Fitch Ratings expects continued pressure on Thailand's banking sector from elevated non-performing loans (NPLs) and sluggish loan growth, pointing to a deteriorating industry outlook.
Speaking at Fitch's Thailand 2026: Regional and Thai Bank Outlook event, Parson Singha, head of Thailand financial institutions at Fitch Ratings, said that although Fitch maintained a Stable outlook for Thailand's banking sector, its industry outlook remained Deteriorating at both the end of 2025 and in mid-2026.
Among emerging markets, China, India, Malaysia and Thailand have Stable rating outlooks, while Indonesia and the Philippines have Stable/Negative outlooks, according to Fitch Ratings.
In terms of banking sector outlooks in 2026, India, Indonesia and Malaysia are expected to maintain Neutral outlooks from the end of 2025 through mid-2026.
China's sector outlook is expected to improve from Deteriorating at the end of 2025 to Neutral by mid-2026. In contrast, the Philippines' outlook is projected to weaken from Neutral at the end of 2025 to Deteriorating by mid-2026.
According to Fitch's estimates, Thailand's banking sector has an NPL ratio of close to 4%, the highest among regional peers. The ratio is expected to remain elevated at around 3-4% over the next 2-3 years, while annual loan growth is likely to remain subdued at 1-2%, amid sluggish economic growth of below 3%.
Mr Parson said asset management companies (AMCs) had reduced their purchases of NPLs from banks over the past few years, presenting another challenge for the banking sector in managing bad debts.
AMCs are waiting for an economic recovery to strengthen borrowers' repayment capacity before increasing their purchases of distressed assets.
Meanwhile, the number of previously restructured loans returning to NPL status has continued to rise, although the level remains manageable. The Bank of Thailand's joint-venture AMC scheme is also expected to help ease distressed debt in the banking system.
Despite these challenges, Fitch expects Thailand's banking sector to remain broadly solid, supported by strong Common Equity Tier 1 (CET1) capital ratios, which rank third among 11 banking systems across the Asia-Pacific region.
The Bank of Thailand has expressed concern over rising credit risks in the banking system, although these risks remain manageable, according to its Financial Stability Report 2026.
The increase in credit risks is primarily driven by tighter financial conditions among vulnerable businesses and households, particularly fragile small and medium-sized enterprises (SMEs) and lower-income households, whose ability to service debt has weakened.
In the second quarter, the SME NPL ratio stood at 8.81%, down from 9.16% in the previous quarter. However, vulnerable SMEs accounted for as much as 80% of loans that deteriorated to Stage 2 and 53.1% of loans that deteriorated to NPL status.