Stronger growth boosts prospects of end To Thailand's long credit down-cycle

February 16, 2018

SINGAPORE - Thailand's headline problem-loan ratio is stabilising, thanks to brisker economic growth. However, a recovery in its long credit down-cycle will depend on whether asset quality in the SME sector can catch up with that of larger companies, according to a report from S&P Global Ratings.

"We believe a recovery in the credit cycle in Thailand could face roadblocks," said S&P Global Ratings credit analyst, Ivan Tan.  "Nonperforming loans (NPLs) have stabilised overall, but the quality of smaller-business and household loans has continued to deteriorate, albeit at a moderating pace." 
Thai banks' average NPL ratio hit 2.97% of total loans at end-third quarter 2017, only marginally higher than the 2.83% recorded at December 31.
 The SME sector's NPL ratio of 4.63% is notably higher than the industry average, and the gap is wider than the corporate sector's ratio of 1.69%.
 The Thai economy is expanding at the fastest rate in four years, leading Thailand's central bank to increase its 2017 and 2018 GDP growth forecasts to 3.9% for both years. However, tourism and exports continue to do the heavy lifting, with a limited knock-on effect to domestic demand.
 As such large companies, particularly export-related ones, have been the main beneficiaries of the economic pickup.
 SMEs are geared more toward the domestic economy, whose growth is lagging the external sector. Constraints on domestic demand include high household debt, an ageing population, and flat farm income in the recent past.
 Still, it is possible that the benefits of stronger growth and potential large Government-led infrastructure could feed into the SMEs over time.
 SMEs account for a significant 33% of Thai commercial bank lending, and remain the biggest asset quality problem for banks. www.standardandpoors.com (ATI).