Non performing loans could sink the economy

Non-performing loans have become a major worry for the banking sector as the coronavirus pandemic has caused economic hardship with many clients defaulting on loans or unable to pay, several senior banking sources told Thai Enquirer on Thursday.

The number of non-performing loans was already increasing before COVID-19 with fourth-quarter results from 2019 showing an increase of 16.7 per cent year on year up to 140.57 billion baht worth of loans.

“The numbers are so much worse this year,” said one senior banker at Kasikorn Bank who asked not to be named. “As a result, the cash flow into the banks are drying up.”

According to the source, the problem was being experienced by all major Thai banks big and small.

“We’re not just talking about small loans like home loans and such but some major loans from corporations whose businesses have been hit,” he said.

Bank of Thailand Measures

The Bank of Thailand had earlier asked banks to hold a three-month mortgage break to relief pressure on debtors but analysts say that the measure is not enough as many were still struggling with the economic impact of the coronavirus outbreak.

The national bank revised its prediction on Wednesday and said the economy was likely to contract 8 per cent instead of the earlier prediction of 5 per cent.

Informal Workforce Hit Hardest, Most Likely to Default

A report released this week by the United Nations’ International Labor Organization (ILO) examining how the coronavirus pandemic is impacting Thailand’s labour market in the first quarter of 2020 said that informal workers were the most severely affected by the impact of the outbreak.

“With the country put under lockdown from mid-March, the COVID-19 impact on workers is not expected to have reached full force in the first quarter,” said the report. “Nonetheless, it is interesting to examine already where disruption is occurring as a signal of the amplified impact expected in the second quarter and beyond.”

“Already, the ten occupations with the highest shares of daily and hourly workers saw a reduction of nearly half a million jobs between the first quarter of 2019 and the first quarter of 2020.”

According to the banks, among personal and home loans, the most likely debtors to default or not pay loans were those in the informal sector.

The UN report said that the loss of income will push many workers into the poverty threshold – a minimum income of US$1.90 or 60 baht per day – and as a result will increase the proportion of poor laborers in Thailand from 4.7 to 11 per cent of the total employment in 2020.

Other agencies in Thailand have predicted massive job disruption and redundancies due to the COVID-19 outbreak:

  • Employers’ Confederation of Thai Trade and Industry: 9.5 million job losses
  • The National Economic and Social Development Council: 8.4 million job losses
  • Joint Standing on Commerce, Industry and Banking: 7.1 million job losses

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