Non-performing mortgage loans (NPLs) increased in the first quarter of this year due to rising interest rates, with the Bank of Thailand encouraging banks to help borrowers through debt restructuring.
The central bank on Monday reported an NPL ratio of 3.16% for housing loans in the commercial banking system, rising from 3.01% in the previous quarter. The increase is mainly due to rising interest rates, said Suwannee Jatsadasak, assistant governor at the Bank of Thailand.
Banks normally have a buffer to handle the higher credit risk of mortgage loans amid rising interest rates, but the cushion may not be enough for some borrowers. As a result, the central bank requires banks to use pre-emptive measures to assist the borrowers with debt restructuring.
"The central bank has extended long-term debt restructuring measures until the end of this year, providing the opportunity for banks to help customers in easing their financial burden and controlling NPLs," Ms Suwannee said.
However, Ms Suwannee said the overall banking system's NPLs slightly declined in the first quarter of this year, in terms of both the amount and ratio, thanks to loan portfolio management through continued debt restructuring, write-offs and sales in both corporate and retail loans.
The banking industry's gross NPLs were worth 498 billion baht at the end of March this year, equivalent to an NPL ratio of 2.68%, a fall from 2.77% in the same quarter of 2022.
Given GDP growth and NPL containment, the country's household debt-to-GDP in the fourth quarter of 2022 was at 86.9%, declining from the previous quarter. However, the household debt ratio is still at a high level and the Bank of Thailand expects the ratio to gradually decline through comprehensive debt restructuring measures under a collaboration between the central bank and other related agencies.
Financial institutions' special mention loans (SM) also slightly increased in the first quarter of this year, staying at around 660 billion baht. If financial institutions can control SMs through long-term debt restructuring measures, the NPLs of the banking sector could be controlled as well.
The slight increase of SMs and NPLs is small compared with a significant increase in NPLs during the pandemic. In addition, NPLs in the banking sector have already peaked, but both the Bank of Thailand and financial institutions need to continue to monitor the situation by using pre-emptive measures when it shows negative signs, Ms Suwannee said.
She said the number of borrowers who were affected by the pandemic and had entered into financial institutions' debt assistance programmes has been declining. However, vulnerable segments, such as customers of non-banks, still required such assistance.
However, overall outstanding loans under the financial assistance programme have declined to around 3.37 trillion baht, in line with economic recovery and higher incomes. The central bank said it would also monitor the impact of weak global demand and rising costs for certain businesses, especially the manufacturing sector.