New bad debts rise as high costs and weak demand strain Thai firms

Thailand’s commercial banking system is facing an increase in new non-performing loans, reflecting continued financial pressure on businesses despite a slight decline in the overall NPL ratio during the second quarter of 2026.

The Bank of Thailand (BOT) said the banking system remained stable, with strong capital buffers and high liquidity, even as Thailand’s uneven, K-shaped economic recovery continued to affect some SMEs and households through weaker incomes, higher costs and subdued purchasing power.

Suchot Piamchol, senior director of the BOT’s Modeling Supervision and Risk Assessment Department, said the overall NPL ratio edged down to 2.82% in the second quarter from 2.85% in the previous three months.

However, the headline NPL figure alone may not provide a complete picture of debt conditions because commercial banks have continued to manage problem loans through debt sales, write-offs and extensive restructuring.

SME and housing loans were among the portfolios in which banks sold relatively large volumes of bad debt. These transactions reduced the amount of NPLs remaining on banks’ balance sheets, but the BOT must still assess whether borrowers remaining within the banking system have genuinely improved their ability to repay.

New and re-entry NPLs total about THB110bn

The BOT is placing greater emphasis on loan migration rates, particularly the extent to which borrowers showing increased credit risk, or those classified as Stage 2, move into Stage 3 and become NPLs.

It is also monitoring loans entering NPL status for the first time, known as new-entry NPLs, and re-entry cases involving borrowers who had previously fallen into bad debt and later became NPLs again.

An increase in re-entry cases indicates that some borrowers may have remained financially fragile even after receiving assistance or undergoing debt restructuring. Further economic pressure can therefore push them back into default.

During the second quarter, loans migrating into NPL status totalled about THB110 billion.

New NPLs accounted for THB52 billion, while re-entry NPLs were at a similar level of approximately THB52 billion.

The central bank is closely monitoring both borrowers entering NPL status for the first time and those who previously received assistance or debt restructuring but have not achieved a sustainable recovery.

New-entry NPLs are particularly important because they involve borrowers who had never previously been classified as non-performing but became unable to repay after being affected by worsening economic conditions.

Businesses requiring particular attention include property developers, construction companies and hotels, as well as operators facing intense competition.

“Some borrowers have accumulated weaknesses since the Covid-19 pandemic and have not fully recovered,” Suchot said.

“When they face additional pressure from the economy, rising costs and international conflicts, they are more likely to experience difficulties in meeting their debt repayments than borrowers with stronger financial positions.”

Large corporate NPLs rise on company-specific problems

The NPL ratio among large corporate borrowers increased to 1.40% in the second quarter from 1.34% in the previous quarter.

The BOT said most of the increase resulted from circumstances specific to individual borrowers rather than a widespread deterioration across the large corporate sector.

Some companies had experienced prolonged financial weakness and were unable to continue operating after being hit by additional economic pressures.

The central bank did not regard the increase as a major systemic risk because commercial banks had already recognised the risks and set aside provisions.

“The pattern of NPLs among large businesses differs from that among more vulnerable borrowers,” Suchot said.

“The increase in large corporate NPLs partly reflects company-specific factors, while the vulnerabilities affecting SMEs and retail borrowers are more widespread and require closer monitoring.”

Overall business lending continued to show demand for working capital, particularly among companies managing elevated energy and raw-material costs, despite some prices beginning to decline.

Loans to large businesses expanded by 6.6%.

SME lending contracts for 16th consecutive quarter

The situation for SMEs remained markedly different.

SME lending contracted for a 16th consecutive quarter, representing four years of continuous decline. In the second quarter, outstanding SME loans fell by 4.6% from the same period a year earlier.

One of the main factors was concern over credit risk, prompting commercial banks to become more cautious when approving loans.

The contraction reflects problems on both the demand and supply sides. Credit demand among some SMEs has not fully recovered, while banks continue to find it difficult to assess the risks associated with certain groups of borrowers.

There have been some signs of improvement. SME debt repayments have begun to slow, while demand for working capital has increased through both existing and newly requested credit facilities.

However, the amount being drawn from those facilities remains insufficient to offset repayments, leaving total SME lending in contraction.

Construction businesses remain under pressure from higher material and raw-material costs. The property sector continues to be affected by an incomplete recovery in purchasing power, while trading businesses face intense competition and some hotels remain financially vulnerable.

Debt sales and write-offs hold down headline NPL ratio

The continued sale and write-off of bad debts is another factor preventing the banking system’s reported NPL ratio from rising more sharply.

SME and housing loan portfolios have recorded particularly high levels of debt sales.

The BOT stressed that selling a bad loan does not eliminate the borrower’s financial problem. It merely transfers responsibility for managing the debt to another institution.

The central bank therefore assesses debt conditions across the broader financial system rather than focusing solely on NPLs still held by commercial banks.

Pre-emptive debt restructuring for borrowers showing early signs of repayment difficulty stood at THB490 billion.

Troubled-debt restructuring, or TDR, for borrowers already classified as NPLs totalled THB720 billion.

BOT prepares more flexible restructuring options

The BOT is preparing additional measures that could be introduced if debt conditions deteriorate beyond its current assessment.

Some measures would require at least three months of preparation before they could be implemented.

One proposal involves making debt restructuring more flexible to reflect borrowers’ capacity to recover.

Possible approaches include reducing monthly repayments by 20% during the initial period or introducing a step-up repayment structure, under which borrowers begin with lower instalments before payments gradually increase as their financial position and repayment capacity are expected to improve.

Source: Krungthep Turakij