The Thai government has recently updated its regulation on loans, conforming to the International Financial Reporting Standard (IFRS) Version 9, which requires lenders to have larger assets and earlier notification of credit losses. Importantly, instead of recognising losses when bad loans have already been incurred, banks will be required to provide information on the expected loss on non-performing loans.
According to this standard, loan status will be classified into three stages: performing loan (stage 1), underperforming loan (stage 2) and non-performing loan (stage 3). Stage 1 status will be determined based on 12-months expected credit loss while Stage 2 and Stage 3 status will be based on total estimated loss. This new regulation was announced in mid-2017 and will be effective starting 1st January 2018.
To comply with this regulation, Thai banks started to increase their provision to cover credit losses commencing in the third quarter of last year. Subsequently, banks expect lower revenue from the loan sector in 2018, due to tighter regulations as well as increased funding costs to cover losses from non-performing loan activity.
"Subsequently, banks expect lower revenue from the loan sector in 2018, due to tighter regulations as well as increased funding costs to cover losses from non-performing loan activity."
According to RFi Group data, interest in taking up new loans has been steady in the past 18 months, with around 6 in 10 banked customers planning to reduce the amount to borrow. The new regulation will likely keep the appetite to borrow relatively stable.