Bank – New debt relief measures

The regulators are planning to issue a new debt relief measure on which banks will grant three-year suspension of interest on housing, small SME and HP loan NPLs in exchange for a 0.23% reduction in FIDF cost. This will strengthen asset quality. However, it is unclear as to whether special-mention loans will be eligible. If so, this could have a negative impact on TTB, KKP and TISCO. We will wait for an official announcement by the BoT before concluding the impact.

New debt relief measures. The Deputy Minister of Finance says the MoF plans a new debt relief measure and is just waiting for finalization by the BoT. Under the new measure, banks will grant a three-year suspension of interest on housing loans (up to Bt3mn), small SME loans (up to Bt3mn) and auto loans (up to Bt800,000) that have been NPLs for no longer than one year as of October 2024. To support the suspension of interest, banks will get a 23 bps reduction in FIDF cost to 0.23% from the current level of 0.46%. To avoid moral hazard and ensure effective reduction of household debt, borrowers who sign on to the program must adhere to a debt restructuring plan and refrain from taking out new loans over the three-year period. To opt into the benefit, eligible borrowers must contact the bank from which they obtained the loan.

Our takes: We believe this will be positive to bank asset quality. At this point, however, the details of loan eligibility are unclear. According to earlier reports, eligible loans would include not only NPLs but also special-mention loans (SM). If only NPLs are eligible, the measure will be positive for all banks, particularly BBL. As banks book little or no interest income on NPLs, the foregone interest income on NPLs should have minimal impact. However, foregoing interest on SM loans will have material impact on interest income. If eligible loans include both NPLs and SMs, it would have a negative impact on TTB, KKP, and TISCO, based on our estimates, using the assumption that all banks have the same NPL and SM ratios as the sector, have a 7% interest rate on housing loans and 5% on HP loans and will grant suspension of interest on all NPLs and SMs. Note that data on loan ticket size, exposure to small SME loans is not available.

BBL as the sector’s only Outperform. We keep BBL as the sector’s pick, as it has the cheapest valuation, lowest asset quality risk and highest potential to benefit from the new debt relief measures.

Key risks: 1) Asset quality risk from an uneven economic recovery, 2) NIM risk from a cut in interest rates, and 3) ESG risk from market conduct.