Determinants of Non-Performing Loans in Thai Commercial Banks

Abstract

This article aimed to study 1) the factors affecting non-performing loans (NPLs) of commercial banks in Thailand in aggregate 2) the factors affecting non-performing loans of commercial banks in Thailand by ten business sectors. The study employs secondary quarterly time-series data from 2001 to 2024 and utilizes the Ordinary Least Squares (OLS) estimation method. The result of the study found that economic and social factors do not significantly influence the overall level of NPLs in Thailand’s commercial banking system. However, at the sectoral level, NPLs in the manufacturing, real estate activities, agriculture, forestry, and fishing, personal consumption, wholesale and retail trade, repair of motor vehicles and motorcycles, and construction sectors are positively influenced by gross domestic product, exchange rates, unemployment rates, and business sentiment index. In contrast, NPLs in the personal consumption, manufacturing, service, and financial and insurance activities sectors are negatively affected by private investment, lending interest rates, and the COVID-19 pandemic. The findings suggest that government should consider sector-specific risk differences when formulating economic policies and support private investment during economic volatility. Commercial banks should implement appropriate credit and risk management policies while closely monitoring macroeconomic conditions. Business operators should adjust their strategies to mitigate the risk of non-performing loans.