SME loan 4.1% slump weighs on Thai bank earnings

Overall credit outstanding fell 1.1% year on year across licensed banks and subsidiaries.

Thailand’s banking system remained stable in the fourth quarter of 2025, although overall lending continued to shrink in both business and consumer loans, according to the Bank of Thailand’s latest Banking Sector Quarterly Brief.

Total loans in the banking system, including licensed banks and their subsidiaries, contracted by 1.1% year-on-year in the fourth quarter, broadly in line with the previous quarter. 

The decline was driven mainly by continued contractions in small and medium-sized enterprise (SME) loans (-4.1%) and consumer lending, reflecting weaker demand and higher credit risks. 

Lending to large corporates also edged down slightly, partly due to softer loan demand in line with the economy.

By portfolio, bank lending continued to contract in both business and consumer segments. Large corporate loans slipped slightly, whilst SME loans continued to decline amidst heightened credit risk. 

Consumer loans showed a slight improvement overall, supported by growth in housing loans and a slower pace of contraction in auto loans.

Loan quality improved during the quarter. Non-performing loans (NPLs), or Stage 3 loans, fell to $17.3b (THB536.0b), as repayments and banks’ loan portfolio management efforts reduced outstanding bad debt. 

The NPL ratio declined to 2.84%. Stage 2 loans also decreased to 7.07%, mainly due to repayments under restructured loan arrangements.

Despite the improvement in asset quality, bank profitability declined in 2025 compared with the previous year. 

The fall was largely due to lower net interest income following lending rate cuts in line with policy rate reductions and banks’ adjustments under the ‘Khun Soo, Rao Chuay’ programme. 

The contraction in overall lending, weaker loan demand and elevated borrower credit risks amidst a slowing economy also weighed on earnings.

The central bank said the financial system remains supported by strong levels of capital, loan loss provisions and liquidity. 

However, it noted that close monitoring is still needed, particularly given tight financial conditions and the debt-servicing capacity of

SMEs and households in an environment of below-potential and uneven economic growth.

Household debt to GDP remained unchanged from the previous quarter in the third quarter of 2025, whilst household lending continued to contract at a similar pace. 

Financial institutions have continued to assist borrowers through responsible lending measures and participation in the ‘Khun Soo, Rao Chuay’ relief programme.

($1.00 = THB31.05)