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

Despite their targets to decrease costs, three banks saw them rise instead.

The mobile apps kept glitching, and the bad loans kept rising– that’s just some of the problems faced by Thailand’s biggest banks in 2024 and even through 2025.

Three of these banks– Siam Commercial Bank X (SCBX), Kasikornbank (KBank), and Krung Thai Bank (KTB)– will face credit cost pressures in 2024, on top of their own individual challenges, UOB Kay Hian analyst Tanaporn Visaruthaphong and assistant analyst Thanawat Thangchadakorn said.

All three banks already saw their credit costs rise in 2023 despite targeting otherwise. KBank saw its credit costs rise by 11 basis points (bp) to 219 bp, casting it further from its target of between 140 to 160 bp. SCB– the traditional banking arm of SCBX –exceeded its target credit costs for 2023, at 182 basis points (bp). 

It’s the same story for KTB, whose credit costs were at 199 bp at the end of the fourth quarter. In comparison, its credit costs were just 124bp in the third quarter, and 115 in Q4 2022.

SCB called to overhaul mobile app
Siam Commercial Bank (SCB)’s tech difficulties in its mobile banking app had the analysts advise it to overhaul the app.

Statistics showed that SCB’s mobile banking app logged the most “failures” in 2023, with 26 occurrences, according to Visaruthaphong and Thangchadakorn. 

Notably, the mobile app experiences issues during the end and beginning of every month, especially for the payroll date, the analysts noted.

“In our view, SCB needs to set aside expenses for overhauling the mobile banking application. As a result, we reckon the operational costs will increase,” Visaruthaphong and Thangchadakorn said.

Another scenario they suggested is for the bank to renew the whole banking system, which may result in higher expenses and a higher cost-to-income ratio.

On a more positive note, SCB is said to have resolved its credit card business’ issues– notably, the problem that occurred whilst migrating clients to its new system.

With this, the analysts expect that SCB’s confidence in credit costs related to its credit card business will improve in 2024.

“In our view, we believe that the credit cost in the credit card business should be better than in 2023,”  Visaruthaphong and Thangchadakorn said.

KBank’s ‘normal’ credit costs target a challenge
Thailand’s Kasikornbank (KBank) will have a difficult time achieving its target of normalising its credit costs by 2025, the two analysts said.

KBank’s management is eyeing to normalise its credit costs to between 140 and 160 basis points (bps) in 2025. This will mostly be done by KBank continuing to reduce its loans to small and medium enterprises (SMEs).

However, in the fourth quarter of 2023, asset quality showed some weakness with its non-performing loan (NPL) ratio rising to 3.19% and credit costs rose to 219bp. This was the result of an increase in provision expense by 6%, noted Visaruthaphong and Thangchadakorn.

“We believe the credit cost will remain at a high level in 2024 and normalisation will be difficult in the mentioned period. We think a deterioration in the SME segment will pressure KBANK’s credit cost and asset quality,” Visaruthaphong and Thangchadakorn wrote in their latest company report on KBank.

The two analysts did note KBANK’s efforts to clean up its portfolio. “KBANK currently avoids lending unsecured loans unless it has already prepared the system and is more comfortable to penetrate again.”

“Therefore, we expect the credit cost in the credit card business will remain high and SCB will need to monitor closely and be prudent in 2024,” they said.

Krung Thai’s bad loans are increasing
Visaruthaphong and Thangchadakorn expressed concern for Krung Thai Bank’s asset quality after the bank missed Q4 profit estimates by a large margin.

Instead of the expected 34% year-on-year rise in net profits for Q4, Krung Thai Bank instead reported a 25% contraction. This was a result of provision expenses: THB is bracing for negative impact from one of its corporate clients and its related companies, where it expects credit deterioration.

It wasn’t just that one client that weighed on THB. New formation of non-performing loans (NPL) came in higher at 2% in Q4, versus just 0.8% in Q3. 

“We foresee additional writing off in the future which will hurt earnings,” the analysts warned.

Whilst overall asset quality remains “healthy”, the spike in provision expenses has triggered asset quality concerns from Visaruthaphong and Thangchadakorn.

They also noted the possibility of another corporate client’s credit deteriorating.

“The third concern was attributed to the local news regarding a high default probability of bond redemption and some asking for extended periods to redeem the bondholders, especially for the construction industry. The construction industry is currently one of the most impacted and fragile due to a postponement of the national budget from October 2023 to May 2024,” they warned.