A revival of tourism in Thailand would help the nation's banks by repairing the finances of households in an economy with among the highest proportion of loans in restructuring, according to S&P Global Ratings.
As much as 10% of the loans in Thailand are under relief or restructuring such as deferment of principal repayment, extension of maturity or reduced interest payments, Ratings analysts said at a Mar. 2 webinar. A high proportion of loan books under relief or restructuring indicates an overhang of weak loans in the banking system, Ratings said. A lot of those loans are to the tourism industry, among the worst hit by the COVID-19 pandemic.
"Restructuring in Thailand has taken them as long as it has because during the period of the last two or three years, some of these tourism-related borrowers simply didn't have the cash," Ivan Tan, Ratings' director for financial institutions ratings for South and Southeast Asia, said.
Tourism is a significant contributor to the Thai economy. Nearly 40 million tourists visited the country in 2019, helping generate revenue of about 2 trillion baht, or 11% of gross domestic product, according to a 2021 report from the Bank of Thailand. The COVID-19 pandemic hit the sector hard and cash flows for hotels, restaurants and other businesses dropped, with only extensive restructuring of bank loans helping many operators stay in business.
China reopening
The return of tourists, especially after China's reopening, will bring an estimated 25.5 million foreign visitors to Thailand in 2023, according to the Thai central bank. The number could grow to 34 million in 2024, the regulator said during its Jan. 25 policy meeting. The Thai economy grew 2.6% in 2022, accelerating from 1.5% in 2021, with growth driven by the tourism recovery and improvement of domestic demand in private consumption, according to government data released Feb. 17. The government expects GDP to grow between 2.7% and 3.7% in 2023.
"The lift that the economy gets will be beneficial for the Thai banks," Tan said. "The other thing is that I think it will have a direct impact on the quality of the restructured loan. Particularly, you might see the level of restructure loans potentially resolved faster than what we anticipated last year."
The proportion of restructured loans in Thailand, at 10%, compares with 8% in Indonesia, while it's less than 5% in Malaysia and under 2% in India, Ratings said.
Thai banks' profitability has been on an uptrend, with net interest margins growing and credit costs easing, the rating agency said. The return on assets of Thai banks improved to 1.0% in 2022, from 0.7% in 2020, while the aggregate nonperforming loan ratio eased to 2.8% from 3.2%. The nonperforming loan ratio may gradually rise to about 5% by 2024 as forbearance and relief measures expire, but Ratings described the projected increase as "manageable" for Thai lenders.
As of March 3, US$1 was equivalent to 34.60 Thai baht.
