BoT says slowdown won’t lead to loan contraction

The Bank of Thailand expects lending in the banking sector will not contract this year despite a slowdown based on ongoing debt deleveraging.
Speaking after the central bank’s Monetary Policy Committee (MPC) meeting last week, Sakkapop Panyanukul, the MPC secretary, said loan growth in the industry has decelerated as a result of continued debt reduction by borrowers and increasing credit risks.
However, the central bank anticipates this slowdown will not lead to a contraction in loan volume for 2024, he said.
According to Mr Sakkapop, although the MPC voted 5-2 to cut the policy rate by 0.25 percentage points to 2.25% at its meeting last week, the committee does not expect this rate cut to significantly spur new loan growth in the banking sector. The MPC has noticed a continued deceleration in loan growth, he said.
Business loan growth has slowed, particularly for small and medium-sized enterprises (SMEs), as well as hire-purchase and credit card loans, primarily attributed to structural challenges.
In addition, credit quality has deteriorated, partly as a result of borrowers who previously received financial assistance, while SMEs and vulnerable households deal with a slow recovery of income and high debt burden, according to the central bank.
Overall loan growth in the banking system, including licensed banks and their subsidiaries, slowed to 0.3% year-on-year in the second quarter of 2024, down from 0.7% in the first quarter, according to the central bank’s report.
The slowdown in loan growth, combined with improving GDP growth, has been a key factor in reducing the household debt-to-GDP ratio, which fell to 89.6% in the second quarter this year from 90.7% in the first quarter.
Kasikorn Research Center (K-Research) revised its forecast for total loan growth in the banking sector this year, lowering it from 3% to 1.5%. The revision was attributed to pressure on consumer and SME loans based on the economic environment and heightened credit risk among borrowers.
Thanyalan Vacharachaisurapol, deputy manager of K-Research, said the policy rate cut would primarily help reduce the monthly debt repayment burden for borrowers, rather than stimulate new loan growth.
Given the sluggish economy, high household debt and reduced purchasing power among vulnerable groups, these factors are expected to constrain new loan expansion, particularly for consumer and SME loans.
K-Research forecasts minimal retail loan growth of 0.3% for the year, driven by mortgages gaining 1.2%, credit card loans 2.2% and personal loans 3.1%. However, auto loans are projected to contract sharply by 5.5%.
The research centre expects business loan growth to remain modest at 1.5% for 2024. On average, major local banks set total loan growth targets of 3-5% for the year.