Tourism woes hurt Thailand banks’ loans

The restructuring will only provide temporary relief, not solve the problem.

Banks in Thailand remain under pressure from COVID-19 related risks and the country’s high household and corporate leverage–and restructuring will only provide temporary relief.

Tourism continues to be hit by the ill effects of the pandemic, which will hurt the debt-servicing ability of SMEs and low-income households, according to the latest S&P Mid-Year Banking Outlook report.

“Credit risk is already heightened in Thailand, given very high household debt and corporate debt as well as pre-existing structural weaknesses in the SME segment. Thailand's household leverage, at 90%, is one of the highest among emerging markets and has reached unsustainable levels,” said Deepali V Seth Chhabria, primary credit analyst, S&P Mumbai.

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Structural problems also drive worries for the sector as a whole. Whilst non-performing loans (NPLs) haven't spiked, given ongoing relief measures, its share at 11%--the high proportion of the banks' loan books under relief measures–points to incipient problems in the system, Chhabria warned.

“In our view, banks will need to restructure loans due to the fragile state of household debt and bear the losses on some of these loans,” she added, noting that she expects a large portion of banks' current outstanding loans under relief to transition to restructured loans. 

“Restructuring will provide a temporary lifeline to borrowers, but it won't resolve persistent high leverage. In our view, banks will remain stuck with these restructured loans for a long time,” Chhabria said.