There are signs that the number of non-performing loans (NPLs) in Thailand’s banking sector are increasing with the real estate industry accounting for over 70 percent of these, the Financial Times reported. While this isn’t likely to be much of an issue in the short term, banks could find it problematic to mask the debt problem in the long term should the country’s economy not pick up.
There was a lot of hype generated by the planned high-speed rail and other government-funded infrastructure projects that saw land speculation in outer Bangkok and in the northeast of the country increase significantly. The Financial Times noted that projects in these locations have struggled to attract buyers even with units being offered at significant discounts. In addition to this, some banks have stopped lending to real estate firms located outside of Bangkok due to slow sales.
Data from Capital Advisory Service Thailand, a distressed debt consultant, revealed that the country’s property market continues to spilt with high-end projects in prime locations doing well and just about everything else struggling.
This has seen a number of loans being defaulted on with debt restructuring and the number of NPLs increasing once again after having fallen significantly from 2007 to 2013, according to the Financial Times. And while the number of NPLs in the property sector will continue to increase, there is not expected to be a massive surge in these.
FT Confidential Research, a unit of the Financial Times, pointed out that many banks do not have to recognize problem loans as NPLs right now as they have enough capital in reserve to cover them. They will instead categorize these distressed loans as restructured, allowing borrowers to defer repayments or taking collateral such as land. Banks are also willing to roll over past-due debt in the hope that an improvement both for the property market and for the wider economy is on the horizon for Thailand.
