NPL rise may point to economic crisis

Economy February 08, 2014 00:00

By Sucheera Pinijparakarn


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The Fiscal Policy Office believes that if non-performing loans (NPLs) in the banking industry continue on an upward trend, mainly as a result of the prolonged political turbulence, the country could find itself facing an economic crisis.


Speaking yesterday at a seminar hosted by Land and Houses Bank, Somchai Sujjapongse, director-general of the Fiscal Policy Office, said that thanks to its strong fundamentals – including the low rate of unemployment, low inflation and the strong financial status of the banking industry – the Thai economy would continue to expand.

Despite the fact that political turmoil in the past, including coups d’etat, had never resulted in an economic crisis because of the Kingdom’s good economic fundamentals, there was always a case of opportunity lost in terms of driving the economy forward during such times of unrest, he pointed out.

For the banking industry, the overall NPL rate now stood at 2.4 per cent, having risen from 2.2 per cent at the end of the first quarter of last year.

"Although the NPL rate has increased only slightly, we should closely monitor the situation from now on as the political unrest is hitting private consumption and the cash flow of small and medium-sized enterprises. If NPLs [continue to] increase, it could be the sign of an economic crisis [developing]," he added.

Somchai said there was a chance that his office would lower its 2014 economic-growth forecast to between 2.8 per cent and 3.1 per cent if a new government could not be formed soon.

Before the current political tension, the Fiscal Policy Office had projected that gross domestic product this year would expand by 5 per cent, as it believed private investment would be the key growth engine.

"The office planned to propose tax incentives to encourage Thai companies to invest abroad to support private investment, but this proposal was suspended by the caretaker government," he said.

Many securities and research houses have revised down their GDP growth forecasts for the year to 2-3 per cent as a result of the government only being able to operate in a caretaker capacity.

He added that exports were at present the only engine likely to carry the economy forward, and the government had set a fiscal 2014 budget deficit of Bt250 billion to help reinforce the export sector.

Meanwhile, specialised financial institutions also have a role to play in helping the cash flow of the private sector, as commercial banks might tighten their lending conditions amid the prevailing downside risk, said the fiscal policy chief.

"Cross-border trade, especially with CLMV [Cambodia, Laos, Myanmar and Vietnam] countries, has a big role in supporting the export sector, with CLMV now accounting for 7 per cent of Thai exports, against 3 per cent in past years," he said.

Supavud Saicheau, managing director at Phatra Securities, said at the same seminar that even though exports would be the main driver of GDP growth this year, the challenge for the sector was the reduced demand in emerging markets, which are witnessing a tightening of liquidity as a result of the tapering of quantitative easing in the United States.

The current fragility of emerging markets is worrying investors, he said, adding that they were concerned about those economies’ rising inflation, reserves, budget deficits, debts and political issues.

As to Thailand, political unrest is currently the only concern for investors, he said.

Based on the assumption that a government can be formed by midyear, GDP this year is expected to expand by 2.8 per cent, Supavud said.