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23 Dec 2022

Econ Digest

Change in Thailand’s banking business landscape in 2023…Thai banking businesses in 2023 may cautiously recover as the economy moves


        The Thai banking sector has seen a gradual improvement in operating performance during the first nine months of 2022 from 2021. KResearch projects that the operating profit (before provisioning and tax) of domestically registered commercial banks (Thai banking sector) will increase by 12.4% to THB450 billion in 2022 from the previous year, in line with continual loan growth. When combined with lower provisioning expenses as 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, which is an increase of 34% from the previous year.

        Nonetheless, looking into 2023, the Thai banking business should have a cautious outlook for recovery in line with the direction of economic development. Meanwhile, the main focus should be on several aspects that will affect the landscape of business operations and competition, consisting of:

1. The core businesses will grow within a limited range:
  • Loans will grow cautiously. KResearch projects that the loan growth of commercial banks registered in Thailand will grow within a limited range of 4.2-5.2% (with the median of 4.7%) in 2023, from estimated growth of 5.0% in 2022, due to the highly uncertain economy and the expiration of assistance measures.
  • Non-performing loans (NPLs) may not decline. The NPL ratio of the Thai commercial banking system (commercial banks registered in Thailand and foreign banks) is expected to be in a range of 2.55-2.80% in 2023, compared to 2.65-2.75% estimated at the end of 2022. Moreover, as there will be no additional debt-specific assistance measures in 2023, the reduction of NPLs relies mainly on debt restructuring by each financial institution.
  • Interest rate hikes may have a less positive effect on the net interest margin (NIM) in 2023 amid limited recovery in customers’ debt serviceability.
  • Provisions that may not be significantly reduced will still put pressure on the projected net profit.
  • The net profit of the Thai commercial banking system in 2023 is likely to grow at a lower rate than the expected 34% for 2022.  

2. Landscape that must accelerate the search for new businesses:
  • Challenges in increasing access to credit and expanding business opportunities will drive Thai banks to move forward continuously.
  • KResearch projects that general digital lending (not under the definition of the Bank of Thailand and data collected from 8 operators) will grow by 10%, and the outstanding balance will reach approximately THB56.05-60.72 billion.
  • In addition to the digital lending business, more emphasis will be placed on the development of other businesses areas such as businesses that adopt environmental, social and governance (ESG) practices, digital assets, and international businesses, including non-financial businesses like food and leisure businesses.

3. Rules to stimulate competition in various dimensions of financial business:
  • Another key difference in 2023 will come from changes in regulatory rules in various dimensions, in line with the BOT’s new guidelines on Thailand’s financial landscape, such as virtual bank licensing, expanding the scope of FX transactions offered by non-banks, developing Retail Central Bank Digital Currency (Retail CBDC), and responsible lending guidelines.

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Econ Digest