Banks fear rising bad debts as oil prices squeeze Thai SMEs

Thai banks are raising concerns over a potential rise in non-performing loans (NPLs) as prolonged geopolitical tensions in the Middle East continue to drive up global oil prices, increasing cost pressures across the economy.

Higher oil prices are feeding through to transport costs, electricity bills and overall living expenses, weighing on consumer purchasing power and weakening borrowers’ repayment capacity. Financial institutions are now closely monitoring the situation amid fears that debt quality could deteriorate if the crisis persists.

Thakorn Piyapan, president of TMBThanachart Bank, said rising oil prices have a direct impact on transport and energy costs, which in turn are likely to push up the cost of living and reduce disposable income.

He noted that while current repayment trends across loan portfolios have not yet shown clear signs of deterioration, prolonged economic pressure could affect borrowers in the future.

“We are monitoring the situation closely. At present, there are no clear signs of stress in our loan portfolio, but if the situation drags on, the impact is inevitable,” he said.

Mortgage lending remains subdued and is unlikely to worsen significantly, while auto loans may see a shift in demand towards electric vehicles, reflecting changing consumer behaviour.

Banks are also adopting a more cautious stance, with a “wait-and-see” approach to investment. Measures include reviewing budgets, delaying unclear projects and encouraging remote working to reduce costs.

Financial institutions are also conducting stress tests to assess risks under scenarios of higher oil prices, rising inflation and potential supply chain disruptions.

Sakchai Peechapat, chief executive of TISCO Financial Group, said there has not yet been a significant increase in new NPL inflows, given the relatively recent onset of the crisis. However, banks are taking a forward-looking approach by factoring in slower GDP growth and preparing appropriate provisions.

He added that lenders are proactively supporting customers by maintaining liquidity and restructuring debt where necessary to prevent further deterioration.

Meanwhile, Chartsiri Sophonpanich, president of Bangkok Bank, said rising global uncertainty is prompting businesses to focus more on strengthening competitiveness and diversifying risk.

The bank is also working closely with clients to help them adapt to changing conditions, including providing working capital support to sustain operations during the transition period.

Research firms warn that bad debts are likely to rise this year. Kanjana Chokpaisansilp of Kasikorn Research Center said the banking system’s NPL ratio could approach 3%, up from 2.79% at the end of last year, reflecting slower economic growth and increased external risks.

The most vulnerable borrowers are small and medium-sized enterprises (SMEs), particularly those linked to tourism, transport, energy and fertiliser industries.

Outstanding NPLs in these high-risk sectors currently total around 28 billion baht, accounting for 5.5% of total system-wide bad debt. Recovery prospects for these borrowers remain limited, even with debt restructuring.

Meanwhile, loans classified as Stage 2 — those showing signs of increased credit risk — in these sectors stand at around 45–48 billion baht, or 4.4% of total Stage 2 loans, requiring close monitoring to prevent further deterioration.

Overall lending in the banking system has contracted for 21 consecutive months, with a conservative estimate of a 0.7% decline, underscoring the challenges facing the financial sector through the remainder of the year.

Yunyong Thaicharoen of SCB Economic Intelligence Center said both NPLs and Stage 2 loans remain at elevated levels, representing a key vulnerability in the financial system.

SMEs are particularly exposed, with combined Stage 2 and Stage 3 loans accounting for nearly 20% of total lending. The main risk stems from stagflation driven by the prolonged Middle East conflict, which continues to push up energy prices.

This has led to a negative income shock, as households face rising living and energy costs while incomes remain stagnant or decline.

“Signs of stress in the business sector, particularly liquidity constraints, are becoming more apparent,” he said. “This could lead to repayment difficulties in the corporate bond market, a trend already observed over the past one to two years, especially in the property and construction sectors.”

He warned that if oil prices remain elevated for an extended period, liquidity pressures could intensify further, deepening financial strain across vulnerable sectors.