Thai Banking Sector Faces First Loan Contraction in 15 Years, Reports Show
PUBLISHED: 25 Dec 2024 at 18:49
The Thai banking sector is predicted to witness its first loan contraction in 15 years, with a projected decline of 1.8% in total outstanding loans for 2024, according to recent research findings. This marks a notable shift in lending practices, as higher debt repayments and stricter credit issuance come into play.
The contraction, the first since 2010, is influenced by evolving behaviors of both borrowers and lenders, a trend that has been notably impacted since the pandemic. Borrowers, particularly in the government and business sectors, are prioritizing liquidity management, leading to increased debt repayment. Large corporations have been actively reducing their outstanding debts since the second quarter of 2024.
In response to rising credit risks, banks are exercising greater caution in loan approvals for small and medium-sized enterprises (SMEs), further exacerbated by the subdued recovery of the Thai economy. Retail loans across various categories are also showing signs of weakness.
Research indicates that auto loans may experience a significant double-digit contraction, driven by the lackluster performance in both new and used car financing segments. Additionally, credit card and personal loans are expected to decline due to stricter lending policies and the rise in non-performing loans.
Mortgage loan growth is projected to slow, influenced by decreased purchasing power and lower incomes among potential homebuyers. Following a peak loan growth of 6.2% in 2021, the sector has seen a decrease to 2.7% in 2022 and just 0.2% in 2023, with an anticipated contraction of 1.8% in 2024.
Despite higher issuance of new loans, the speed of debt repayment has increased consistently over the last three quarters. Looking ahead to 2025, modest loan growth of 0.6% is expected, supported by a 1.5% rise in business loans as large companies align with the anticipated upswing in private investment.
However, the recovery for SMEs is likely to remain sluggish due to uneven sector recovery, escalated competition, and ongoing structural hurdles. Retail loans are projected to dip by 1% in 2025 after a 2% decline in 2024, hindered by the slow economic growth and challenges associated with household debt and repayment capabilities.
Overall, the forecast indicates that total loan growth in the banking sector will only reach 0.6% in 2025, falling short of the country’s nominal GDP growth rate, making it the fourth consecutive year that banking sector loan growth lags behind economic growth.
