Thai Banking Sector Faces Rising Pressures on Asset Quality and Earnings in 2026, Warns Fitch Ratings

 

 

Weak macroeconomic conditions, lower margins, and SME defaults put pressure on Thai lenders' asset quality and full-year earnings in 2026.

 

Thailand’s sluggish macroeconomic environment is set to place sustained pressure on the earnings performance and asset quality of major commercial banks throughout 2026, according to a peer credit analysis report published by Fitch Ratings.

 

While buffers supporting the Viability Ratings (VRs) of the country's major lenders—including Siam Commercial Bank (SCB), Bangkok Bank (BBL), Bank of Ayudhya (Krungsri), Kasikornbank (KBANK), and TMBThanachart Bank (TTB)—remain intact, Fitch noted that these buffers have been steadily eroding, particularly regarding asset quality.

 

Fitch expects impaired-loan ratios across the sector to tick upwards in 2026, driven primarily by vulnerable borrower segments such as small and medium-sized enterprises (SMEs) and lower-income retail consumers.

 

In addition to credit deterioration, profitability will be squeezed by narrowing net interest margins (NIM) and muted domestic economic growth, which limits new commercial opportunities.

 

Nevertheless, Fitch highlighted that core profitability metrics remain adequate, buoyed by consistent performance between 2023 and 2025, when operating profit to risk-weighted assets ranged between 1.8% and 3.0%.

 

"While core profitability metrics are expected to stay reasonable, asset quality erosion among SMEs and retail borrowers will remain a primary headwind for major lenders throughout 2026," the Fitch Ratings report stated. 

 

 

 

Q2 Analyst Insights: Mixed Views Across Research Houses

Local market commentary compiled by Thansettakij's reporter Thirada Munpolsri indicates that while second-quarter earnings for 2026 may soften, selected top-tier banks remain attractive investment opportunities due to solid fundamentals, healthy capital positions, and alluring dividend yields.

 

Market views on aggregate second-quarter performance vary across major brokerages:

 

UOB Kay Hian (Thailand): Kitpon Praipaisarnkit, vice president of Securities Analysis, forecasts total net profit for the banking sector to reach THB 63 billion in Q2 2026. This represents a 2% year-on-year drop and a 4% quarter-on-quarter decline, with geopolitical friction in the Middle East having only a marginal impact on performance.

Phillip Securities: Offering a more optimistic forecast covering eight coverage banks, Phillip Securities projects combined Q2 net profit at THB 72.9 billion—an increase of 12.9% year-on-year and 10.9% quarter-on-quarter. Analysts attribute this growth to expanding fee income, gains from financial instruments, reduced interest expenses, and lower provision set-asides at specific institutions.
 

 

 

Credit Growth Divergence Across Individual Lenders

Phillip Securities predicts total credit extension across the banking sector to grow by 0.9% quarter-on-quarter, bringing year-to-date (YTD) credit growth to 1.8%.

 

Corporate lending is expected to serve as the principal engine of growth for most institutions, with SCB and Krungthai Bank (KTB) being notable exceptions expecting loan contraction.

 

Despite sharp compression in net interest margins observed at KTB and SCB during Q1 2026, analysts anticipate a broader NIM recovery in Q2 as loan yields stabilise and funding costs continue to drop.