Thai banks brace for a rise in loan defaults in 2024: analyst

The sector grapples with elevated costs and weak loans, S&P said.

Thailand’s economic difficulties will lead to some borrowers defaulting despite government relief efforts, which will ultimately weigh on local banks, says S&P Global Ratings.

The sector continues to grapple with elevated credit costs and weak loans, the ratings agency said in a report.

It added that 2024 will be “a test of resilience” for local lenders, as they come to terms with the expiry of pandemic-era loan restructuring schemes.

"The difficult economic backdrop will mean that some borrowers will ultimately default despite government relief efforts," said S&P Global Ratings credit analyst Ivan Tan.

"A portion of these restructured loans will likely crystallize into nonperforming loans (NPLs) over the next 6 to 24 months. The rate at which loans turn bad will largely depend on the state of the economy and the restructuring terms on each loan," Tan added.

ALSO READ: Thai banks’ credit costs rise as tech difficulties, bad loans pile up

Banks have shown awareness of the oncoming issues arising from weak loans and expiry of support schemes, as they have been beefing up their defenses, S&P noted. 

“The industry has been setting aside provisions against loan losses, with the average coverage ratio for the sector at over 180% as of end-2023. The banks have also maintained a healthy capital adequacy ratio of about 20%, which compares favorably with regional peers,” the report stated.

Meanwhile, the government’s efforts to rein in high household debt should strengthen household resilience.

“This should have positive flow-on effects for banks' credit quality, given that around one-third of the sector's exposure is to retail. That said, borrowing habits and debt cycles are hard to break, and these measures won't reverse structural constraints overnight,” S&P said.