Thai credit growth turns negative for first time in 16 years amid soaring bad debts and economic woes

Despite commercial banks’ willingness to lend, the fragile economy and stricter credit standards have led to a steady decline in overall credit demand, both from businesses and households.

According to Kanchana Chokpaisalsilp, a research executive at Kasikorn Research Center (KResearch), the weak private sector fundraising reflects not only reduced demand but also banks’ tightened supply due to heightened economic risks. Businesses remain cautious amid uncertain recovery prospects, and households are still burdened by existing debt.

KResearch has revised its 2025 forecast for total loan growth from +0.6% to -0.6%, the first contraction since the 2008 global financial crisis. The first quarter already showed weaker-than-expected credit growth across nearly all sectors. 

Business loans showed marginal growth under 1%, mainly driven by working capital needs. However, personal loans continued to contract, with housing loans hit by weak consumer confidence and a double-digit drop in property transfers. Auto loans are expected to decline sharply in the second half, while unsecured lending, including credit cards and personal loans, is being tightly controlled by banks.

“New loans are being issued, but they are offset by an accelerated pace of repayments, limiting net loan growth,” Kanchana explained.

Meanwhile, non-performing loans (NPLs) are projected to rise from 2.7% to close to 3% this year due to ongoing economic weakness. Credit bureau data also shows a rise in restructured loans across all business segments. Alarmingly, many of these restructured loans are falling back into default—a red flag for long-term financial vulnerability.

Although banks are actively managing bad debts by accelerating sales and restructuring efforts, the risk of relapse remains high, signaling a worrying trend for the financial sector in 2025.

Fundraising Through Bonds Below 1 Trillion Baht for the 3rd Consecutive Year

In terms of fundraising through the bond market, the atmosphere remains weak, with new bond issuance expected to reach around 880 billion to 900 billion baht in 2025. This marks a stable level compared to the previous year, but it remains below 1 trillion baht for the third consecutive year.

What is particularly concerning is the "success rate" of bond fundraising, which has dropped to only 70% on average. This means that if a company sets a target to raise 100 baht, it will only be able to close 70 baht in sales. This reflects the challenges of higher selling costs, an increasing reliance on retail investors instead of institutional investors, and a lack of confidence among investors due to economic uncertainties ahead.

Domestic Car Sales Plunge Further

Rujiphan Assarat, Assistant Managing Director of Kasikorn Research Center, stated that the overall trend for domestic car sales will mirror the broader economic outlook, with a further contraction expected in the second half of the year. In the first half, domestic car sales contracted by about -1.0%, and for the second half, a deeper decline of -1.7% is expected.

Three main factors are pressuring car sales in the second half of the year: the economic downturn, continued tight credit lending since last year, and expected declines in farmers' incomes.

For the year 2025, domestic car production is projected to be down by about -6% overall, partly due to lower domestic sales and a predicted -11% decline in exports. However, car production is expected to recover by more than 1% in the second half, driven by increased production of battery electric vehicles (BEVs), as many car manufacturers begin to ramp up production in response to the EV 3.0 and 3.5 policies.

Concerns Over Possible Economic Recession in Thailand in the Second Half of the Year

Burin Adulwattana, Managing Director and Chief Economist of Kasikorn Research Center, stated that the tariff policies of U.S. President Trump and the recent ruling by the U.S. Court of Appeals, which temporarily allowed President Trump to move forward with raising tariffs, will add further uncertainty to both the global economy and Thailand’s economy. 

Regarding the impact on Thailand’s economy after July 9, or 90 days following the implementation of Trump’s tariff increase, two possible scenarios arise: The retaliatory tariff rate returns to 36%, or the tariff rate remains at 10%.

In the first scenario, if Thailand is subjected to the full 36% tariff, exports are expected to decline by -0.5% this year. This could lead to a reduction in Thailand’s GDP growth forecast, bringing it down to 1.4%. In Scenario 2, with a 10% tariff, exports could improve, with growth projected at 0.5%, allowing the Thai economy to recover to the previous estimate of 1.8%.

However, both scenarios predict that the second half of the year will be significantly worse than the first half for the economy, he said.

In the base case, with a projected GDP growth of only 1.4%, there is a high risk that the economy may enter a technical recession in the second half of the year, defined as two consecutive quarters of negative growth.

Key factors that will drag down the economy in the second half include significant decline in exports, tourism failing to provide adequate support, and substantial reduction in the economic stimulus budget, with only 25 billion baht allocated this year compared to 140 billion baht last year, primarily due to the first phase of the Digital Wallet program.

Thai GDP Growth Revised Down to 2%

Tim Leelahaphan, Assistant Managing Director and Chief Economist for Thailand and Vietnam at Standard Chartered Bank (Thailand), stated that the bank has revised down its forecast for Thailand’s 2025 GDP growth to 2%, from the previously predicted 2.4%. This adjustment is due to uncertainties in global trade, a decline in Chinese tourists, slowed consumption, low inflation levels, and political movements.

The bank expects that over the next 2-3 years, the number of foreign tourists will not return to pre-Covid levels.

Furthermore, the bank has also reduced its growth forecast for Thailand's GDP in 2026 to 2%, from the earlier estimate of 4.5%. The general inflation rate is expected to be 0.5% in 2025 and 1.0% in 2026.

Regarding inflation, the bank predicts that until the beginning of the 4th quarter, inflation will remain below the Bank of Thailand's target range of 1-3%.

The bank also anticipates that the Monetary Policy Committee (MPC) will further reduce the policy interest rate three more times, in June and August, by 0.25% each, bringing the rate to 1.50%.

Watch for Thai Baht Appreciation

Wachirawat Banchuen, Senior Financial Market Strategist at Siam Commercial Bank, mentioned that in the short term, the Thai baht may experience volatility and could weaken to around 33 baht per dollar at the beginning of July.

However, in the medium to long term, the baht is expected to strengthen, driven by a shift in investment flows away from the U.S., leading to a weaker U.S. dollar. This trend is expected to push Asian currencies, including the baht, and the Euro upwards.

For Thailand, foreign capital is likely to flow into the bond market rather than the stock market. There are signs of purchases for capital gain purposes, and it is predicted that the Bank of Thailand may lower interest rates, which would cause bond yields to decrease and result in capital gains. Overall, the net inflow of capital in both the stock and bond markets this year is expected to be around 10 billion to 20 billion baht, a reversal from the 340-350 billion baht outflow in 2023 and the 200 billion baht outflow in 2024.

Patrick Pulia, Deputy Managing Director and Head of Financial Markets Function and Private Banking Relationship Management at Siam Commercial Bank, said that there has been a continuous rise in Foreign Currency Deposit (FCD) accounts, especially with double-digit growth.

Opening FCD accounts is not seen as a speculation tool for currency fluctuations, as it is believed that the Bank of Thailand (BOT) closely monitors currency speculation. The BOT encourages the use of FCD accounts for investment and personal risk management purposes. The overall exchange rate is determined by the fundamentals of the currency and global supply and demand, not influenced by FCD accounts.