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21 Dec 2022

Financial Institutions

Outlook for Thai Banks in 2023… Bracing for change in the financial landscape (Current Issue No. 3373)


        In 2022, Thai banks have operated business amid numerous challenges. These include debt resolution for pandemic-stricken borrowers; change from broad-based measures issued by the policymakers in support of financial institutions which provide assistance to borrowers to specific measures which are gradually allowed to expire; and interest rate hikes in line with the policy rate amid the economic recovery. However, Thai banks’ operating performance during the first nine months of 2022 gradually improved from 2021. KResearch projects that the 2022 operating profit (before provisioning and tax) of domestically-registered commercial banks (Thai banks) will increase by 12.4 percent from the previous year, in line with continual loan growth. If combined with lower provisioning expenses compared to those of the previous year which were proactively set aside, net profit of the Thai commercial banking system is expected to reach approximately THB 230 billion, increasing by 34 percent from the previous year.

        Looking into 2023, even though Thailand’s economy is still on the recovery path, mainly driven by the tourism sector, the recovery remains uneven in terms of types and sizes of businesses that are benefiting from the economic revival. As a result, the Thai banking business in 2023 may assume a cautious stance towards its recovery outlook as well. Meanwhile, the main focus should be on several issues that will affect the landscape of business operations and competition, consisting of:

  • Core businesses will grow within a limited range. Loans are expected to grow by 4.7 percent in 2023, from estimated growth of 5.0 percent in 2022. Meanwhile, non-performing loans (NPLs) may not decline. Interest rate hikes may have a less positive effect on net interest margin. Plus, provisioning that may not be significantly reduced  will still put pressure on net profit overall.
  • Thai banks must accelerate their efforts in exploring new businesses such as digital lending, businesses that adopt environmental, social and governance (ESG) practices, digital assets, and international businesses, including non-financial businesses, in order to broaden future opportunities for new revenue streams.
  • Changing rules and regulations will intensify competition in various dimensions. Examples include virtual bank licensing, expanding the scope of FX transactions offered by non-banks, development of Retail Central Bank Digital Currency (Retail CBDC), and responsible lending guidelines.

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