Thai Bankers Association comes out to warn of possible strain in the system if new virus variant goes rampant

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The Thai Bankers Association has come out to caution that a new wave of Covid-19 is likely to have an impact on the economy and has come out to seek government’s help to look at resolving the issue of rising non-performing loans (NPLs) during these challenging times.

Payong Srivanich, president of the Thai Bankers Association, revealed the “overview of the banking industry” that the COVID-19 pandemic is another crisis that is an ongoing challenge as banks are aware of the increasing risk factors. He said that the impact on the bank’s debtors and activities of the bank itself makes the banking system need to sustain business continuity and for a longer period of time.

Payong’s call comes as Thailand discovers its 1st case of the subspecies of the fast-spreading Omicron BA2.75 in Trang province earlier today.

“It’s an ongoing challenge like a storm after storm that still exists,” Payong said.

Thailand’s banking system has been burdened with NPLs from the lockdown, depressed consumer spending and slowing economy ever since the outbreak of Covid-19 in 2020.

The Bank of Thailand (BoT) has come out with some measures to help the banking system by allowing a more relaxed accounting for debtors who have lost their ability to make payments, but with the new strain, there may be a need for possible new extension to those rules by the BoT.

Despite this Payong said that the Thai banking system remained strong, as they have learnt their lesson from the 1997 financial crisis and have been cautious in their lending.

“If you ask if the banking system is strong, it is considered strong. But they have to support their debtors well because if there is a situation where interest rates are rising, inflation is high, and the economy is in recession,” he said adding that banks must watch out because the economy was gradually slowing down and was heading towards a ‘soft landing’.\

As of now, there are still challenges from managing the NPL effectively because many debts are still under debt restructuring, with commercial and non-bank debtors who are in the process of debt restructuring under the Bank of Thailand’s aid measures at 1.8 million debtors, worth more than 2 trillion Baht.

As for the loan quality of the banking system in the first quarter of 2022, the non-performing loans (NPL or stage 3) accounted for 2.93% of NPL to total loans, whereas the proportion of credit with a significant increase in credit risk was at 6.09%, the overall level is still around 10% which is quite high and need to be looked out for.

Commenting on the issue of interest rate, he said that if the Monetary Policy Committee (MPC), which meets on August 10, raised interest rates, the banking system would raise interest rates as well. The interest rate hike will affect entrepreneurs, especially the rising cost. The banks can only provide support, but the slower or faster of the hikes depends on the pulse, and make the least impact, which must be discussed together.

“We have to look at it systematically, if the market forces work, to go against the market forces will cause damage to some system. We must find a way to prevent the system from damaging. If we decide to resist like when there was a flood, the water will go underground and flood anyway. This is something to be cautious about and the Bank of Thailand and the authorities are aware of this issue,” Payong told.

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