The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity. In the second quarter of 2023, the banking system’s loans marginally contracted 0.4% YoY^[1] due to the gradual repayment of businesses loans, following accommodative growth of liquidity facilities during the COVID-19 period, particularly from SMEs (including soft loan facility) and government, combined with large corporates’ fund switching to bond issuance and banks’ portfolio management. Nonetheless, bank lending continued to expand mainly in large corporate loans from holding businesses, mortgage loans, and personal loans. Loan quality slightly deteriorated in SMEs and consumer loans. However, banks continued with their loan portfolio management and debtor assistance program through debt restructuring. As a result, the banking system's gross non-performing loans (NPL or stage 3) declined to 492.3 billion baht, equivalent to the NPL ratio of 2.67%. Meanwhile, the ratio of loans with significant increase in credit risk (SICR or stage 2) stood at 6.08%, slightly increasing from 6.00% in the previous quarter.

The banking system’s profitability in the second quarter of 2023 improved from the previous year mainly from higher net interest income, despite higher costs of funds from rising deposit rate and FIDF fee normalization together with the increased operational costs and provisioning expenses. Comparing with the previous quarter, net profit increased mainly due to seasonal dividend income and net interest income.

However, there remains a need to monitor the debt serviceability of some vulnerable SMEs and households with higher debt burden and slow income recovery. The household debt to GDP ratio in the first quarter of 2023 slightly declined in line with the economic recovery. The corporate debt to GDP ratio continued to decrease, along with slightly improved corporate profitability from manufacturing sector. Still, risks that could arise from the impacts of global economic slowdown on export, the recovery pace of tourism and the affirmation of government policies on construction sector warrant close monitoring.

Financial institutions would continue to support debtors with sign of repayment difficulties by means of debt restructuring in sync with their serviceability prospects, regardless of the expiration of the long term debt restructuring measure by the end of this year. Basically debt restructuring remains as normal practice to assist vulnerable debtors, the expiring part will be just the partial relaxation of regulatory requirements during the COVID-19 to help reduce costs for financial institutions. In addition, the BOT will expedite new measures to sustainably address household debt problems, which will be tackled throughout their debt journey and in a comprehensive manner without raising more debt burden in the long run.

The first set of measures being implemented in 2024 is responsible lending, which also includes solutions for debtors with persistent debts. Moreover, the BOT will implement additional measures going forward by allowing creditors to adopt risk-based pricing (RBP) for retail borrowers through the regulatory sandbox and applying debt service ratio (DSR) limits for new lending. All these 3 measures would enhance behavior of both creditors and debtors throughout their debt journey. Hence, the new household debt measures will reduce household debt in Thailand to a more sustainable level, but the process will take time to bear fruit and will require cooperation from all parties as well as thorough consideration of all possible impacts.