Thailand's tourism slump and household debt weigh on its lenders
The banks are facing lackluster earnings tied to lower net interest margins — the difference between interest income and paid interest — and muted loan growth as the country endures economic uncertainties, according to a note from Citi Research.
Thailand's export and tourism reliant economy has expanded at an average of under 2% over the past decade, trailing other major Southeast Asian economies. Gross domestic product will likely grow 1.3% to 2.3% in 2025, constrained by high household debt and slowing tourist arrivals, while the economy is also at risk of a 36% tariff from the US, its largest export market.
Thai banks are expected 'to perform worse than their peers elsewhere in major Southeast Asian markets through year-end,' said Bloomberg Intelligence analyst Sarah Jane Mahmud. Weak domestic lending is compounded by a slowdown in global trade and 'high levels of bad debt to be exacerbated as small businesses struggle with fewer than expected tourist arrivals and competition from an influx of cheap goods from China in the new trade war,' she said.
TMBThanachart Bank expects the Thai economy to continue slowing in the third quarter on lower consumption and overall investments, it said in its earnings statement on July 18. It posted 5 billion baht in second-quarter net income, a 7.2% year-on-year drop.
Kasikornbank posted a 3.2% fall year-on-year in its second-quarter net profit due to a decline in net interest income in line with market conditions, it said. The lender said it remains focused on expansion of quality loans.
SCB X expects full-year loan growth to fall below the lower end of its 1%-3% target, though it reported a 27.7% on-year jump in second-quarter net profit supported by higher investment gains.
Bangkok Bank posted a 0.3% on-year rise in its second quarter net profit. Subdued inflationary pressure indicates domestic demand 'has not yet fully recovered,' it said in its recent earnings statement.
Kasikornbank and SCB X are forecast to see year-on-year declines in net profit for the third quarter from declining net interest margins due to policy rate cuts, according to Krungsri Securities analyst Chayaporn Tocharoen.
'Loans of Thai commercial banks aren't expected to record growth in the third quarter mainly because of a weak export outlook,' Kasikorn Securities analyst Korakot Sawetkruttamat said. Higher non-performing loans are anticipated in the second half because of lower-than-expected registrations for the government's debt relief program, he said. Meanwhile, exporters may struggle to repay loans if they face high US tariffs, Mr Korakot said.
The Thai government in late 2024 put in place debt-relief measures that included a three-year suspension in interest and reduced principal payments.
'Policy measures, however, require time to crystallise and effect a structural shift,' said Deepali Seth Chhabria, a primary credit analyst at S&P Global Ratings.
A lower negotiated tariff would give Thai banks some relief, Bloomberg Intelligence analyst Sarah Jane said. A rise in wealth management activity in Thailand could also 'help boost fee income and support revenue as net interest income wanes,' she said.
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