Temporary relief measures are unlikely to eliminate risks for weaker debtors.

Thai banks’ resilience will be tested this year as loan moratoriums progressively expire, with asset quality set to deteriorate in the next 12 to 24 months and non-performing loans rising to 6%, an S&P Global Ratings report said.

The proportion of the loan book under moratorium has declined to an average of about 20% for major rated Thai banks, compared with a systemwide average of 31% in the initial phase of the moratorium in mid-2020.

Temporary relief measures are unlikely to eliminate risks for weaker and more vulnerable debtors, although they may lessen the strain and delay recognition of problem loans. The central bank has extended debt moratoriums for the more vulnerable retail and small to medium enterprise (SME) borrowers to June 2021.

Credit losses will remain high at 1.9% of outstanding loans this year. Credit costs have risen across the board, dragging down the return on assets of rated banks to 0.7% in 2020 versus systemwide average of 1.4% in 2019, the report said.

Proactive provisioning, coupled with good capital levels, will cushion downside credit risks, analysts said, with rated Thai banks having boosted already high provision coverage ratios to about 155% as of end-2020. Lenders will continue to build buffers in 2021 to defend against higher delinquencies as loan moratorium and relief measures are phased out.

Even though large domestic banks maintained healthy Tier-1 capital adequacy ratios of over 15%, the regulator has instructed banks to limit 2020 dividends to 50% of profits and not to exceed 2019's payout ratio.

A U-shaped recovery in 2021 with GDP growth of 5% is on the horizon for Thailand, which is greatly needed to stabilise credit conditions. A prolonged delay in the country's economic recovery would deepen the downside scenario for domestic banks, given high household leverage and the weakness in the SME sector.