Thai Banking Sector Adjustments and Challenges

In November, commercial banks in Thailand gradually reduced loan interest rates by 0.25%. This adjustment allows borrowers to alleviate interest burdens, estimated at around 1.3 billion THB in the last two months of the year. However, simultaneously, the amount of non-performing loans (NPL) in the system continued to rise, exceeding 537 billion THB in Q3 2024. Large financial institutions particularly noted the highest figures for bad debt. The interest rate cuts aimed to provide relief to individual borrowers and small and medium-sized enterprises (SMEs) struggling in a slow economic recovery. At the same time, banks have been cautious about issuing new loans, tightening control over asset quality, reserves, and associated risks. Consequently, businesses still face challenges in effectively accessing funding sources. The tightening of credit for SMEs, indicated by a 2.3% contraction, further complicates the situation. Overall, while lower loan interest rates might not have immediate effects on repayment amounts, borrowers need to be vigilant about other expense burdens. Moreover, commercial banks are focusing on asset quality management, and the interest rate reductions are intended to aid vulnerable debtor groups as the overall Thai economy continues to recover at a slow pace.