Thai banking system remains stable in 2025 despite lower profits
High capital reserves and liquidity provide a solid cushion as the industry navigates a sixth consecutive quarter of credit contraction.
- The Thai banking system is considered stable due to high levels of capital, loan loss reserves, and liquidity, with the Non-Performing Loan (NPL) ratio decreasing to 2.84% in Q4 2025.
- Despite its stability, the system's net profit for 2025 decreased compared to the previous year.
- The decline in profit was primarily caused by a drop in net interest income, which was a result of policy rate cuts, debt assistance measures, and a contraction in overall loans.
- Overall loans contracted by 1.1% year-on-year, driven by a continuous decline in SME and consumer lending, reflecting elevated credit risks and slowing credit demand.
Somchai Lertlarpwasin, Assistant Governor of the Financial Institutions Supervision Group, Bank of Thailand (BOT), revealed the overview of the commercial banking system in the fourth quarter of 2025.
He stated that the commercial banking system remains sound and stable, with high levels of capital, loan loss reserves, and liquidity.
The overall commercial banking system's loans (including subsidiaries) in Q4 2025 contracted by 1.1% year-on-year, a rate close to the previous quarter.
This was driven by the continuous contraction in SME and consumer loans, reflecting elevated credit risks.
Meanwhile, large corporate loans contracted slightly, partly due to lower credit demand in line with economic conditions.
Regarding credit quality, Non-Performing Loans (NPL or Stage 3) in Q4 2025 decreased to THB536 billion, resulting from debt repayments and credit quality management.
This brought the ratio of NPLs to total loans down to 2.84%. Stage 2 loans also decreased to 7.07%, primarily due to debt repayments according to debt restructuring conditions.
For the 2025 operating performance, the net profit decreased from the same period last year.
The main cause was a decline in net interest income, which aligned with the reduction in interest rates for debtors, corresponding to the policy rate cut and the implementation of the "You Fight, We Help" measure to assist borrowers.
Furthermore, it resulted from the loan contraction caused by slowing credit demand and the high credit risk of borrowers amid the economic slowdown.
Net profit declined due to a high base and narrowed interest margins
Suchot Piamchol, Senior Director of the Model Validation and Financial Institution Risk Analysis Department, BOT, stated that the overall operating performance of the commercial banking system in 2025 generated a combined net profit of approximately THB500 billion, which decreased from 2024 and continued to decline in the fourth quarter.
The key factor dragging down the profit was the loss of net interest income.
This was due to the transmission of the policy rate cut to debtors and the financial institutions' implementation of debt assistance measures, which resulted in a decrease in the Net Interest Margin (NIM) from 2.66% to 2.54%.
Simultaneously, the Return on Assets (ROA) in Q4 dropped below 1% to 0.94%.
However, the banks still recognised gains from the mark-to-market valuation of their investment portfolios following the downward trend in interest rates, alongside fee income from credit cards and financial advisory businesses, which helped provide some support.
Loans contracted for 6 consecutive quarters; the SME sector remains a concern
In terms of lending, the overall picture for the entire year of 2025 showed a slight contraction of -1.1%, marking a continuous decline for 6 consecutive quarters.
Notably, SME loans have contracted for 14 consecutive quarters, reflecting the structural problems of small businesses.
However, signs of recovery have begun to emerge in certain portfolios, such as housing loans, which returned to a positive 0.7%, and hire-purchase loans, which started to improve to 0.3%.
For the 2026 outlook, the BOT projects that loans will begin to expand slightly by approximately 1.6% - 2%, following the economic recovery.
Credit quality stabilises; NPLs decrease slightly.
Regarding credit quality, overall bad debts (NPL or Stage 3) decreased slightly, with business loan NPLs at 2.68% and consumer loan NPLs at 3.18%. The flow into non-performing status has started to stabilise due to assistance provided through debt restructuring measures.
However, Stage 2 loans (Special Mention) remained high, particularly in the SME sector, where they continued to increase.
Conversely, retail segments such as hire-purchase and credit cards have begun to show improvement.
Accelerating assistance measures and stimulating credit access
To address the contraction in SME loans, the BOT has launched the “SME Credit Boost” project, focusing on high-potential industries (such as processed agriculture, wellness, high-tech, and logistics), with a target to inject THB100 billion in new credit lines within two years.
In addition, there is progress in debt resolution through the Responsible Lending project, which has already provided assistance to accumulated debts of nearly THB2.5 trillion across 4.3 million accounts.
Furthermore, the “Clear Debt Fast, Move Forward” project, facilitated by Sukhumvit Asset Management Co., Ltd. (SAM), encourages defaulted debtors to check their eligibility to immediately improve their NCB (National Credit Bureau) status.
