Thai banks’ weak loan problem starts to bite: analyst

Provisions for expected credit losses now average 30%.

Thailand’s weak loan problem is starting to bite, with local banks making greater allowances for anticipated losses, according to an analyst.

Provisions for expected credit losses (ECL) for stage two loans now average 30%, according to Deepali Seth Chhabria, credit analyst, S&P.  

Stage two loans are those whose credit risk has increased significantly since initial recognition and is not considered low, according to the Bank for International Settlements.

In comparison, ECL provisions for banks in Malaysia, Singapore, and the Philippines hover at just around 3%-10%.

This reflects an increased risk of delinquencies and loans given defaults of stage two loans in Thailand, Seth Chhabria said.

Seth Chhabria warned that asset quality will remain strained with rising non-performing loans (NPLs) and elevated credit cost.

"Our base case projects an orderly unwinding of imbalances. Average credit costs for banks should remain elevated at 1.5% for the next two years at least," Seth Chhabria said.

The credit costs measured are from Thailand’s top six banks: Bangkok Bank, Krung Thai Bank, Bank of Ayudhya, Kasikornbank, Siam Commercial Bank, and TMBThanachart Bank. These six banks form 80% of the industry.