BANGKOK, Thailand – The Bank of Thailand (BOT) revealed that commercial bank loans contracted by 2% year-on-year in Q3 2024, marking the first decline since the 2008 financial crisis. The contraction was driven by high debt repayments, particularly from the government and large businesses, despite continued new loans in key sectors.
Loan Performance and Sectoral Impact
Suwannee Jesadasak, Assistant Governor of the BOT’s Financial Institutions Policy Group, explained on November 27 that while new loans were extended in services, real estate, trade, and consumer lending (including personal and housing loans), overall loan growth slowed. Business sectors facing competitive challenges, such as petrochemicals, electronics, and automotive, saw a sharp decline.
Non-performing loans (NPLs) rose to 553 billion baht in Q3 2024, accounting for 2.97% of total loans, the highest since Q4 2021. This increase came from struggling business and consumer loans, primarily involving previously assisted borrowers.
The proportion of loans with significantly increased credit risk (SICR or stage 2) rose to 6.86%, driven by business loans. Despite this, businesses generally continued meeting their debt obligations.
Banking Sector Resilience
The banking system’s capital adequacy ratio (BIS ratio) improved to 20.5% from 19.9% in the previous quarter, while liquidity coverage (LCR) rose to 200.2% from 194.9%. However, the NPL coverage ratio slightly decreased to 170.3% from 172.4%.
Profitability in Q3 2024 showed year-on-year improvement due to higher financial instrument valuation gains, although net interest income declined. Quarter-on-quarter, net profit fell, mainly due to seasonal dividend income reductions, despite lower provisioning expenses.
Challenges Ahead
Suwannee highlighted the need to monitor SMEs and households with incomplete income recovery and high debt burdens. Structural and competitiveness issues in certain business sectors are expected to contribute to a gradual rise in NPLs. Nonetheless, the BOT reassured that the increase would remain manageable without a sudden surge (NPL cliff).
Household and Business Debt Trends
Household debt fell slightly to 89.6% of GDP in Q2 2024 from 90.7% in the previous quarter, reflecting slower household credit growth and ongoing debt deleveraging. Business debt-to-GDP ratios also declined in line with loan and bond market contractions, although overall profitability, particularly in manufacturing, remained strong due to easing cost pressures.
Debt Restructuring Progress
In the first nine months of 2024, financial institutions restructured 6.1 million debt accounts, covering obligations totaling 2.08 trillion baht. Of these, 800 billion baht involved commercial banks and non-bank lenders, while 1.27 trillion baht pertained to specialized financial institutions (SFIs).
The BOT emphasized its continued focus on assisting vulnerable borrowers and ensuring financial stability amid evolving economic conditions.
