Worrying trend in non-performing loans rise

The state-owned Government Savings Bank (GSB) recently announced that its levels of non-performing loans (NPLs) had risen sharply to two percent for the second quarter of this year. That represents a significant rise when considering that NPLs stood at 1.37 percent of total credit at the end of 2014.

While the GSB management recognize that the current economic slowdown is largely to blame for such a sharp rise, there is not much chance of the numbers improving for some time yet as the overall economy is hardly a cause for celebration. The GSB numbers are likely to be reflected across the spectrum of lenders.

The Bank of Thailand’s Monetary Policy Committee and Financial Institutions Policy Committee held a joint meeting in July and issued a statement warning that the risks from the slow domestic economic recovery could impact on the private sector’s financial position and debt-servicing ability and these factors added risks for financial institutions.

The central bank has warned previously that second-quarter loans would be likely to see a rise in defaults, especially for personal loans and small to medium enterprise (SME) loans.

According to figures, commercial lenders’ outstanding NPLs at the end of March this year totaled 298 billion baht, a rise of 21.1 billion baht from the previous quarter. Total loans stood at 13 trillion baht.

In percentage terms, the gross NPL ratio has risen to 2.29 percent at the end of the first quarter compared to 2.15 percent in the previous quarter.

So-called special mention loans, which are 30 to 90 days overdue, rose to 2.81 percent of outstanding loans at the end of the first quarter, up from 2.61 percent at the end of December 2014.

Despite the sharp rise, the management of GSB is confident it has seen the worst and believes the NPL ratio will start to fall from now on. The GSB says it expects the NPL ratio will be cut to between 1.5 and 1.7 percent by the end of this year.

Part of the way it is hoping to achieve this cut has been to introduce a scheme allowing participants to service only interest and not be required to pay any of the principal for up to two years.

The GSB said it expected about 30,000 customers would take advantage of the scheme.

The government bank said it expected its loan extensions would decline by 10 billion baht by the end of this year. Another state-owned bank has paid a 40 billion baht debt to the GSB and loan demand from the rural sector is weak.

All up, the GSB expects to outlay 110 billion baht in loans this year which should realize a net profit of 21 billion baht.