Picture courtesy of Thai PBS

 

The Bank of Thailand (BoT) is raising red flags over the declining asset quality among affluent borrowers, a development that mirrors an unsettling trend already visible among middle- and low-income groups as Thailand's economy is slowing significantly.

 

Recent minutes from the Monetary Policy Committee (MPC) meeting have highlighted an increasing anxiety about the broad deterioration of loan quality. Should this trend continue, it may lead banks to exercise even greater caution, especially concerning mortgages and hire-purchase agreements.

 

Financial institutions have already begun playing it safe, tightening their grip on approvals for high-value mortgages. The regulators, in response, are poised to keep a close watch on these unfolding events.

 

While there is a slight sense of relief in the stability seen in loan growth and credit quality recently, unease lingers.

 

Business loan growth is largely propelled by large corporations, whereas small and medium-sized enterprises (SMEs) continue to face substantial hurdles, particularly in industries dealing with deep-rooted structural issues.

 

“SMEs are under added financial stress due to worsening trade credit conditions, with many enduring extended periods for receivable credit terms,” the minutes reveal.

 

On the household front, retail loans are dwindling as families haven't yet bounced back from significant debt burdens. This invites close attention to loan growth and credit quality, notably for SMEs and financially fragile households.

 

 

 

 

There is speculation within the MPC that the notable spike in loan growth witnessed towards the end of the last year might have been banks' eleventh-hour strategy to meet annual goals. However, the gradual decrease in household debt has offered a reassuring buffer against long-term financial stability threats.

 

As for the overall economic outlook, as per the Bangkok Post, the MPC's gaze is less than optimistic for 2024. Growth is now expected to hover just above 2.5%. Factors weighing this down include sluggish domestic demand and manufacturing struggles, although tourism and exports show some resilience.

 

Adding to the difficulties are structural challenges and stiff competition, particularly in the automotive and petrochemical industries. Additionally, looming uncertainties regarding US trade policies, with prospective tariff increases, could pose significant threats.

 

Particularly troubling is the prospect of the US imposing a 30% tariff on Chinese imports and 10% on goods from risk-prone nations such as Thailand. Should these tariffs become reality, they could dim the economic forecast by 0.3-0.5 percentage points, impacting growth mid-to-late year, the MPC cautions, reported The Thaiger.

 

-- 2025-03-20

 

 

The Titanic is heading for an iceberg, full steam ahead! 😜