Bad Loans Stay High in Thailand as Middle East War Hits SMEs

Bangkok Business News: Non-performing loans remain under close scrutiny as Thailand’s banking sector faces mounting pressure from the prolonged conflict in the Middle East, with regulators warning that vulnerable businesses and households continue to struggle despite signs that the financial system remains resilient.

The country’s central bank has intensified its monitoring of loan quality after elevated risks linked to the regional conflict affected the repayment capacity of both businesses and consumers. Banks were instructed to conduct stress tests in May to measure their ability to withstand potential economic shocks, and this Bangkok Business News report notes that the results showed stronger resilience compared with the previous month’s assessment. Authorities nevertheless stressed that the banking sector cannot afford to be complacent as uncertainties continue to weigh on economic activity.

SME Borrowers Face Growing Pressure

Regulators are paying particular attention to the movement of special mention loans into the non-performing loan category, especially among small and medium-sized enterprises (SMEs) and financially vulnerable households. Special mention loans refer to debts overdue by between 31 and 90 days, while loans exceeding 90 days are classified as non-performing.

Latest figures indicate that the SME non-performing loan ratio edged up to 9.16 percent during the first quarter from 9.03 percent in the previous quarter. At the same time, the proportion of special mention loans also rose slightly to 15.8 percent, highlighting continued repayment difficulties among smaller businesses.

Credit Contraction Adds to Challenges

Business lending remains under pressure, with SME loans shrinking by 4 percent during the first three months of the year after declining 3.9 percent in the previous quarter. The latest figures extend the sector’s lending contraction to 15 consecutive quarters, reflecting cautious lending practices and softer borrowing demand.

Policymakers believe the overall banking system remains stable, but they continue encouraging financial institutions to implement targeted assistance for vulnerable borrowers. Officials warned that weakening debt repayment ability, combined with reduced loan availability, continues to elevate risks for smaller businesses.

Larger Firms Adapt More Quickly

While the conflict’s economic impact has proved less severe than initially feared, larger companies have generally adapted more effectively by diversifying raw material sources and adjusting transportation routes to minimize supply chain disruptions.

Smaller businesses, however, continue facing greater operational constraints and intense market competition, limiting their ability to respond to rising costs and ongoing uncertainty. Households are also experiencing pressure from slower income growth and higher living expenses, conditions expected to weigh on consumer spending as government support measures gradually expire.

Authorities will continue monitoring inflation expectations and business cost pressures while remaining prepared to introduce additional targeted support if loan deterioration accelerates beyond expectations.

The central bank’s cautious approach reflects growing concern that persistent global uncertainty could further strain vulnerable sectors even as the broader financial system remains stable. Continued monitoring, targeted assistance and prudent risk management are expected to remain key priorities in safeguarding Thailand’s economic recovery and financial stability in the months ahead.

For the latest on the Thai economy, keep on logging to Bangkok Business News.