China’s reopening to boost Thai banks’ loan quality

The upsurge in tourism will spur the economy, and improve businesses’ repayment capabilities.

China’s reopening may just be the boon that Thailand’s economy, and in turn its banks, need, according to a report by S&P Global Ratings.

"Economic benefits from China's reopening will flow to Thailand's banks and could improve the quality of loans under comprehensive debt restructuring," said S&P Global Ratings credit analyst Ivan Tan.

S&P expects a likely upsurge in tourism to spur the economy, with a knock-on effect for banks.

Tourism contributed almost one-fifth of the country's GDP in 2019 and employed about 8 million workers; Chinese tourists made up a quarter of overseas arrivals. When tourists stopped coming due to COVID-19, cash flows hit rock bottom at hotels, hospitability, restaurants, and related businesses, according to S&P. Only extensive restructuring of loans kept many companies afloat.

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“Stronger business and employment conditions in the tourism industry might improve repayment capabilities, allowing early resolution of some of these restructured loans,” Tan noted.

On the other hand, the end of forbearance and other supports mean some restructured loans might turn sour. S&P expects nonperforming loans (NPL) to rise from end-2022 levels, when it made up 2.9% of outstanding loans. However, it will likely peak lower than 5%, lower than S&P’s original forecast.

Outside of tourism benefits, the rising cost of living and interest rates will weigh hard on Thai borrowers.

 "This is due to high indebtedness among households and a lack of competitiveness in some sectors, particularly among the small and midsized enterprises,” Tan said.

“Given these constraints, we believe banks will proceed cautiously and lending growth will likely stay moderate at 3%-5% this year,” he added.