The Thai banking sector is expected to experience its first loan contraction in 15 years in 2024, driven by higher debt repayments by borrowers and tighter lending by creditors, according to Kasikorn Research Center (K-Research).
K-Research forecasts that total outstanding loans in the banking industry will contract by 1.8% year-on-year in 2024, marking the first such decline since 2010. This contraction is also attributed to changes in both borrower and creditor behaviour since the pandemic.
In 2024, borrowers, particularly in the government and business sectors, have been focused on improving liquidity management, in part through debt repayment. Large corporations have continued to reduce their debt since the second quarter.
Meanwhile, banks have become more cautious in approving loans to small and medium-sized enterprises (SMEs) due to the higher credit risks associated with this sector and the weaker recovery of the Thai economy. Retail loans have also been weakening across all product categories, according to the research centre.
“We expect auto loans to show a double-digit contraction this year, affected by both the new car and used car loan segments,” noted K-Research.
Credit card and personal loans are also expected to contract this year due to tighter lending policies and rising non-performing loans (NPLs) in unsecured loan products.
Meanwhile, mortgage loan growth is projected to slow because of weaker purchasing power and lower incomes among prospective homebuyers.
According to K-Research, the banking sector’s loan growth peaked at 6.2% in 2021 but has since declined, to 2.7% in 2022 and 0.2% in 2023. It is expected to contract by 1.8% in 2024.
Although banks have seen higher growth in new loans compared to existing debt repayments, the pace of debt repayment has accelerated consistently over the past three quarters.
For 2025, K-Research forecasts that loan expansion in the overall banking sector will grow at a slower, marginal pace of 0.6%. This growth will be supported by a 1.5% increase in business loans, marking a recovery from the contraction experienced during 2023-24.
The positive growth in business loans in 2025 is likely to be driven by large companies, aligning with an improvement in private investment. However, SME loan growth is expected to remain sluggish due to an uneven recovery in the business sector, increased competition and ongoing structural challenges.
K-Research predicts that retail loans will contract by 1% in 2025, following a 2% contraction in 2024. The slower growth of the Thai economy, the country’s household debt problem, and weak debt repayment capabilities among individuals are major challenges affecting retail loan growth for 2025.
“We expect total loan growth to be just 0.6% in 2025, which is lower than the country’s nominal GDP growth rate. This would mark the fourth consecutive year of banking sector loan growth trailing nominal GDP,” said K-Research.
