NPLs should stay flat in 2018.
Analysts at Maybank Kim Eng expect NPL ratio to be flat or fall just modestly for most Thai banks because: 1) despite improving new NPL formation, re-entry NPL/restructure loans will keep NPL formation at the current level; and 2) NPL resolution has been very slow in this cycle.
Here's more from Maybank Kim Eng:
Late last year, we anticipated that the NPL ratio would fall this year as improving economic growth should push down new NPL formation. Admittedly, it is only half- correct. Yes, new NPL formation has slowed as we expected.
But those NPLs that became performing loans fell back into NPL again (what we call re-entry or relapse). Perhaps the economic expansion is not strong or broadbased enough to strengthen those already-troubled borrowers.
Even though the economic growth should accelerate further this year, this picture should continue. Plus, restructured loans remain high for many banks (3.4% of loans at KBANK as of 3Q17, for instance) and most of them remain classified as normal loans. There will be more NPL from this category to come, in our view.
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