Thai banks' bad loan balance hits 1.8% in Q2

Weaker debt servicing abilities reflected the slowing economy.

The bad loan balances of Thai banks edged up slightly in Q2 to 1.8% as non-performing loan (NPL) formation rose across the board, according to UOB Kay Hian. 

Also read: Can Thai banks keep their bad loan woes at bay?

"This should have reflected the slowing domestic economy, especially exports whose growth turned negative in 1H19," analyst Thananchai Jittanoon said in a report. 

Lending to SMEs, which account for 33.6% of Thai bank loans, has been rapidly expanding since at least the end of 2017, data from Fitch Solutions show. However, the sector's vulnerability to weakening economic conditions and frail debt servicing ability pose a growing risk to the stability of the country's banking sector. 

Also read: Thailand braces for fresh wave of bad loans as property market cools

Despite the mild quarterly increase, asset quality remained stable as the sector's NPL coverage ratio stood at 154% in Q2. Bank credit also normalised at 120bp, from 132bp in the same quarter last year, pushing down provision charges by 6%. 

Loan growth remained dismal in Q2 at 4.7% YoY. Non-interest income also fell 5% on lower fee income and investment gain although net fees narrowed the decline from -14% in Q1 to -2% in Q2 amidst better card and mutual fund fees. 

Jittanoon remains optimistic that the sector is set to recover over the folloiwing months. "Whilst economic growth should remain slow, we believe core operating profit of banks have already troughed and should gradually rebound in 2H19 on a gradual improvement in loan growth and continued easing pressure on fee income."