Bank Credit Growth Slows to 0.2%, Dragging Down Grassroots Economy as SMEs and Households Struggle
Thailand's commercial banks grew credit by just 0.2% in early 2025, with SMEs and households struggling to borrow as lenders tighten standards amid economic slowdown and rising defaults.
The Bank of Thailand's Deputy Governor for Financial Institution Supervision, Somchai Lertsathapornvashin, revealed that Thailand's commercial banking system showed strong financial fundamentals in Q1 2025, though economic headwinds are starting to pressure profits and credit quality for certain customer segments.
The banking system maintains high stability with strong capital, reserves, and liquidity to weather economic volatility. However, total credit expansion grew only 0.2% year-on-year—a sluggish pace reflecting an economy still losing momentum.
Large corporate credit has recovered thanks to increased demand for working capital as energy and raw material costs surged due to Middle East conflict. In contrast, SME and retail lending continues to shrink as banks tighten risk controls against loan defaults. Banks are simultaneously running protective support programs for vulnerable borrowers through debt restructuring measures and the "You Fight, We Help" initiative.
Non-performing loans (NPL) remain stable at 535.8 billion baht, or 2.85% of total credit, with no acceleration. Positive signals include declining new NPL additions across all segments and some borrowers resuming payments, pushing Stage 2 credit classification down to 7%.
Bank profits fell from the previous year due to declining interest income as policy rates dropped, while banks reduced rates to assist borrowers and increased provisions against Middle East conflict risks.
"We need to closely monitor the outlook," the deputy governor warned. "With economic slowdown, rising costs, and falling household incomes putting pressure on SME and household debt repayment capacity—especially in a tight credit environment—household debt-to-GDP has ticked up slightly from accelerated spending via credit cards and home loans in late 2024."
"Overall, the banking system remains strong, but the grassroots economy and retail borrowers remain fragile," he concluded, noting this will be a critical factor shaping credit trends and bank profits through the rest of 2025.
