Fitch Ratings indicates that the Thai government’s recent debt relief proposals are unlikely to significantly impact the credit metrics of Thai banks in 2025 due to the initiative’s limited scope.
While the debt relief scheme might aid borrowers with debts up to THB 890 billion (around USD 26 billion), most of these debts are already accounted for as Stage 2 or Stage 3 loans and provisioned or written off by banks. The restructuring proposed under the initiative, such as reduced instalment and interest waivers, aligns with typical bank offerings to troubled clients, thus minimizing its impact on bank credit metrics.
The government plans to compensate banks by redirecting 50% of their contributions to the central bank’s Financial Institutions Development Fund (FIDF) for potentially three years. Banks currently contribute 0.46% of their deposits annually to the FIDF, primarily to cover debts from the 1997 financial crisis. However, the adequacy of FIDF funds to fully compensate banks remains uncertain, and the government might have to reallocate funds from other sources if needed. Individual banks might vary in impact, with some potentially benefitting if they receive subsidies for already provisioned loans.
The scheme’s impact seems minor compared to the borrower relief measures during the Covid-19 pandemic, limiting its efficacy in tackling macroeconomic issues like high household debt (90% of GDP as of June 2024) or boosting bank lending. Other regulatory measures, such as retail interest-rate caps, remain active. Despite its modest scope, the initiative reflects Thailand’s unique stance in APAC by extending regulatory relief during the post-pandemic recovery.
Fitch projects a 2% bank system loan growth in 2025, a slight acceleration from the 0.1% expected in 2024, although this remains below the nominal GDP growth forecasted at 4.6%. Consequently, system leverage is expected to continue its declining trend, consistent with recent years.
