Commercial bank loans are expected to pick up this year as increasing using costs in bond market and higher private investment rise up credit demand, after offering growth in 2016 was the slowest in seven years.
The constant bond harvest points added borrowing costs to debt instrument issuers and this will force them to shift to bank loans this year, Bank of Thailand governor Veerathai Santiprabhob said, adding that the financial recovery will also prompt increasing loan demand for private investment.
“Commercial bank credits are predictable grow more than the 2% growth recorded last year as we start to see yield growths from the long term bonds,” he said.
The tepid growth in commercial bank loans last year was a result of the growth in private sector reliance on bonds as a cause of funding to take advantage of the low interest rates, he said.
Need for credits as working investment in businesses related to oil and agricultural products may have reduced previous year due to plummeting the product Rates.
“The Monetary Policy Committee does not see the go-slow in commercial banks’ credits as an obstacle to the financial regaining as we see the economy still shows robust ciphers of recovery,” said Mr Veerathai.
Predee Daochai, president of Kasikornbank (KBank) and also chairman of the Thai Bankers Association, said that the bank expects profitable bank loans to enlarge by around 4-6% this year.
He said credits for businesses associated with investment, such as building materials, are expected to grow at a strong pace this year follow state asset in big-ticket structure projects.
Outstanding bank loans extended 2% at end-2016, slowing from 4.3% growth in the earlier year, said Somboon Chitphentom, assistant governor of the financial institutions policy group.
According the central bank’s data, the 2% growth in outstanding loans in 2016 was noted as the lowest since a 1.7% reduction in 2009.
He said that private sector’s developed reliance on financing through equity and bond markets joined with the slow economic recovery donated to the warmish loan growth.
“The Bank of Thailand observed that loans in some divisions such as food, rubber, plastic, commerce and values grew in the second half of 2016 and we are expecting that the tendency will continue this year,” said Mr Somboon.
Credits for small and medium-sized innovativeness (SMEs) grew 1.8% in 2016, down significantly from 5.6% in the prior year, he said.
Growth in business loans get slowed down to 0.6% at the end of 2016 from 3.1% at the end of 2015 and the deceleration was seen across the board, with the exception of commerce and service sectors.
Mr Somboon said growth in customer credits also fell to 4.9% last year from 7.1% in the previous year, slowing down in almost all divisions except auto loans.
“In the midst of slow economic recovery, loan growth slowed down and loan quality continued to depreciate,” he said.
Both non-performing loans and special-mentioned loans — those 30 to 90 days overdue — increased and SMEs were the main funder for the depreciated loan quality.
Commercial banks’ gross non-performing loans (NPLs) design to 2.83% at the end of last year from 2.55% recorded at the end of 2015, slightly get down from 2.89% recorded at the end of the third quarter of 2016, according to central bank data.
The remaining value of distressed loans was 385 billion baht at the end of the last year, up from 338 billion at the end of 2015.
Bad SME loans climbed to 4.35% of the loans unresolved at the end of December, up from 3.5% over the same period last year.
Business loans depreciated in almost all loan segments with the exception of the industrial sector.
Industrial NPLs dropped to 4.44% of total business loans at the end of December from 5.59% at the end of September, mostly due to the debt restructuring of a large steel manufacturer, to which the surge in industrial singular remark loans is also credited.
Bad customer loans rose from 2.56% to 2.71% at the end of December mostly from the rise of housing NPLs.
Commercial banks’ gross special mention loans rose to 2.63% at the end of 2016 from 2.38% chronicled at the end of 2015, according to the Bank of Thailand’s data.
Even though moneymaking banks have been saddled with higher bad loans, their business position remains strong with high funds and healthy productivity.
In 2016, commercial banks’ profit rose 3.9% to 199 billion baht, thanks mostly to their well-organized cost-controls, said Mr Somboon.
Loan-loss supplies set aside by profitable banks in the fourth quarter of 2016 were at 32 billion baht while the reporting ratio rose to 159.6% at the end of 2016, up from 156.3% at the end of 2015.
Commercial banks’ capital capability relation averaged at 18% at the end of 2016, up from 17.4% at the end of 2015, rendering to the central bank’s data.