New land tax feared to erode Thai banks' earnings

Loan loss recovery will take a hit.

Thai policymakers have recently approved a new land tax, which aims to boost state coffers by levying taxes on nationwide plots. According to Maybank Kim Eng, the new tax will have a minimal direct impact on banks but might have a substantial knock-off impact on revenues.

Maybank Kim Eng reckons that the new tax would reduce the attractiveness of non-performing assets, which in turn will result in low loan loss recovery for banks.

Maybank Kim Eng argues that with the new tax, banks may be unable to move NPAs out of their balance sheet by selling them.

"Because of the tax liabilities, potential NPA buyers could be reluctant to buy the NPAs from banks and it would pressure the price of NPAs for sale. Depressed values will lower the banks’ loan-loss recovery rate," the report said.

Although the impact of the new tax is small, Maybank Kim eng warned that increasing NPLS could push NPA amounts to a more negative scenario.

“With the new [tax], credit quality has become an even more important factor to watch in the near term,” Maybank Kim Eng said.