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12 Apr 2023

Econ Digest

The Thai banking sector in 1Q23…Despite growing income from core businesses, cautious outlook for bad debts remained


        Loans of the Thai banking system in 1Q23 grew modestly, in a range of 1.9-2.3% 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 an increase in the net interest margin (NIM) to a range of 3.05-3.17%.

        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 that have just exited 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 remain steady in a range of 2.70-2.75%, relatively close to the figure of 2.73% in 4Q22. Consequently, provisioning expenses may be reduced slightly as compared to the large amount that had been set aside in late 2022. Meanwhile, credit costs are expected to decrease to a range of 1.17-1.25% in 1Q23, compared to the figure of 1.46% in 4Q22 when commercial banks accelerated setting aside their provisioning to accommodate economic uncertainty.
        Looking ahead, attention must be paid to regulatory guidelines on fee structures to monitor and ensure fairness for financial service users. Commercial banks must also be prepared to address the key challenge of potentially limited future growth in income from fees and service charges.

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Econ Digest