Bank of Thailand Raises Concerns Over Declining Asset Quality
The Bank of Thailand (BoT) has expressed growing concerns over the deterioration of asset quality, particularly among higher-income borrowers. This trend follows a similar decline observed in middle- and lower-income groups, reflecting the country’s softening economic growth.
Key Factors Affecting Asset Quality in Thailand
1. Loan Quality Decline Across Income Groups
- The BoT’s Monetary Policy Committee (MPC) has observed a decline in loan quality among low-income groups, which is now extending to higher-income borrowers.
- A further dip in loan quality may lead to stricter lending policies, particularly for mortgages and hire-purchase loans.
- Financial institutions have already tightened lending criteria for high-value mortgages.
2. Slowdown in Loan Growth and Business Lending
- While loan growth and credit quality are stabilizing, financial institutions remain cautious.
- Business loan growth is mainly driven by large corporations, while SMEs continue to struggle, facing liquidity pressures and extended trade credit terms.
- Retail loans are also declining, as households remain financially burdened.
3. Economic Slowdown and External Challenges
- The MPC downgraded Thailand’s economic growth forecast to 2.5% for 2024 due to structural challenges, global competition, and US trade policies.
- Key industries, including automotive, petrochemicals, and construction materials, face intensified competition from imported goods.
- The service and tourism sectors remain stable, but manufacturing is struggling due to inventory drawdowns and increased imports.
The Impact of US Trade Policies on Asset Quality
The MPC report highlights uncertainty surrounding US trade policies, which could have a direct impact on Thailand’s economic outlook:
- If the US raises tariffs on Chinese goods to 30% and imposes a 10% tariff on high-risk countries like Thailand, GDP growth could decline by 0.3-0.5 percentage points.
- The economic effects of these policies are expected to materialize in the second half of 2024.
Future Outlook for Asset Quality and Lending
While household debt deleveraging continues to help stabilize long-term financial risks, the BoT remains cautious about loan growth and credit quality trends. The regulator will closely monitor asset quality deterioration and its impact on financial institutions, businesses, and households.
Conclusion
The declining asset quality in Thailand poses challenges for borrowers and financial institutions, potentially leading to stricter lending conditions. With economic uncertainties and global trade tensions, it is crucial for policymakers and businesses to adapt to financial risks while supporting sustainable economic growth.
Stay updated with the latest trends in Thailand’s financial sector and asset quality developments!
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