Based on 4Q20 financial statements of commercial banks, KResearch assesses that non-performing loans (NPLs) in the commercial banking system may reach approximately THB523 billion as of the end of 2020, accounting for 3.16 percent of total loans. For 2021, we are of the view that NPLs will likely trend higher as economic activity has yet to fully recover while the economy is also experiencing the impact of the new wave of COVID-19 in the country. However, due to the relaxation on debt classification rules if commercial banks undertake debt restructuring for their customers, plus aggressive efforts in supervising bad debt problems and writing off debt in the commercial banking system, KResearch preliminarily projects that the NPLs to total loans ratio may gradually increase to approximately 3.53 percent in 2021.
Rising NPLs during 2021 may be caused by two factors: 1) total debt under relief measures of financial institutions may increase again during 1Q21; and 2) more business sectors will likely incur NPLs after the transport sector, especially air freight transport, and the hotel & resort business sector were hit by NPLs in 2020. Additional business sectors that are at risk of rising NPLs in 2021 include wholesale/retail SMEs, manufacturing businesses that subcontract production or are heavily dependent on exports or purchasing power in the country, as well as apartment, serviced apartment and lodging rental businesses.
KResearch assesses that maintaining the asset quality in portfolios remains an important challenge for commercial banks throughout 2021 and probably during 2022 because some customers will have to repay debts under normal conditions without relief measures. Additionally, we will have to wait until the economy returns to normalcy before we can see lower risk of the NPL problem and the decline in the NLP ratio. This means that the Bank of Thailand may have to assess whether or not it is necessary to extend the relaxation period for debt classification rules to financial institutions, and exempt them from setting aside provision for the credit limits that have yet to be drawn down, which are scheduled to expire at the end of 2021, if financial institutions need more time to address bad debt problems. In spite of this, the commercial banking system remains robust and many commercial banks have gradually put necessary resources in place to bolster the levels of capital funding and provision in order to brace for uncertainties during 2021.