Loan growth in the banking sector is expected to slow in the second quarter this year due to rising uncertainty surrounding global trade policies, according to an executive at the Bank of Thailand.
In the first quarter of 2025, total loans in the banking sector contracted by 1.3% year-on-year, marking the third consecutive quarterly decline.
This was driven by contractions in both business and consumer loans, which fell by 0.8% and 2.2%, respectively.
Several loan segments shrank, most notably auto hire-purchase loans, which dropped by 10.2%, followed by loans to small and medium-sized enterprises (SMEs) declining by 5.5% and credit card loans downs 1.9%.
However, corporate lending posted modest growth of 1.5% in the first quarter, while mortgage and personal loans also recorded marginal increases of 0.2% and 0.3%, respectively, said Suwannee Jatsadasak, assistant governor at the central bank.
Amid heightened uncertainty over tariff policies, particularly during the 90-day suspension period, both business and retail sectors have postponed investment and spending decisions, pressuring loan expansion in the second quarter, said Ms Suwannee.
This prolonged uncertainty is expected to pose challenges to banking loan growth through the third and fourth quarters, she said.
Ms Suwannee said the monetary policy transmission of interest rates to the banking sector is expected to mitigate the financial burden on borrowers, rather than significantly drive loan expansion, amid slower economic activity and growth in Thailand.
The central bank will continue to monitor tariff negotiations between Thailand, other countries and the US to assess their potential impact on loan growth, she said.
In response to the potential risks, the central bank directed the country's six domestic systemically important banks (D-SIBs) to conduct stress tests to evaluate the impact of tariffs, particularly on exporters to the US and local SMEs vulnerable to an influx of imported goods.
The results of these stress tests are expected to be finalised soon.
"With the stress tests, the central bank wants to understand the impact across industries and borrower segments, including SMEs and retail clients, in order to design appropriate financial assistance measures," Ms Suwannee said.
On average, SME loans account for 20-30% of D-SIBs' loan portfolios, though the impact will vary depending on each bank's specific loan exposure.
According to Bank of Thailand data, in the first quarter this year the banking sector's non-performing loan (NPL) ratio was 2.90%, up from 2.78% in the previous quarter.
SME NPLs reached 7.35% -- the highest among all loan categories -- up from 6.88% in the prior quarter.
Ms Suwannee said the central bank is working with other agencies including the Finance Ministry, the National Economic and Social Development Council and the Thai Bankers' Association to roll out the second phase of the "You Fight, We Help" debt relief programme, building on the first phase to provide ongoing support for struggling borrowers.