Thailand’s Debt Crisis Deepens: NPLs Spread to Large Firms as Credit Contracts for Third Year

 

Kasikorn Research warns of contagion risk as overdue loans hit 3%; Real Estate, Hospitality, and Manufacturing flagged for high default risk amid economic slowdown.

 

The Thai financial sector is grappling with a severe challenge as Non-Performing Loans (NPLs) surge, reflecting a dangerous escalation in debt fragility across all segments, according to a stark assessment from the Kasikorn Research Centre (KResearch).

 

The report warns that the NPL ratio is now nearing the critical 3% level (projected at 2.8% to 2.85% for 2025), with the problem spreading from small and medium-sized enterprises (SMEs) to medium and large corporations—a highly concerning development.

 

Groups identified as having the highest risk of defaulting on loan repayments include the Real Estate, Hotel/Tourism, and Manufacturing sectors.

 

 

Credit Crunch and Household Strain

The underlying vulnerability is underscored by the projection that total credit in Thailand will contract for a third consecutive year. 

 

Thanyalak Watcharachaisurapol, deputy managing director of KResearch, called this trajectory "highly worrying," forecasting a contraction of -2.3% for 2025 and a further -3% in 2026.

 

Retail credit, particularly for high-value items like housing and automobiles, has been hit hardest, driven by consumers' depleted purchasing power and high household debt, which remains above 80% of GDP. 

 

Retail credit is expected to contract by a dramatic -12% this year.

 

While household borrowing demand remains high, the contraction reflects a technical inability to secure new loans due to reduced household borrowing capacity.

 

 

In the business sector, while large firms still have some credit demand, it is diminishing, potentially leading to increased debt repayment and deepening the overall negative credit figures.

 

SME credit remains in the "negative zone," contracting at a consistently high rate of 4%–5%.

 

 

 

The Crisis Spreads from Micro to Major

While intensive debt management and restructuring efforts have prevented a sudden "NPL cliff," the overall asset quality is deteriorating. 

Worryingly, KResearch notes that while new delinquencies have slightly eased due to restructuring, long-term overdue debts are sliding into worse categories.

 

"The NPL picture is highly concerning today. Especially in the business sector, the smaller the business, the worse the situation," Thanyalak stated. 

 

She noted that micro-businesses bear the heaviest burden, with NPLs hitting 14 baht per 100 baht of credit.

 

Crucially, the warning signals indicate that delinquencies are no longer confined to smaller clients but have begun moving into medium and large enterprises. 

 

Key sectors flagging increased negative signs include:

Large Real Estate: Facing a continuous slowdown.

Hotels/Tourism: Suffering a slow and uneven recovery.

Manufacturing: Under strain from slowing demand and competition.
 

 

Economic Outlook Worsens Amid External Shocks

The domestic debt crisis is compounded by a weak external outlook. 

 

Burin Adulwattana, managing director and chief economist, highlighted that the recent Thai-Cambodia conflict, with the subsequent border closure, is significantly undermining overall confidence, particularly in tourism.

 

The trade disruption alone is costing Thailand an estimated 12 billion baht per month. If the conflict persists over the next six months, it could shave 0.7% off Thailand’s total export growth.

 

Looking ahead, Nattaporn Treeratsirikul, deputy managing director, forecasts Thailand’s GDP growth to slow significantly to just 1.6% in 2026, down from 2% in 2025.

 

Key drivers are flagging:

Exports: Expected to contract by -1.2% in 2026 (following 11% growth in 2025), partly due to early impacts from reciprocal trade tariff policies.

Consumption: Slowing due to high household debt, resulting in negative sales for durable goods like cars.

 

Finally, Kevalin Wangpichayasuk, deputy managing director, warned that 2026 will be defined by ongoing challenges, with weakening domestic and international orders and severe import competition risking a fourth consecutive year of contraction in the Manufacturing Production Index (MPI).