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Published on January 28, 2008

The banking sector could encounter increasing bad debts due to the global economic slowdown. Households in some classes may not be able to meet credit-card payments or personal loans. And the non-bank private sector could face risks amid fragile consumer and investor confidence.

These problems are threats to financial stability, which could later have a negative macro-economic impact.

According to the central bank's latest inflation report, prolonged United States sub-prime problems may effect the Kingdom's exports, which would lessen the ability of debtors to meet obligations.

"The MPC will take a close look at the sub-prime problem, including its direct and indirect impact on financial stability in the future," the report said.

So far, the sub-prime crisis has had only a slight impact on the banking system. Few commercial banks have lost out investing in collateralised debt obligations.

As of the end of last year, net non-performing loans at financial institutions amounted to Bt237.89 billion, or 3.95 per cent of total loans. This declined from Bt260.72 billion, or 4.44 per cent, in the third quarter of last year.

The MPC realises the household sector's reduced ability to pay debts remains and needs to be monitored, the report said.

The low- to middle-income household sector lost more of its ability to pay credit-card and personal loans in the third quarter last year, compared with the previous quarter, it said.

But NPLs remain low, it added.

The committee expected the default rate of this group would occur in the short term only, because the economy is recovering, and the political outlook is clearer.

The bank's continued easing of monetary policy will help enhance security of household income, and improve the ability to pay debt in the future.

"However, the committee wants to ensure that the [problem of fragile investor and consumer confidence] will not have an adverse impact on the stability of the financial system and the entire economy," the report said.

Anoma Srisukkasem

The Nation