Thailand faces a deepening banking crisis as bad debts rise, with only 25% of Thais qualifying for credit. The government plans to buy ฿400 billion in unsecured loans as banks withdraw funding, while the Bank of Thailand prepares major interest rate cuts to support growth.
Thailand is dealing with a challenging banking crisis as growth stagnates and bad debts are rising in the system. Indeed, it is not only a chronic inability to pay that has already impacted over 27% of households, it is a dire issue. A 2024 survey for the Bank of Thailand revealed that only 25% of the population could presently meet lending criteria. At the same time, many of these people did not want or need credit facilities. With total debt levels in the country now over 223% of GDP or ove ฿41 trillion, the scale of this problem is vast.
On Thursday, Minister of Finance Pichai Chunhavajira revealed a plan by the government to buy ฿400 billion of the country’s banks at less than 33% of book value. In brief, there are bad debts booked in at ฿1.22 trillion. Indeed, with the household debt sector alone, among licenced banks, no less than ฿3.72 trillion of book debt is problematic.
Meanwhile, the General Manager of Thailand National Credit Bureau (NCB) has sounded the alarm. He points to the rising levels of problems with the financial system.
At the same time, speaking on social media on Thursday, Surapol Opasathien called for calm. In particular, he warned that the public should not blame the hard pressed borrowers who at this time cannot make ends meet.
Certainly, Mr Surapol’s analysis is grim. At the same time, it goes to the heart of rising alarm about Thailand’s economic prospects.
Research reveals only 25% of Thais qualify for loans while most of the population struggles with credit access
Firstly, the credit analyst drew attention to presentations made by the esteemed research firm the Puey Research Institute to the Bank of Thailand in 2024.
In short, this analysis told the central bank that only 25% of the Thai public was in a position to borrow money. In particular, approximately 5 million people.
Meanwhile, many among this number, because of their sound financial management skills and relative wealth, do not need to borrow. The remaining 75% of the banking population is constrained by low income or past credit defaults and is therefore precluded from accessing funding.
Certainly, this is a stark reminder of the basis of Thailand’s economic problems. On the one hand, a lack of sustainable income at the grassroots level, and on the other, chronic inequality.
Thai household debt is ฿16.3 trillion, however total debt is 233% of GDP or ฿41.43 trillion amid a rising crisis
Furthermore, Mr Surapol gave an analysis of the rising problems. At length, he detailed non-performing loans, bad debts, and out-of-order accounts within the system. In summary, Thailand across its retail banks and financial institutions has ฿13.6 trillion in outstanding household debt.
Additionally, there are further amounts of debt held in student loans and advances given by cooperative groups. In brief, the overall figure is ฿16.3 trillion. This is approximately 90% of GDP. Significantly, we must also note that Thailand’s total debt, including business and government borrowing, currently amounts to 233% of GDP or 223% of GDP.
In effect, this amounts to an astonishing ฿41.43 trillion. In recent days, a highly respected economist has estimated that it would take annual GDP growth of over 10% to allow for the servicing of such a borrowing load.
Certainly, this is not happening with Thai growth averaging 2%, with 2.5% recorded in 2024.
Non-performing loans and bad debts rise as banks struggle with deteriorating asset quality in 2025
Firstly, there is presently ฿1.22 trillion of this debt load already classified by banks as non-performing loans. This is spread out over 9.5 million accounts. Secondly, there is ฿580 billion in bad debts already written off across 1.9 million accounts.
Thirdly, there is ฿1 trillion approximately in restructuring mode on the banks’ books. These cover 3.7 million accounts. Fourthly, there is ฿970 billion in debt which is regularly in repayment but not established over 90 days.
This debt is repaid over 1.7 million accounts. In summary, there is a problematic debt of ฿3.72 trillion across 16.5 million accounts. This is 27.5% of all outstanding household debt held by retail banks and licensed financial institutions.
Significantly, there is the fact that the problem is rising. Bankers are alarmingly reporting a deterioration in their asset quality.
This is causing credit to dry up in the system. In turn, even those on higher incomes are increasingly pushed to default or display an inability to repay what they owe.
Thai banks withdraw ฿158 billion of credit in January as economic concerns force a shift in lending strategies
Mr Surapol on Thursday addressed this and said that banks had stopped handing out additional credit. However, it must be pointed out that even more serious is the fact that in January 2025, Thailand’s banks withdrew ฿158 billion in credit from the financial system.
Basically, the banks are deleveraging their risks from the wider economy. At the same time, this has not gone unnoticed by the Bank of Thailand. It surprised the markets by lowering interest rates in February.
Indeed, minutes of the Monetary Policy Committee meeting in February showed bankers were quite pessimistic about the economy’s prospects in 2025. In particular, in the second half of the year. This is due to the expected impact of President Trump’s reciprocal tariff policies and indeed others.
In a note on Thursday, Nomura economist Charnon Boonnuch said: “We think the BoT is increasingly concerned about the weakening growth outlook and is no longer pushing back strongly against more rate cuts.”
Bank of Thailand expected to cut interest rates by 100 basis points as growth outlook remains weak
Certainly, the banking giant now predicts a full 100 basis points cut over the course of the next year. In short, this would bring the baseline interest rate to 1%.
Nomura suggested the next cut will be in June 2025. Nonetheless, given the rising urgency, it may move sooner and kick off a rate reduction cycle in April. Simultaneously, Barclays economist Ms Shreya Sodhani was quick to note the tone of the bank at its last Monetary Policy Committee. It has grown distinctly dovish.
“The minutes strike a clear dovish tone,” she said. “Growth will now be in the driver’s seat.”
Certainly, any divergence between the Bank of Thailand and the Ministry of Finance is history at this time. The central bank appears to have decided that the path being taken by the economy, if not robustly addressed, could lead to a crisis.
Thai government plans ฿400 billion purchase of unsecured loans amid worsening banking system crisis
Significantly, on Thursday, Minister of Finance Pichai Chunhavajira announced that the government will purchase ฿400 billion of unsecured loans from financial institutions.
At length, this shows that there is a growing crisis within the banking system. In particular, this tranche of loans loaded with unsecured consumer debt comes from the ฿1.22 trillion bad debts.
Certainly, it appears the financial institutions are taking a haircut as the government is buying the debt for less than a third of its value. In turn, these debts will be managed by a national debt management agency.
Nevertheless, the announcement says the move is as yet not finalised. It is presently understood to be under discussion.
Minister of finance highlights small loans as key to reducing Thailand’s household debt-to-GDP ratio
Mr Pichai on Thursday was more positive about the deal. At length, he explained that 35% of the household debt was in respect of small loans under ฿100,000. Therefore, the government was focused on removing that and reducing the country’s household debt-to-GDP ratio.
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“The household debt ratio is ฿13 trillion, comprising 9 million accounts and 5 million people. When looking into the details, it was found that 35% of people have debts worth less than ฿100,000.
Certainly, if these small debts can be taken care of, the household debt ratio will immediately decrease.
However, solving the debt problem nationwide will not be completed within 3-6 months. The people who will help solve this problem are the debt owners, the people who will manage it.
At the same time, the government will support them in some way. We are looking for a way together, but we need to see the information first,” the minister explained.
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Further reading:
Bank of Thailand responds to Thaksin’s idea to buy bank debt and give borrowers a second chance
Economic growth in 2025 faces growing downside risk as growth for 2024 now confirmed at only 2.5%
Trump Presidency already having a heavy impact on Thailand even before he talks trade with Bangkok
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