Thai banks bad loans will rise to highest since GFC: S&P

Regulatory forbearance is only delaying the inevitable, the ratings agency warned.

Systematic risks for Thailand’s banks have risen, with the Thai banking sector’s non-performing loan (NPL) ratio expected to rise to 5% over 24 months or even longer–its highest since the 2008 global financial crisis, according to a report by S&P Global Ratings.

The ratings agency said that there is a one-in-three possibility that economic risks will rise for Thai banks, although its rated banks in the country still carry stable outlooks thanks to good capitalisation and healthy provision of coverage ratios.

Whilst recent steps were taken by the government and central bank–through their relief programs–will reduce risks for the country’s banks, it won’t eliminate them, S&P said. 

“There is an increasing divergence in economic reality and reported asset quality ratios,” the ratings agency said in a report, noting that the banking sector's reported [NPL] ratio has remained stable at about 3% due to supported by ongoing relief measures. 

“In our opinion, regulatory forbearance is just prolonging the pain of underlying problem loans. At 14%, the high proportion of banks' loan books under relief measures points to incipient problems in the system,” S&P warned.

The restructuring would provide a temporary lifeline to the borrowers and slow NPL growth, but will not resolve the structural problems in the system, the ratings agency further warned. 

“In the absence of any effective measures to reduce the high household debt burden, borrowers will remain dependent on better economic conditions and low-interest rates to service their obligations on time,” it said.

The crisis in Ukraine could also further delay the normalization of international tourist arrivals in Thailand, S&P said.