BANGKOK. The Bank of Thailand (BoT) expects higher non-performing loans (NPL) in the local banking system after banks ease debt relief measures. At the same time, the BoT assumes that some bad loans are likely to be contained by the banking sector’s strong risk management.
The central bank announced on Friday, November 12th, the NPL ratio for commercial banking for the third quarter was 6.69%, down from 6.34% in the second quarter and 6.42% in the first quarter.
The rate is expected to increase gradually in line with easing and phasing out of existing debt relief regimes. The central bank’s rescheduling will expire in late 2023, said BoT’s senior director Suwannee Jatsadasak.
The higher NPL ratio in commercial banking in the third quarter was mainly due to the increase in commercial lending from 3.17% in the second quarter to 3.25% in the third quarter of the year.
The NPL consumer credit ratio fell from 2.92% in the second quarter to 2.89% in the third quarter.
Despite the uptrend in bad loans, the BoT expects bad debt losses to not increase significantly as the central bank has been closely monitoring the situation. The strong risk management of the commercial banking sector will help further contain credit for those in need, Ms. Suwannee said.
The BoT and commercial banks are preparing to gradually slow down debt relief efforts in line with the trend of economic recovery. From now on, the central bank will focus on long-term debt restructuring rather than short-term debt moratorium, she said.
Long-term debt restructuring will help borrowers manage their debts and financial plans in line with their earnings amid the uneven economic recovery, she added.
Ms. Suwannee said the higher NPL ratio in the third quarter of this year was also in line with higher credit growth in the banking sector.
In the third quarter, the banking sector posted total credit growth of 5.6% after 3.7% in the previous quarter.
The credit expansion has been largely contributed by loans to businesses and small and medium-sized enterprises (SMEs) and has also been supported in part by the central bank’s soft loan program.
As of November 8, the approval for the soft loans totaled around 124.83 billion baht, she said.
The banking sector’s loan loss provisions rose in the third quarter from 50 billion baht in the previous quarter to 54 billion baht.
The industry’s credit risk reserve declined 8.6% year-over-year in the third quarter after the banking sector built a huge baht 230 billion loan loss reserve in 2020 to cope with unexpected situations.
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