Bad loan risk rising in four key business sectors

K-Research suggests tailoring debt-relief assistance to repayment capacity

Four key business sectors in Thailand are showing signs of weaker debt repayment capabilities, with the challenge likely to extend to larger business operators, according to Kasikorn Research Center (K-Research).

The sectors are manufacturing, hospitality, retail, and construction/real estate, with small enterprises particularly vulnerable.

Weakened debt repayment capabilities are also spreading to larger businesses, especially in the hospitality sector, said Grid Kaewhiran, senior researcher at K-Research.

In the first quarter of 2025, special mention (SM) loans (debt overdue by 30-90 days) in the hospitality sector amounted to 2.23% of total credit outstanding, and non-performing loans (overdue by more than 90 days) were 3.95%, according to National Credit Bureau (NCB) data.

Distressed debts are primarily seen in micro and small enterprises, but there is a rising number of medium- to large-sized operators with outstanding loans of 100-500 million baht and more than 500 million baht overdue by 31 days or more, he said.

“Debt defaults among large hospitality operators surged significantly in the first quarter, in line with a slowdown in foreign tourist arrivals and weaker economic conditions,” said Mr Grid.

K-Research categorises business borrowers based on NCB commercial loan data into four segments: normal debt repayment, newly impaired, on-off customers, and distressed customers. Normal or good repayment borrowers still make up the largest portion at 95%.

However, the number of distressed borrowers recorded the highest growth rate, at 6.9% in the first quarter compared with year-end 2024. That compared with 1.2% for the good segment, 3.2% for newly impaired and 1.4% for on-off customers, according to Kanjana Chockpisansin, head of research at K-Research.

Given these figures, authorities should devise debt-relief measures tailored to the repayment capacity of each customer segment, she said.

These measures could include policies to temporarily adjust repayment terms for borrowers in good standing who have not yet defaulted, but expect future business difficulties.

In addition, preparations for a renewed asset warehousing programme should be considered to proactively prevent debts from becoming NPLs.

Once debts become non-performing, the focus should shift to promoting out-of-court workouts, such as asset transfers to settle debt, said Ms Kanjana.

Authorities could support this process by reducing related fees, such as those associated with the transfer of buildings and land, she said.

Moreover, if overdue payments are prolonged, the likelihood of further deterioration outweighs the chance of recovery. Expediting legal proceedings could help both debtors and creditors gain clarity sooner, enabling debtors to resume their businesses faster, noted K-Research.