Thai Banking System: A Sea of Liquidity

The Thai banking system, according to the Bank of Thailand (BOT), is swimming in excess liquidity. This abundance of funds has been a long-standing issue, with deposits and investments at the central bank reaching as high as 4 trillion baht ($115.64 billion to $144.55 billion) in the past decade. This copious liquidity has not translated into increased lending, however, as banks remain cautious in extending credit, particularly in the face of high household debt.

Banks' lending decisions are largely influenced by debtors' ability to repay, with little pressure from the central bank to tighten its lending supervision. This conservative approach, coupled with the BOT's responsible lending rules, has resulted in a reluctance among banks to lend, despite the vast liquidity pool. The Thai banking system's large excess liquidity has been acknowledged by an assistant governor, Sakkapop Panyanukul, in a recent article published on the BOT's website.

The Thai economy's heavy reliance on foreign tourism and exports has exacerbated the liquidity crisis. The loss of foreign tourism income since March 2020, exacerbated by the pandemic, has led to consistently high current account deficits. Rising geopolitical tensions, particularly concerning China, and increasing oil prices have further strained the financial position of the kingdom. In 2022, S&P downgraded four top Thai banks due to heightened systemic risks, highlighting the danger posed by a downturn in the kingdom's economic prospects.


The BOT has implemented measures to manage excess liquidity in the past, including the introduction of a corridor system for interest rates and the use of reverse repos and sterilization operations. However, these measures have not been enough to encourage banks to lend more freely. The reluctance to lend, despite the abundance of liquidity, has hindered economic recovery and may hinder Thailand's efforts to boost growth and reduce high current account deficits.

To address the challenges posed by the Thai banking system's large excess liquidity, the BOT may need to reevaluate its approach to lending supervision and encourage banks to invest in risk management and diversify their loan portfolios. By promoting a more balanced approach to lending, the BOT can help to mitigate the risks associated with a large liquidity pool and support sustainable economic growth.


In conclusion, the Thai banking system's large excess liquidity presents both opportunities and risks. While the abundance of liquidity allows banks to lend more freely, the reluctance to do so, coupled with a conservative approach to lending, has hindered economic recovery. To address these challenges, the BOT must reevaluate its approach to lending supervision and encourage banks to invest in risk management and diversify their loan portfolios. By doing so, the BOT can help to ensure the stability and sustainability of the Thai banking system and support the kingdom's economic growth.