Although stable, liquid and profitable, Thailand’s banking sector saw growth moderate in 2016 as rising defaults in the highly leveraged consumer and small business segments weighed on lending growth. Large corporate lenders have increasingly turned to alternative financing channels, most notably the short-term bond market, further impacting loan growth in 2016.

Non-performing loans (NPLs) are expected to peak in 2017, while rising bond yields and regulatory changes to bill of exchange (BE) issuance should see larger corporates return to conventional bank financing. Although efforts to digitise the Thai economy will impact fee-based income in the near-term, the long-term benefits to the sector and the wider Thai economy should easily offset any losses. As such, the sector’s mid-term outlook remains positive, bolstered by new expansion opportunities in the ASEAN market.

Economic Impact

Thailand’s banking sector is a strong economic growth driver. The National Statistics Office’s “Statistical Yearbook Thailand” reported that financial intermediation’s contribution was BT956.32bn ($26.9bn) in 2014, equal to approximately 7.3% of GDP and 18.7% of service sector GDP. The financial intermediation sector was the fourth-largest economic contributor in 2014, behind manufacturing (BT3.62trn, $102bn), wholesale and retail trade (BT1.87trn, $52.7bn), and agriculture (BT1.24trn, $34.9bn). Thai banks recorded extremely strong growth during the early 2010s, with net profit growth hitting 21.1% in 2012 and 17.3% in 2013, according to the Bank of Thailand (BOT). However, a macroeconomic slowdown which saw GDP growth moderate from 7.51% in 2010 and 7.23% in 2012 to 2.7% in 2013, 0.82% in 2014, and 2.82% in 2015, has since had negative effects on profitability and lending activities.

Although some limits on foreign ownership remain, Thailand’s banking sector is also far more liberalised than many of its ASEAN neighbours. Bank of America Thailand was the first US bank to open a full foreign branch in 1949, and today major international players including BNP Paribas, Citibank and Sumitomo Mitsui Banking Corporation have established operations in Thailand. The sector also benefits significantly from Thailand’s position as the financial hub for its high-growth ASEAN neighbours and the thriving Cambodia, Laos, Myanmar and Vietnam (CLMV). The area continues to offer attractive opportunities for Thai banks to expand their regional presence.

At a Glance

As of January 2017 Thailand’s banking sector comprised 19 commercial banks, 11 full branch foreign banks, two finance companies and three property mortgage companies.

Additionally, the country is home to eight specialised financial institutions (SFIs), these include Bank for Agriculture and Agricultural Cooperatives, the Government Savings Bank, Government Housing Bank, Islamic Bank of Thailand, Export-Import Bank of Thailand, Small and Medium Enterprise Development Bank of Thailand, Thai Credit Guarantee Corporation, and Secondary Mortgage Corporation.

In December 2014 Cabinet approved the transfer of SFI oversight from the Ministry of Finance (MoF) to the BOT in a bid to improve transparency and reduce rising incidence of NPLs. In August 2016 the BOT reported that work on the transfer has been ongoing and will be complete once the MoF endorses 24 regulations relating to loan classifications.

Commercial Banks

Commercial bank assets have risen steadily, expanding by 3.5% to reach BT16.75trn ($471.9bn) in 2014 from BT16.18trn ($455.8bn) in 2013, rising 3.3% to hit BT17.31trn ($487.6bn) in 2015. Asset growth in the commercial segment hit 2.4% in 2016, ending the year at BT17.72trn ($499.2bn).

The four largest commercial banks in Thailand are Bangkok Bank, Siam Commercial Bank (SCB), Krung Thai Bank (KTB) and Kasikorn Bank (KB ank), which held a collective BT10.67trn ($300.6bn) of assets, which is 60.3% of commercial assets, at the end of 2016.

In 2016 Bangkok Bank rose to become the largest lender by assets, finishing with BT2.94trn ($82.8bn) of assets at the close of the year, followed by SCB with BT2.62trn ($73.8bn) in January 2017, KTB with BT2.61trn ($73.5bn) at the end of December 2016 and KB ank with BT2.5trn ($70.5bn) in January 2017.

Bangkok Bank was established in 1944 and stands as the market leader in corporate and small and medium-sized enterprise (SME) banking, in addition to holding the largest share of Thailand’s retail banking market. The bank has 17m accounts and the largest overseas branch network of any Thai bank, with operations in every ASEAN member as well as in Indonesia, China, Japan, Taiwan, Hong Kong, the US and the UK.

Its assets have grown consistently in recent years, rising by 3.4% in 2015 to hit BT2.84trn ($80bn) before the 7.3% increase recorded in 2016, reaching BT2.94trn ($82.8bn). There were 1157 active Bangkok Bank branches in Thailand in January 2017.

SCB became the second-largest bank by assets in 2016 after recording 2.3% growth from BT2.56trn ($72.1bn) of assets in 2015. SCB is one of the oldest banks in Thailand, having been established by Royal Charter in 1907. Major shareholders include the Crown Property Bureau with a 22.96% stake, and the MoF through the Vayupak Mutual Fund with 23.12%. The bank has 1170 active branches in Thailand.

KTB, a state-owned bank that was formed following the merger of Kaset Bank and Monton Bank, began operations in 1966, and went on to play an important role in absorbing and restructuring failed banks during the 1997-98 Asian financial crisis. The MoF owns a 55.07% stake in the bank through the Financial Institutions Development Fund, while 44.93% trades on the Stock Exchange of Thailand. KTB focuses on government and civil servant clients, and has 1213 active branches, the highest number of any Thai bank.

KB ank began operations in June 1945 as the Thai Farmers Bank, and was rebranded under its current name in 2003. As of January 2017 there were 1102 KB ank branches in operation across Thailand.

Profits Up

Thailand’s banking sector saw a more subdued year in 2016, as loan growth slipped and NPLs increased, although the sector also returned to profitability after a sharp contraction in 2015.

The BOT reports that skilled deposit portfolio management, including raising the proportion of current and savings accounts, pushed profits up 3.6% to hit BT199bn ($5.6bn), against a 10.2% contraction in 2015. The sector recorded 1.1% growth in return on assets.

Fitch reports that bank profits were also supported by growth in net interest income, which indicates they are less reliant on high-cost time deposits and that competition for deposits is falling.

The country’s big four banks recorded stronger profit growth, with the Nikkei Asian Review reporting in November 2016 that weak lending growth had enabled the country’s four major banks to post an increase in quarterly profits for the first time in over a year.

Lending Down

Combined profits at the big four rose by 18.9% to BT39.07bn ($1.1bn) in Q3 2016, driven by a 61% year-on-year (y-o-y) increase in net profits at KTB. Its loan portfolio shrank by 6% during the first nine months of 2016 to BT1.9trn ($53.5bn) as a result of government repayments. Interest expenses simultaneously fell by 17.2% from Q3 2015, while maturing high-cost term deposits reduced deposit costs by 25.6% y-o-y. In total, however, lending growth among the four banks reached just 0.7% in 2016.

Lending was down across the board and the BOT reported that corporate loans, which account for 67.4% of total loans, only grew by 0.6% in 2016, which is partly attributable to large debt repayment for acquisition loans that were obtained during the year. Excluding financial businesses, loans to large corporations contracted by 1.1%, while SME lending rose by 1.8% compared to 5.6% in 2015. “In the past, high levels of SME NPLs have generally resulted in both commercial and development banks adopting stricter lending conditions,” Mongkon Leelatham, president of SME Bank, told OBG. “However, last year SME NPLs for new loans declined from 2.3% to 0.15% over the course of one year. This has resulted in a shift towards increased lending to SMEs registered as juristic entrepreneurs, while lending to family-owned and sole ownership SMEs has declined. Consequentially, this has enhanced the competitive advantage of juristic entrepreneur SMEs, as well as the debt-servicing ability.”

Consumer loans, which account for 32.6% of total loans, saw growth fall from 7.1% in 2015 to 4.9% in 2016 as housing, credit card, and personal loan growth fell, though car loan growth rose by 1.3% in both years.

In February 2017 Fitch ratings agency reported that lending growth at 11 listed banks – accounting for 85% of outstanding loans – slowed to 3.9% in 2016 from 5.8% in 2015. According to the agency, a rapid increase in leverage across all borrowing segments, particularly household debt, has increased asset-quality risks in Thailand and banks will likely encounter an unsupportive operating environment.

Fitch forecasts GDP growth will hit 3%, a slowdown from 3.2% in 2016, and expects corporate lending growth to remain weak in 2017 as borrowers increasingly seek funding in the BE market.


Although the sector remains well-provisioned, NPLs have had the most effect on lending growth, with the sector’s NPL ratio rising from 2.52% in Q2 2012 to hit 2.55% in Q4 2015, peaking at 2.89% in Q3 2016, and moderating to 2.83% by the end of the year.

The SME sector accounts for the highest amount of NPLs in Thailand. Its NPL ratio rose from 3.5% in Q4 2015 to hit 4.04% in Q3 2016 and 4.35% in Q4 2016. Consumer loans are faring better, with NPL ratios rising from 2.56% in Q4 2015 to 2.73% and 2.71% in Q3 and Q4 2016, respectively. Large corporate loans are the best-performing, with a peak NPL ratio of 1.94% in Q3 2016, which slipped to 1.47% in Q4 2016.

The high rate of NPLs in the SME sector in turn makes it more difficult for businesses to secure necessary funding. “There are 2.7m SMEs in Thailand, but only 47% of them have access to financing, an issue which is exacerbated by the current economic conditions,” Nitid Manoonporn, president of Thai Credit Guarantee Corporation, told OBG. “By providing credit guarantees on their behalf, potential SMEs in Thailand can have wider access to financing and opportunities.”

The combined NPLs of Thailand’s four largest banks reached BT297bn ($8.4bn) in Q3 2016, a 23.6% y-o-y increase, with KB ank and Bangkok Bank seeing NPLs rise by more than 30%. NPLs fell at KTB and SCB, as a result of the recovery from the Sahaviriya Steel Industries $1.4bn default in September 2015 – one of the largest defaults in the country since the 1997-98 Asian financial crisis – as both banks were lenders to the company. Fitch reports that NPLs at the country’s 11 listed banks rose to 3.5% in 2016, against 3.2% in 2015.

NPL Protection

Although NPLs are expected to increase in 2017, the Thai banking sector remains liquid and well-protected from NPLs, with Fitch reporting that the loan loss coverage of listed banks had risen to 136% by the end of 2016, up from 131% in 2015.

Capital funding for the sector amounted to approximately BT2.63trn ($74.1bn) in 2016, with the banks’ capital adequacy and Tier-1 capital ratios reaching 18% and 15.1%, respectively, in that same year.

The BOT reports that the sector’s loan loss provision ratio rose from 156.3% in Q4 2015 to peak at 161.6% in Q3 2016, before moderating to 159.6% in Q4 2016. The BOT has kept accommodative growth policies in place with historically low interest rates as of March 2017, following its decision to hold its one-day bond repurchase rate at 1.5%. The rate has been unchanged since April 2015, when it was cut from 1.75%.

Lending Outlook

This should support stronger loan growth in 2017, with Maybank Kim Eng reporting in January 2017 that it expects commercial bank lending will rise by 6% in 2017. The sector’s fundamentals support this outlook, with the BOT data showing that the loan-to-deposit ratio of the sector has been healthy and stable in recent years, standing at 96.4% in Q4 2012, rising to 97.5% in Q4 2015 and moderating to 96.9% in Q4 2016, which indicates sufficient liquidity to facilitate credit expansion.

Corporate lending growth will also benefit from recent challenges in the short-term bonds market. Corporate borrowers have increasingly sought to raise funds in the debt market, particularly in the short-term bond market through BE issuance. However, both bond yields and defaults have been rising in the BE market, prompting the Securities and Exchange Commission to issue a warning to investors in January 2017, in addition to tightening rules for BE issuance. This should see corporate borrowers return to conventional bank financing in 2017, with the BOT reporting that corporate lending should increase by more than 2%.

SMEs are benefitting from government measures to boost exports and access new financial channels, such as microfinance and start-up support for companies planning to list on the Stock Exchange of Thailand.

Retail lending is also forecast to record healthy growth in 2017, although elevated household debt has been viewed as an increasingly significant risk.

Consumer Debt

Consumer debt has risen steadily and in June 2016 the IMF reported that the household debt-to-GDP ratio doubled in a decade, hitting 82% at the end of 2015. The IMF projects consumer lending will remain subdued in 2017 and 2018, and warns that debt in the household sector could create a headwind to consumption, potentially affecting financial institutions’ balance sheets. Household debt across Thailand spiked in 2016, and the University of Thai Chamber of Commerce’s Centre for Economic and Business Forecasting reported that average household debt rose by 20.2% to hit a record BT298,000 ($8390) in September 2016, up from BT248,000 ($6980) at the end of 2015.

This debt looks unlikely to fall, in fact household debt typically increases by an average of BT20,000 ($563) to BT30,000 ($845) annually.

The centre reports that this is the highest consumer debt growth rate in nine years, attributing high levels of car and home debt to government initiatives incentivising home and automobile borrowing, as well as sluggish economic growth.


In the SME sector, rising defaults have prompted banks to offer new financing options to small businesses to better cater to their specific needs. Some, such as EXIM Bank’s export-oriented SME lending programme, are aimed at helping SMEs capitalise on rising demand in the CLMV market.

Microfinance products have also increasingly been deployed to SMEs, with commercial banks moving to bolster loan portfolios through higher-interest unsecured lending activities.

Thailand has benefitted from nearly two decades of government-supported microfinance development, most prominently through the Thailand Village and Urban Revolving Fund, which was launched in 2001 to provide working capital for local rotating credit organisations. The fund became one of the largest microfinance schemes globally, with BT259bn ($7.3bn) of lending between 2001 and 2005. Village funds remain a critical facet to increase rural access to credit, and in September 2015 the Thai government unveiled BT136bn ($3.81bn) of economic measures aimed at boosting spending and growth in rural areas, including BT60bn ($1.69bn) for soft loans.

More recently, the SME Bank announced in February 2017 that it plans provide BT7bn ($197m) of low-interest factoring financing to improve liquidity for small business operators in 2017.

Private Microfinance Expansion

The government has sought to expand micro-lending activities in the private sector as well. In 2013 the MoF moved to cap microfinance interest rates at 36%, a move seen as the first step to enabling licensed microfinance lenders to enter the market. In April 2015 the ministry approved permits for four new private sector financial institutions offering nano-finance services.

Unsecured loans of up to BT100,000 ($2820) are available at these institutions. Larger commercial banks are also capitalising on rising demand for microfinance, particularly in less-developed markets where access to conventional credit is more limited. In October 2016 Bank of Ayudhya (Krungsri), which already operates 423 microfinance branches in Thailand, acquired the Cambodian microfinance institution Hattha Kaksekar, a deal which has been valued at up to $150m.

Thai leasing company Group Lease also announced in September 2016 that it plans to acquire a 71.9% stake in BG Microfinance Myanmar (BGMM) from Sri Lankan-listed firm Commercial Credit. Group Lease’s microfinance portfolio was valued at BT9.57bn ($269m) as of September 2016, of which 50% is held in Cambodia, 40% in Thailand and 10% in Laos. BGMM is a two-year-old company specialising in micro-loans to women. Its lending portfolio has grown to $1.5m with monthly profits averaging $20,000, according to a report in Deal Street Asia. BGMM plans to boost its loan portfolio to between $30m and $40m in 2017 by opening new branches in every province in Myanmar.

Foreign Investment & Regional Expansion

Undefined Microfinance growth is in keeping with broader banking trends, which have seen Thai domestic banks expand operations regionally, focusing on the ASEAN and CLMV markets. KTB, for instance, announced in January 2016 that it plans to merge with an unspecified Thai bank before expanding its operations through regional acquisitions. In January 2017 KB ank announced its plans to open four overseas branches in the same year, with locations in Cambodia, Laos and China. The bank opened its first Laotian branch in November 2014 with paid-up capital of BT1.2bn ($33.8m), joining existing locations in China and Vietnam. It plans to expand its business into Indonesia through partnerships and acquisitions. The sector could also see new foreign players enter the market in the coming years, as ASEAN Economic Community integration accelerates. ASEAN members signed on to the ASEAN Banking Integration Framework in March 2015. The terms of the agreement are scheduled to come into effect in 2020. Under the landmark deal, ASEAN banks are permitted to sign bilateral deals to operate in a partner country under the same terms as domestic financial institutions.

Foreign Investment

Under the 2007 Financial Institutions Act, foreign banks are subject to a 49% foreign shareholder limit, although the Ministry of Commerce moved in February 2016 to strike commercial banking and representative offices of foreign banks from the list of activities restricted under the Foreign Business Act, thereby removing requirements for a foreign business licence.

Foreign investment in the sector rose sharply during the early 2010s, following deals such as Japanese bank Mitsubishi UFJ Financial Group’s acquisition of Krungsri, which was Thailand’s fifth-largest commercial lender at the time. Mitsubishi acquired a 72% stake in Krungsri in December 2013, a deal valued at $5.31bn. The BOT’s current four-year Financial Services Master Plan, running from 2014 to 2018, also permits foreign banks in Thailand to operate under a subsidiary license system, allowing them to open up to 20 branches in the country, as well as 20 offsite ATMs. Banks are only eligible if they are headquartered in countries that either have significant business relations with Thailand or offer reciprocal access for Thai banks. In July 2014 the Australian bank ANZ obtained a subsidiary licence allowing it to open up a single branch in Bangkok, and in June 2015 Sumimoto Mitsubishi Trust Bank followed suit.


Despite the remaining challenges – primarily NPLs, high levels of consumer debt and low lending growth – banks still managed to return to profitability after 2015. The outlook for 2017 is positive, as the feebased income of banks will be impacted by government moves to implement its National E-Payment Master Plan, and stakeholders expect healthy loan growth as NPLs peak in Q2 or Q3. Mid-term growth will be further supported by improvements offered by digital uptake and new opportunities for Thai banks to expand operations regionally and into alternative finance channels.