Bangkok Post – Debt relief scheme seen as too small to impact bank ratings

The government’s latest debt relief scheme is unlikely to affect the credit rating of Thailand’s banking industry in 2025 due to the modest scope of the measures, according to Fitch Ratings Thailand.

The rating agency said the scope of the latest debt relief scheme seemed modest compared to the borrower relief measures implemented by Thai authorities during the Covid-19 pandemic. As a result, Fitch believes the scheme will have limited effectiveness in addressing macroeconomic challenges, such as high household debt which stood at 90% of GDP as of June 2024, or in stimulating growth in bank lending.

Additionally, other regulatory controls designed to curb further increases in household debt, such as retail interest rate caps, remain in place.

However, Thailand is one of the few markets in Asia-Pacific that is extending some form of regulatory relief measures during the post-pandemic recovery, indicating the continued challenges faced by the banking sector, Fitch said in a statement released on Friday.

According to Fitch, the government’s debt relief initiative could benefit borrowers with debts totalling up to 890 billion baht. However, Fitch believes that, in practice, most of the eligible borrowers’ debts are likely already classified as stage 2 or stage 3 loans and should have already been provisioned for or potentially written off by banks.

Furthermore, the proposed restructuring under the relief scheme, which includes reduced instalment payments and interest payment waivers, is generally in line with the support that banks typically extend to distressed clients. As a result, these factors are likely to have a minimal impact on a bank’s credit metrics.

In addition, Fitch forecasts total loan growth for the Thai banking industry at around 2% in 2025, partly reflecting a modest and gradual decline in interest rates. This growth is expected to be faster than the 0.1% increase projected for 2024, but still well below the nominal GDP growth rate of 4.6%. As a result, system leverage will continue to decline, maintaining the trend observed in recent…