Thai banks face asset stress on risky borrower exposure

Over a fifth of Thai loans are exposed to highly leveraged large corporations.

Thai banks face prolonged asset quality stress with their high exposure to vulnerable borrower segments.

More than one-fifth of Thai bank lending is exposed to higher-risk segments—that is, highly leveraged large corporations, according to S&P Global Ratings.

“[We] see rising credit stress for Thai corporates over the next 12-24 months, driven by weaker earnings and high leverage. Risks are concentrated among highly leveraged large corporations,” the ratings agency wrote in a commentary.

Risks are concentrated in lower-income households and small and midsize enterprises (SMEs), which are more sensitive to income volatility and higher debt-servicing costs, it warned.

Under a severe stress scenario, where the non-performing loan (NPL) ratio rises to 10%, the sector is expected to remain “broadly resilient.” Impact will vary amongst banks. S&P estimates that a small number of unrated institutions could face greater capital erosion.

“If the Iran war drags on, we anticipate Thailand would be amongst the worst-hit countries through higher input costs, weaker demand, and supply disruptions. These factors could amplify existing vulnerabilities rather than create new ones,” S&P warned.