Thai banks are expected to record weak loan growth this year and next amid rising non-performing loans (NPLs) as troubled debtors cannot service their debts given the uneven economic recovery, says the Thai unit of Kuala Lumpur-based financial group Maybank.
Weak loan growth is likely to continue from last year for Thai banks in 2025-2026 as banks maintain tight credit approval standards for small and medium-sized enterprises (SMEs) and retail loans, said Jesada Techahusdin, an analyst with Maybank Securities (Thailand).
Sector loan growth contracted by 1% in the first 11 months of 2024 and 0.6% year-on-year in November.
Retail loans and SME credit expansion especially slowed, attributed to high household debt levels and a weak debt servicing ability, he said.
"We forecast aggregate loans for banks to grow only 1.4% year-on-year in 2025, driven by corporate lending," said Mr Jesada.
"Banks focused on auto hire-purchase are likely to post negative loan growth based on weak domestic auto sales this year."
For corporate loans, economic recovery across sectors remains uneven.
Maybank's economist forecasts 2.6-2.8% Thai growth in 2024-25, in line with forecasts from the National Economic and Social Development Council.
"We see solid recovery in the tourism and service sectors, but these require less capital than manufacturing," he said.
"Sectors such as petrochemical and automotive face competitive challenges, resulting in reduced output and loan contraction."
In addition, there is low competition for deposits, noted Maybank. Banks are offering higher deposit rates for e-savings accounts, but limiting deposits to 2-5 million baht per customer per bank, said Mr Jesada.
According to the Bank of Thailand, in the third quarter of last year the sector's NPL ratio rose by 13 basis points quarter-on-quarter to 2.97%.
The ratio of stage 2 loans (underperforming loans that have seen a significant increase in credit risk) to total loans also increased in the third quarter from the previous quarter in both business and consumer loans.
Most banks said higher NPLs were mainly the re-entry of restructured NPLs rather than new NPLs in the first nine months of 2024.
"We anticipate the NPL ratio will increase year-on-year in 2025 from a smaller loan base and new NPL inflows from troubled debtors that cannot service debt because of the uneven economic recovery," said Mr Jesada.
Weak revenue growth should pressure banks' earnings this year in addition to a potential central bank policy rate cut in the first half of 2025, given weak economic growth and low inflation, according to Maybank.
"We expect earnings to grow at a slower rate of 5-6% in 2025-2026 from 7% last year as weak loan growth and lower net interest margins pressure banks' net profit," he said.