The banking sector has faced a significant loan contraction in 2024, marking its steepest decline in 15 years. This trend is attributed to stricter loan approval processes and the decreasing repayment capacity of borrowers.
Recent data revealed that total loans in the banking industry contracted by 0.4% year-on-year in 2024, continuing a downward trajectory that began in 2023, which saw a 0.3% decrease.
According to central bank officials, this decline was largely driven by reductions in lending to small and medium-sized enterprises (SMEs) and retail loans.
Specifically, SME loans decreased by 5%, auto leasing loans fell by 9.9%, and credit card loans dipped by 2.3%. In contrast, personal loan growth slowed to 1.3% in 2024 from 3.7% the previous year, while mortgage growth saw a slight increase of 0.3%.
Corporate loans, however, demonstrated growth, increasing by 3.4% year-on-year in 2024.
Officials attributed the loan contraction to banks exercising greater caution in loan approvals due to heightened credit risks and ongoing debt de-leveraging among borrowers. The central bank indicated that it will continue to monitor loan expansion closely this year, though significant growth is not anticipated.
Notably, the sector’s non-performing loan (NPL) ratio improved, falling to 2.78% in 2024 compared to 2.97% in 2023, thanks to effective debt restructuring measures implemented under a responsible lending framework.
The central bank’s recent debt relief initiative, aimed at assisting vulnerable borrowers, is expected to further reduce bad debts. As of January 30, approximately 630,000 borrowers registered for the program, with eligibility for 38% of those applicants.
Officials noted that the registration deadline has been extended from February 28 to April 30, with expectations that eligible participants will increase. This initiative is designed to aid debt repayment and potentially lower the country’s household debt-to-GDP ratio.
Home loan borrowers are a significant focus of this program, with mortgage NPLs projected to continue decreasing following a rise to 3.88% in the last quarter of the previous year.
In a related discussion, central bank representatives recently met with property developers to address challenges related to the business climate and stagnant mortgage growth. Feedback from the sector has prompted calls for adjustments in loan-to-value regulations for secondary and tertiary mortgages. The bank emphasized its commitment to considering industry concerns alongside broader economic indicators before implementing any policy changes.
