The banking industry recorded its highest level of loan contraction in 15 years in 2024, driven by tighter loan approvals amid borrowers' weaker debt repayment ability, according to an executive at the Bank of Thailand.
In 2024, total loans in the banking sector contracted by 0.4% year-on-year, marking a second year of decline following a 0.3% contraction in 2023, according to central bank data.
Suwannee Jatsadasak, assistant governor of the central bank's supervision group, said last year's loan contraction was primarily driven by declines in small and medium-sized enterprise (SME) loans and retail loans.
SME loans shrank by 5%, while auto leasing loans fell by 9.9% and credit card loans dipped 2.3%.
Personal loan growth slowed to 1.3% in 2024, down from 3.7% the previous year, while mortgage growth edged up marginally to 0.3%.
Corporate loans gained 3.4% year-on-year in 2024.
Ms Suwannee attributed the loan contraction to banks' heightened caution in approving new loans due to rising credit risk among borrowers, as well as ongoing debt deleveraging.
The central bank will continue monitoring loan expansion in the banking industry this year, though it does not anticipate significant loan growth, she said.
Despite the overall contraction, the sector's non-performing loan (NPL) ratio improved, declining to 2.78% last year from 2.97% in 2023.
The uptick was attributed to debt restructuring measures under the Bank of Thailand's responsible lending approach.
The recent debt relief initiative dubbed "You Fight, We Help" is expected to further mitigate bad debt, said Ms Suwannee.
As of Jan 30, about 630,000 borrowers had registered for the programme, but only 38% were deemed eligible, roughly 240,000.
She said the central bank is monitoring registration after the deadline was extended from Feb 28 to April 30.
"We expect the number of eligible registrants to increase. The programme supports debt repayment for vulnerable borrowers and should ease the country's household debt-to-GDP ratio in the coming period," said Ms Suwannee.
She said home loan borrowers represent a key segment of the initiative, and mortgage NPLs are expected to continue declining after rising to 3.88% in the fourth quarter of last year, up from 3.82% in the previous quarter.
In a separate matter, Chayawadee Chai-anant, the central bank's assistant governor for the corporate relations group, said the regulator held discussions last week with property developers and contractors regarding the business climate and sluggish mortgage growth in the banking sector.
Entrepreneurs previously requested the central bank ease loan-to-value regulations for second and third mortgages.
"The central bank observed a slowdown in residential property sales and mortgage growth, aligning with increased credit risk among homebuyers," said Ms Chayawadee.
"The bank will take industry concerns into account along with other economic data before making any policy decisions."
