, Thailand
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Thai banks brace for a rise in loan defaults in 2024: analyst

The sector grapples with elevated costs and weak loans, S&P said.

Thailand’s economic difficulties will lead to some borrowers defaulting despite government relief efforts, which will ultimately weigh on local banks, says S&P Global Ratings.

The sector continues to grapple with elevated credit costs and weak loans, the ratings agency said in a report.

It added that 2024 will be “a test of resilience” for local lenders, as they come to terms with the expiry of pandemic-era loan restructuring schemes.

"The difficult economic backdrop will mean that some borrowers will ultimately default despite government relief efforts," said S&P Global Ratings credit analyst Ivan Tan.

"A portion of these restructured loans will likely crystallize into nonperforming loans (NPLs) over the next 6 to 24 months. The rate at which loans turn bad will largely depend on the state of the economy and the restructuring terms on each loan," Tan added.

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Banks have shown awareness of the oncoming issues arising from weak loans and expiry of support schemes, as they have been beefing up their defenses, S&P noted. 

“The industry has been setting aside provisions against loan losses, with the average coverage ratio for the sector at over 180% as of end-2023. The banks have also maintained a healthy capital adequacy ratio of about 20%, which compares favorably with regional peers,” the report stated.

Meanwhile, the government’s efforts to rein in high household debt should strengthen household resilience.

“This should have positive flow-on effects for banks' credit quality, given that around one-third of the sector's exposure is to retail. That said, borrowing habits and debt cycles are hard to break, and these measures won't reverse structural constraints overnight,” S&P said.

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