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However, it is optimistic that Thai banks would be resilient to global shocks which landed several foreign institutions into financial troubles.

 Banks with lower levels of reserves were impacted the most, with significant losses reported by some banks - notably TMB Bank (TMB), which was recapitalised at end-December 2007 with a capital injection from ING Bank NV (rated 'AA'). Barring further economic or political shocks, lower provisioning and higher loan growth should see stronger results in 2008 for the Thai bank sector.

 "The profitability of the system was poorer in 2007, although the stronger banks continued to perform well, namely Siam Commercial Bank Plc (SCB), Kasikornbank Plc (KBANK) and Bangkok Bank Plc (BBL) - each rated 'BBB+'," said Vincent Milton, managing director of Fitch's Thai office and senior director of Financial Institutions.

 Despite the weaker economic sentiment, these three largest private banks have accelerated lending, particularly to the consumer and medium size business segments.

 "The outlook for 2008 should be brighter, as the provisioning burden is lifted and consumption and investment spending by Thai consumers and businesses pick up. Nonetheless, the operating environment remains challenging and credit and market risks have heightened as a result of the global financial shocks witnessed in recent months," Milton added.

 The main concerns related to these shocks so far, have been direct exposure to collateralised debt obligations (CDOs) and other structured investments as well as funding risks arising out of a flight of confidence by depositors and creditors.

 In Fitch's view, the major Thai banks are generally well positioned to withstand these credit and liquidity shocks. BBL, KTB and Bank of Ayudhya Plc (BAY) have limited exposure to CDOs, accounting for less than 6 per cent of equity, although Fitch expects these banks to report further mark-to-market losses in the first quarter this year.

- The Nation