In 2023, the Thai banking sector reported a 17.8% increase in net interest income (NII) to 727 billion baht, up from 617 billion in 2022. This uptick was attributed to the five largest banks, which posted a higher net interest margin. However, the industry’s profitability this year may face risks, especially from potential non-performing loans (NPLs) for auto purchases.
This caution concerning NPLs is anticipated to keep the loan rejection rate high in the auto sector, currently standing at 30-50% of all loan applications. The stricter criteria are intended to reduce the number of car seizures according to industry analysts. On the other hand, sales of electric vehicles (EVs) are expected to continue growing following a 600% increase to 76,000 registered EVs in 2023, with forecasts suggesting sales will reach 100,000 this year.
Conversely, NPLs in the auto sector are expected for owners of vehicles with internal combustion engines (ICE), particularly pickups. The decline in sales of pure pickups by 31.8% year-on-year in 2023 was attributed to banks setting stricter loan criteria as household debt spiked in the country. The loan rejection rate is expected to remain elevated this year as banks are wary of increasing car seizures, according to industry analysts.
The banking sector’s NPL ratio, a measure of credit risk and loan quality, is anticipated to rise from 2.68% in 2023 to 2.85% this year. Concerns around NPLs are expected due to uncertainties both in Thailand and abroad affecting the capacities of businesses and individual debtors to service their debt obligations, particularly unsecured debts.
Additionally, the shift to electric vehicles is expected to pose a challenge in the insurance industry, especially for car insurance. Evaluating the price of EVs and accounting for their depreciation can be more complex than insuring ICE-powered cars, making some insurers hesitant to offer policies. The Office of the Insurance Commission (OIC) expects EV car insurance companies to increase their risk management plans and to develop more sophisticated models for pricing EV insurance.
The entire EV car portfolio is expected to contribute significantly to the casualty insurance system in 2024, pushing the gross of insurance policies up by 5-6% from 2023. Overall, despite the high level of profits in the banking sector last year, concerns around NPLs, particularly in the auto sector, and the move towards insuring electric vehicles are expected to shape the dynamics of the financial and insurance sectors in the near future.
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