Bandid Nijathaworn, the central bank's deputy governor, said last week that banks may tighten their lending out of fear of customers' lower ability to repay with the soaring prices of goods and services that curb spending power.
The rising cost of living may reduce debtors' ability to pay their debts because their regular expenses for goods and services have increased.
"The increased cost of living would have an adverse impact on the debt repayment of both existing debtors and new ones, so the banks may increasingly take this into account," he said.
Earlier, the banks expected huge growth of credit, hoping that a recovery of public and private investment would bring about demand for loans.
In the first quarter, the banks showed impressive figures from both consumer and corporate loans, with a 7.3-per-cent increase from the same period last year.
Corporate lending has gradually picked up this year after posting a very slight increase or even a contraction last year. The recovery would strengthen domestic consumption, said Bandid.
In February alone, loans for projects and working capital expanded 2.6 per cent and 11 per cent, respectively.
The improving interest margin, caused by rising interest income and lowering interest expenses, brought about 31.4-per-cent growth in operating profit in the first quarter. The bottom line recorded Bt26 billion, rising 28 per cent from last year's first quarter.
However, increases in non-performing loans (NPLs) remained, with a Bt11.8 billion rise from the previous quarter to Bt469.85 billion in the first quarter.
Bandid said both new NPLs and re-entry NPLs jumped in the last quarter, reflecting a gradual economic recovery, which was an issue the central bank would keep an eye on.
The gross NPL ratio, however, showed good signs as it declined from 7.31 per cent of total loans in the fourth quarter of last year to 6.83 per cent in the first quarter.
Those of Thai banks reduced from 7.81 per cent to 7.32 per cent and those of full foreign branches declined from 2.04 per cent to 1.91 per cent. The gross NPL ratios of finance companies and credit-foncier companies also dropped from 12.49 per cent and 72.63 per cent of total loans to 10.2 per cent and 70.45 per cent, respectively.
The deputy governor believed the ratio would decline continuously if the banks proceeded seriously with the debt-restructuring process and the economic recovery continued.
Consumer loans have arisen over the past few years due to fierce competition in the market, putting pressure on the bad loans.
The accelerating NPLs in the sector would decline if the banks were more cautious on loan approvals, he said.