Thailand debt landscape: reading the signals from Special Mention loan numbers
Thailand debt landscape: reading the signals from Special Mention loan numbers
Thailand’s banking sector has remained broadly resilient in the post-pandemic period, supported by strong regulatory oversight and conservative lending practices. However, beneath this stability, a more nuanced story is emerging—one that is best captured through the trajectory of Special Mention Loans (SMLs).
SMLs, typically defined as loans that are between 30 and 90 days past due or exhibiting early signs of credit weakness, act as a leading indicator of potential asset quality deterioration. While Non-Performing Loans (NPLs) often attract the most attention, it is the SML category that provides a forward-looking view of stress building within the system.
Over the past five years, Thailand’s SML levels have risen steadily, reaching approximately THB 1.28 trillion by the end of 20251. This trend, while not indicative of systemic distress, signals a gradual accumulation of pressure across key segments of the economy and warrants close attention from lenders, corporates, and investors alike.
Unlike previous crisis periods, the increase in SMLs since 2021 has been consistent rather than abrupt – reflecting efforts to slow / normalise credit conditions.
During the pandemic, widespread relief measures, including loan moratoriums and restructuring programs, played a significant role in suppressing delinquency levels. As these measures were gradually withdrawn, underlying borrower vulnerabilities began to surface. The steady rise in SMLs can therefore be seen as a delayed manifestation of stress rather than a sudden deterioration.
Importantly, the absence of a sharp spike suggests that banks have been effective in managing their portfolios. Proactive restructuring, targeted support for vulnerable borrowers, NPL sales and disciplined credit monitoring have all contributed to containing more severe outcomes.
A key driver of the recent SML trend has been the shift in the interest rate environment. As global inflationary pressures prompted central banks—including the Bank of Thailand—to tighten monetary policy, borrowing costs increased across the system.
For many Thai borrowers, particularly households and SMEs, this has translated into higher debt servicing burdens at a time when income growth has been uneven. Thailand’s high household debt levels further amplify this sensitivity to interest rate movements.
The result is a growing group of borrowers who remain current on their obligations but are increasingly stretched. These borrowers are often the first to migrate into the SML category when faced with even modest financial shocks.
While growth in SML numbers slowed in 2025, likely due to a gradual economic recovery and ongoing restructuring efforts, this “slowing” should be interpreted with caution. SMLs represent a stock of vulnerable exposures, and a portion of these loans will inevitably transition into NPLs. A key question is not whether deterioration will occur, but rather the pace and scale at which it will occur. While the BOT has yet to release Q1 2026 figures, against a backdrop of uneven economic recovery, tariff volatility and conflict, it is likely that SMLs will remain under pressure for the medium term
The distribution of SMLs across sectors provides additional insight into where risks are most concentrated.
SMEs remain particularly vulnerable due to limited access to refinancing and weaker balance sheets
Consumer lending, including auto finance and personal loans, continues to reflect high household leverage
Construction and real estate-related sectors face pressure from both cost inflation and softer demand
These segments share a common characteristic: sensitivity to both interest rates and economic cycles. As such, they are likely to remain focal points for credit monitoring and potential restructuring activity.
For banks and financial institutions, the current environment calls for a continued focus on early intervention. The SML category provides a valuable opportunity to engage with borrowers before distress becomes acute.
Key priorities include:
Strengthening early warning systems to identify at-risk exposures
Expanding proactive restructuring frameworks and monitoring to support viable borrowers
Enhancing portfolio stress testing, particularly under adverse rate and growth scenarios
Disposal of NPLs and NPAs
Lenders that act early are more likely to preserve value and avoid more costly outcomes associated with NPL resolution.
For corporates, particularly those operating in leveraged or cyclical sectors, the current environment underscores the importance of forward planning.
Companies should:
Assess their debt servicing capacity under different economic scenarios
Engage with lenders early to explore refinancing or restructuring options
Consider balance sheet optimisation strategies, including equity injections or asset disposals where appropriate
Waiting until liquidity pressures become acute significantly reduces strategic flexibility and increases execution risk.
From an investor perspective, rising SML levels often signal the early stages of a distressed cycle. While Thailand is not currently in a distressed environment, the current stock of NPLs plus the build-up of SMLs suggests a potentially large pipeline of opportunities during 2026 and 2027.
These may include:
Bank NPL and NPA disposals, as institutions seek to manage balance sheet risk (noting that Thailand is already the most active NPL market in Asia and has been for several years).
Increased activity by asset management companies (AMCs)
Bilateral restructuring situations, where capital solutions are required
Investors with the ability to deploy flexible capital and navigate complex restructuring scenarios are likely to find selective opportunities as the cycle evolves.
Thailand’s credit landscape is entering a more challenging phase, characterised not by acute distress but by a gradual accumulation of risk. The steady rise in Special Mention Loans over the past five years provides a clear signal that financial pressures are building beneath the surface of an otherwise stable banking system.
Encouragingly, the absence of a sharp deterioration reflects the strength of Thailand’s financial institutions and the effectiveness of policy responses. However, elevated SML levels mean that the system remains exposed to downside risks, particularly in a higher interest rate environment.
For stakeholders across the financial ecosystem, the message is clear: early action will be critical. Whether through proactive risk management, timely restructuring, or strategic investment, those who respond decisively to the signals embedded in SML trends will be best positioned to navigate the next phase of Thailand’s credit cycle.
About the Author
Frank Janik is a Senior Advisory Partner and Head of Distressed M&A and Restructuring Services at BDO in Thailand.
Based in Thailand since the 1997 Tom Yum crisis, he advises Financial Institutions, Thai and international clients on restructuring matters, cashflow monitoring, distressed M&A and transactions, including NPL and NPA disposals and acquisitions.
SMLs, typically defined as loans that are between 30 and 90 days past due or exhibiting early signs of credit weakness, act as a leading indicator of potential asset quality deterioration. While Non-Performing Loans (NPLs) often attract the most attention, it is the SML category that provides a forward-looking view of stress building within the system.
Over the past five years, Thailand’s SML levels have risen steadily, reaching approximately THB 1.28 trillion by the end of 20251. This trend, while not indicative of systemic distress, signals a gradual accumulation of pressure across key segments of the economy and warrants close attention from lenders, corporates, and investors alike.
A Gradual Build-Up of Credit Stress
Unlike previous crisis periods, the increase in SMLs since 2021 has been consistent rather than abrupt – reflecting efforts to slow / normalise credit conditions. During the pandemic, widespread relief measures, including loan moratoriums and restructuring programs, played a significant role in suppressing delinquency levels. As these measures were gradually withdrawn, underlying borrower vulnerabilities began to surface. The steady rise in SMLs can therefore be seen as a delayed manifestation of stress rather than a sudden deterioration.
Importantly, the absence of a sharp spike suggests that banks have been effective in managing their portfolios. Proactive restructuring, targeted support for vulnerable borrowers, NPL sales and disciplined credit monitoring have all contributed to containing more severe outcomes.
The Role of the Interest Rate Environment
A key driver of the recent SML trend has been the shift in the interest rate environment. As global inflationary pressures prompted central banks—including the Bank of Thailand—to tighten monetary policy, borrowing costs increased across the system. For many Thai borrowers, particularly households and SMEs, this has translated into higher debt servicing burdens at a time when income growth has been uneven. Thailand’s high household debt levels further amplify this sensitivity to interest rate movements.
The result is a growing group of borrowers who remain current on their obligations but are increasingly stretched. These borrowers are often the first to migrate into the SML category when faced with even modest financial shocks.
Slower SML growth in 2025—But Risks Remain
While growth in SML numbers slowed in 2025, likely due to a gradual economic recovery and ongoing restructuring efforts, this “slowing” should be interpreted with caution. SMLs represent a stock of vulnerable exposures, and a portion of these loans will inevitably transition into NPLs. A key question is not whether deterioration will occur, but rather the pace and scale at which it will occur. While the BOT has yet to release Q1 2026 figures, against a backdrop of uneven economic recovery, tariff volatility and conflict, it is likely that SMLs will remain under pressure for the medium term The distribution of SMLs across sectors provides additional insight into where risks are most concentrated.
SMEs remain particularly vulnerable due to limited access to refinancing and weaker balance sheets
Consumer lending, including auto finance and personal loans, continues to reflect high household leverage
Construction and real estate-related sectors face pressure from both cost inflation and softer demand
These segments share a common characteristic: sensitivity to both interest rates and economic cycles. As such, they are likely to remain focal points for credit monitoring and potential restructuring activity.
Implications for Lenders
For banks and financial institutions, the current environment calls for a continued focus on early intervention. The SML category provides a valuable opportunity to engage with borrowers before distress becomes acute. Key priorities include:
Strengthening early warning systems to identify at-risk exposures
Expanding proactive restructuring frameworks and monitoring to support viable borrowers
Enhancing portfolio stress testing, particularly under adverse rate and growth scenarios
Disposal of NPLs and NPAs
Lenders that act early are more likely to preserve value and avoid more costly outcomes associated with NPL resolution.
Implications for Corporates
For corporates, particularly those operating in leveraged or cyclical sectors, the current environment underscores the importance of forward planning. Companies should:
Assess their debt servicing capacity under different economic scenarios
Engage with lenders early to explore refinancing or restructuring options
Consider balance sheet optimisation strategies, including equity injections or asset disposals where appropriate
Waiting until liquidity pressures become acute significantly reduces strategic flexibility and increases execution risk.
Opportunities for Investors
From an investor perspective, rising SML levels often signal the early stages of a distressed cycle. While Thailand is not currently in a distressed environment, the current stock of NPLs plus the build-up of SMLs suggests a potentially large pipeline of opportunities during 2026 and 2027. These may include:
Bank NPL and NPA disposals, as institutions seek to manage balance sheet risk (noting that Thailand is already the most active NPL market in Asia and has been for several years).
Increased activity by asset management companies (AMCs)
Bilateral restructuring situations, where capital solutions are required
Investors with the ability to deploy flexible capital and navigate complex restructuring scenarios are likely to find selective opportunities as the cycle evolves.
Conclusion
Thailand’s credit landscape is entering a more challenging phase, characterised not by acute distress but by a gradual accumulation of risk. The steady rise in Special Mention Loans over the past five years provides a clear signal that financial pressures are building beneath the surface of an otherwise stable banking system. Encouragingly, the absence of a sharp deterioration reflects the strength of Thailand’s financial institutions and the effectiveness of policy responses. However, elevated SML levels mean that the system remains exposed to downside risks, particularly in a higher interest rate environment.
For stakeholders across the financial ecosystem, the message is clear: early action will be critical. Whether through proactive risk management, timely restructuring, or strategic investment, those who respond decisively to the signals embedded in SML trends will be best positioned to navigate the next phase of Thailand’s credit cycle.
About the Author
Frank Janik is a Senior Advisory Partner and Head of Distressed M&A and Restructuring Services at BDO in Thailand.
Based in Thailand since the 1997 Tom Yum crisis, he advises Financial Institutions, Thai and international clients on restructuring matters, cashflow monitoring, distressed M&A and transactions, including NPL and NPA disposals and acquisitions.