The Thai banking system remains resilient with robust levels of capital, loan loss provisions, and liquidity. In 2023, the banking system’s loans marginally contracted 0.3% YoY due to the gradual repayment of business loans following accommodative growth in liquidity facilities during the COVID-19 period, particularly from SMEs, large corporates in the manufacturing sector, and the government, combined with banks’ portfolio management. Nevertheless, banks’ new lending tends to increase across several business sectors. Consumer loans continued to grow mainly from personal loans. The banking system's gross non-performing loans (NPL or stage 3) in the fourth quarter of 2023 slightly decreased to 492.8 billion Baht, equivalent to the NPL ratio of 2.66%, primarily from corporate loans, owing to banks’ loan portfolio management and debt repayment. However, the NPL amount of consumer loans increased across all portfolios. Meanwhile, the ratio of loans with a significant increase in credit risk (SICR or stage 2) stood at 5.86%, slightly increased from the previous quarter.

The banking system’s profitability in 2023 improved from the previous year, mainly driven by higher net interest income following the interest rate hike cycle, despite higher costs of funds from rising deposit rates and FIDF fee normalization together with increased operational costs and provisioning expenses. Meanwhile, non-net interest income decreased from net fee income.

However, there remains a need to monitor the debt serviceability of small SMEs facing higher production costs and vulnerable households with slow income recovery, which could influence a gradual increase in NPL but remains manageable with no immediate risk of NPL cliff.
The household debt to GDP ratio in the third quarter of 2023 remained unchanged from the previous quarter, while the corporate debt to GDP ratio decreased due to a gradual economic recovery and a slowdown in new debt creation. The overall corporate profitability gradually improved, led by manufacturing sectors, particularly in the downstream chemical products and petroleum. Also, the profitability of tourism-related sectors improved with lower-than-expected spending per trip.