‘Credit’ Continues Negative, BoT Highlights Struggling SMEs and Large Corporations

The Bank of Thailand (BoT) has reported a persistent contraction in credit across the banking system, which has now seen six consecutive quarters of decline.

The overall credit in the system dropped by 1.1% in Q4 2025, driven largely by the continuous contraction in SME loans and consumer loans.

The situation remains grim for SMEs, with credit shrinking for 14 consecutive quarters, indicating a continued vulnerability in this sector.

Meanwhile, large businesses showed a slight contraction of 0.2%, largely due to lower demand for loans and a shift towards raising capital through bond issuance instead of traditional bank loans.

Despite the overall stability of the banking sector, as evidenced by a strong financial system in Q4 2025, there are areas of concern. Notably, liquidity is tightening in some sectors, and debt repayment capacity remains weak for certain debtor groups, especially in the SME and household sectors.

The BoT emphasized that the Thai economy continues to grow below its potential and remains uneven, with structural issues such as a decline in competitiveness affecting income growth and, consequently, financial stability.

The BoT has continued to implement targeted financial measures to ease the debt burden on businesses and households, but the overall picture remains challenging.

As of Q4 2025, the banking sector’s non-performing loan (NPL) ratio decreased slightly to 2.84% from 2.94%, with both business and consumer NPLs showing improvements.

However, the BoT remains cautious, pointing to ongoing challenges in managing vulnerable debtor groups, particularly SMEs and households.

Looking ahead to 2026, the direction of credit is largely dependent on the recovery of the Thai and global economies, as well as exports and investment activity.

Although credit risks remain high, banks are setting modest growth targets, with the BoT focusing on supporting viable businesses, particularly those aligned with Thailand's "Reinvent Thailand" strategy, such as agribusiness, automotive, high-tech electronics, and logistics sectors.

Additionally, there has been an increase in bond issuance, with some large businesses opting to raise capital via bonds rather than loans.

This reflects the current market conditions, which are prompting businesses to seek alternative funding sources.

The BoT’s SME Credit Boost program is also aiming to inject approximately 100 billion baht into the system within two years, targeting businesses with strong potential.

The bank sector’s profitability has decreased, with total net profits for 2025 falling to around 500 billion baht, compared to the previous year’s record high.

This decline is mainly due to the reduced interest income, stemming from lower interest rates and shrinking loan bases, as well as increased loan restructuring measures. Despite this, banks have compensated for some losses with revenue from investments and wealth management services.

In terms of asset quality, the BoT has observed improvements in the management of non-performing loans, with the restructuring of debt and loan modifications (TDR) helping to stabilize the situation.

These measures have been instrumental in preventing a larger-scale financial crisis, as they have allowed financial institutions to manage troubled loans more effectively.

In the housing sector, the BoT is considering easing loan-to-value (LTV) regulations, which are due to expire in June 2026, to support the real estate sector’s recovery.

While high-priced homes continue to see strong demand, the second-hand housing market is showing growth due to consumers increasingly opting for renovations instead of purchasing new properties.

Additionally, Deputy Prime Minister and Finance Minister, Ekniti Nitithanprapas, emphasized the government’s focus on driving forward policies that will boost economic growth, including investment in infrastructure and promotion of the "Thailand Fast Pass" initiative, which aims to fast-track investment in key industries.

Despite the challenges, the BoT and financial institutions are committed to supporting the Thai economy’s recovery and ensuring that financial resources are effectively allocated to key sectors in need of support.

The BoT is also focused on the long-term stability of the financial system, preparing for potential risks while continuing to implement measures aimed at strengthening liquidity and supporting economic recovery.