Bank loans set to fall again amid debt reductions
In the second quarter of 2025, total outstanding loans in the banking sector contracted by 0.9% year-on-year, following a 1.3% decline in the previous quarter, according to Suwannee Jatsadasak, the central bank's assistant governor for the supervision group.
According to central bank data, the banking sector has posted negative loan growth for four consecutive quarters.
The contraction began in the third quarter of 2024 with a 2% decline, followed by a 0.4% drop in the fourth quarter.
"Although the pace of loan contraction in the second quarter was slower than in the past three quarters, we do not expect loans to turn positive in the third quarter due to continued debt deleveraging," Ms Suwannee said.
The contraction was mainly driven by small and medium-sized enterprise (SME) and consumer loans, which fell by 6.2% and 2.2%, respectively, in the second quarter.
In addition to debt deleveraging, weak loan demand aligning with sluggish economic conditions, as well as tighter lending standards by banks amid rising borrower risks, also weighed on loan growth.
While banks continued to extend new loans, the pace lagged behind debt repayments. In the second quarter, new loan growth in the sector stood at 4.31%, compared with debt repayment growth of 4.39%.
Ms Suwannee said non-performing loans (NPLs) in the banking sector edged up slightly to 2.91% of total outstanding loans in the second quarter, from 2.90% in the previous quarter. The NPL ratio for SME loans rose more sharply, climbing to 7.62% from 7.28% in the previous quarter.
"Looking ahead, SME asset quality remains a concern, particularly as local businesses face increasing competition from rising imports, which could erode their competitiveness," she said.
On external risks, Ms Suwannee said the American reciprocal tariff of 19% on Thai exports will primarily affect large exporters with direct shipments to the US.
However, SMEs within the supply chain will also face indirect impacts. The central bank will continue to monitor developments related to US tariffs, including transshipment measures, she said.
On a positive note, Ms Suwannee said the NPL ratio of consumer loans eased in the second quarter of this year to 3.29%, from 3.35% in the previous quarter, supported by improvements across all retail loan segments.
In the second quarter, mortgage NPLs declined to 4.06% from 4.10%, auto loan NPLs fell to 2.15% from 2.20%, credit card NPLs dropped to 3.21% from 3.35%, and personal loan NPLs decreased to 2.86% from 2.95%.
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