% in 2025, primarily due to higher credit risk among clients, particularly individual borrowers, in line with weaker economic conditions.
"The banking industry has already tightened loan growth this year, and this trend is expected to intensify next year as a result of cautious asset quality management. In 2025, the banking sector is likely to implement the most stringent loan growth restrictions in the past decade," he said.
At the same time, non-performing loans (NPLs) in the banking industry are expected to continue rising next year. Existing special mention (SM) loans -- classified as debt defaults for more than 60 days but less than 90 days -- are likely to become NPLs in the next five to six months. However, NPL management will depend on each bank's strategy, he said.
Thitima Chucherd, head of economic and financial market research at EIC, said EIC expects the overall quality of retail loans to deteriorate further, as strict lending standards by financial institutions remain in place. Data from the National Credit Bureau (NCB) shows a continued decline in retail loan quality, indicating that household debt issues will take time to resolve. This is expected to put pressure on consumption in the near term.
Between 2019 and the fourth quarter of 2023, 71.6% of individual borrowers were unable to service their debt, while 0.8% were able to repay normally, 0.9% closed their debt accounts, and the remainder were undergoing legal processes, according to NCB data.
Furthermore, 70-80% of SM loan borrowers were classified as NPLs during this period, largely driven by agricultural loans, personal loans, and credit card debt.
Ms Thitima also noted that the latest debt resolution scheme -- "You Fight, We Help" -- will spend more time helping household borrowers to improve their repayment capabilities. However, the success of these measures will largely depend on the recovery of borrowers' income, which is tied to the broader economic recovery.
EIC also expects Thai GDP growth in 2025 to be 2.4%, a decline from the 2024 projection of 2.7%, and lower than the country's potential growth rate of 2.7%. As a result, EIC believes that Thailand will require economic stimulus to encourage growth, with the Bank of Thailand's policy rate cuts serving as a key tool to support the economy.
"The central bank still has more space to cut the policy rate due to the absence of inflationary pressures. However, EIC expects the central bank to reduce the rate once in February next year, bringing it down to 2%. After that, the central bank is likely to maintain the policy rate for some time," Mr Somprawin said.