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11 Apr 2023

Financial Institutions

Thai banks in 1Q23…Despite growing income from core businesses, cautious outlook for bad debts remained (Current Issue No.3403)


        Loans of the Thai banking system in 1Q23 grew modestly, in a range of 1.9-2.3 percent, due to gradual loan repayments. However, it is expected that loan yields will continue to increase in line with rising lending rates of commercial banks. KResearch projects that higher loan yields in 1Q23 would lead to net interest margin (NIM) increase to a range of 3.05-3.17 percent.

        Even though income from core businesses has shown signs of gradual recovery, commercial banks still need to closely monitor deterioration in credit quality. This is because gradual interest rate hikes may put greater pressure on certain customer groups, such as retail and small business clients, as well as borrowers who have exited from debt relief measures. Despite Thailand's gradual recovery of economic activity, KResearch projects that non-performing loans (NPLs) to total loans in the commercial banking system (17 Thai banks and 11 foreign banks) in 1Q23 will be steady in a range of 2.70-2.75 percent, relatively close to the figure of 2.73 percent in 4Q22. Consequently, provisioning expenses may be reduced slightly compared to the large amount that had been set aside in late 2022. Meanwhile, credit cost is expected to decrease to a range of 1.17-1.25 percent in 1Q23, compared to the figure of 1.46 percent in 4Q22 when commercial banks accelerated setting aside their provisioning in order to cope with economic uncertainty.

        Looking ahead, attention must be paid to regulatory guidelines on fee structure which aim to ensure fairness for financial service users. The potentially limited future growth of fees and service income is a key challenge that commercial banks must be ready to address.

Financial Institutions