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Banks (Finance)

Thailand's Banking Sector Faces Uncertainty Amid COVID-19

Strategic Insights

— 2 min read

Thailand's banking sector is on high alert as the country's economy teeters on the brink of collapse, with the Bank of Thailand (BOT) taking a series of pre-emptive measures to guard against a hard-landing economic scenario. Despite having no locally transmitted infection for over a month, the COVID-19 pandemic continues to wreak havoc on businesses and consumers, leading to reduced revenue and falling income. Employers have resorted to cost-cutting measures, including mandatory leave-without-pay policies and job cuts, which will inevitably deteriorate debt-servicing ability among consumers and small businesses.

Key Takeaways:

  • The Bank of Thailand has ordered commercial banks to freeze interim dividend payments to shareholders and suspend stock buybacks to preserve capital.
  • Commercial banks have been directed to cut interest rates on credit cards, personal loans, and other forms of credit to help millions of people facing financial stress.
  • The maximum interest rate for credit cards will fall to 16% (from 18%), while the rates for personal loans will be reduced to 24-25% (from 28%), effective August 1.
  • Non-performing loan ratio of commercial banks stood at 3.05% of total loans at the end of March.
  • Banks' capital adequacy ratio is still strong, with an average Tier 1 ratio of 16%, much higher than the minimum criteria of 9.5%.
  • Loan registration under the loan payment programme has reached 6.6 trillion baht, with retail loans accounting for 57%, SME loans 32%, and corporate loans 11%.
  • Leasing companies' asset quality must be closely monitored, as debtors' ability to pay debt will be depressed by the economic deceleration and the pandemic.
  • Key business people believe that the Bank of Thailand is sending a signal to warn that the global economy will remain weak in the second half, amid worries that Thailand may encounter another financial crisis similar to the 1997 episode.

Statistics:

  • The Thai economy is expected to contract by 8.1% in full-year 2020, according to the Bank of Thailand's economic forecast.
  • Commercial banks' total capital adequacy ratio (CAR) stood at 18.7% at the end of March, while the non-performing loan ratio was 3.05%.
  • Banks will be able to support higher non-performing loans (NPLs) than the current average by approximately four times.
  • Leasing companies' loan registration under the loan payment programme has reached 6.6 trillion baht.
  • The COVID-19 pandemic has led to reduced revenue and falling income, with many businesses resorting to cost-cutting measures.

Sources:

  • "Thailand's banking sector faces uncertainty amid COVID-19" by Varuth Hirunyatheb, published in The Nation.
  • "Bank of Thailand cuts interest rates to help debtors" by Pornprom Satrabhaya, published in The Bangkok Post.
  • "Thailand's economy to contract 8.1% in full-year 2020, says Bank of Thailand" by The Nation.
  • "Commercial banks' CAR stands at 18.7% at end-March" by The Bangkok Post.
  • "Banks' ability to support higher NPLs than current average by four times" by Trinity Securities.

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