Optimistic banks set for solid year

But the weakening economic outlook and falling business confi-dence was likely to hit growth and asset quality in the second half, said Vincent Milton, managing director of Fitch Ratings Thailand.

"A pick-up in corporate lending is offsetting a growth slowdown for SMEs and consumer spending. Nonetheless, the prolonged period of high oil prices and renewed domestic political uncertainty which is impacting consumption and investment, economic per-formance in the second half of the year will likely weaken.

"The operating environment remains challenging and heightened credit and market risks could impact results over the next year, although major banks should be more resilient," Milton said.

In the first half, despite the turmoil in credit and equity markets globally, the stronger Thai banks so far continue to perform well, particularly Siam Commercial Bank, Kasikornbank and Bangkok Bank. TMB Bank reported a marked turnaround from losses in pre-vious years, although integration with ING Bank could see results constrained this year.

The transformation at Bank of Ayudhya following its tie-up with GE Capital in January 2007 should see a further strengthening in its credit profile and performance over the next year, Fitch said.

Bangkok Bank, Siam Commercial Bank and Kasikornbank report-ed higher first-half net profits of Bt10 billion, Bt12.7 billion and Bt8.7 billion, respectively. Bangkok Bank reported the highest underlying loan growth of over 12 per cent in the first half helped by a jump in working-capital requirements for all categories of busi-ness client as well as growth from its offshore branches.

The major banks appear on track to report impaired loans of less than 5 per cent by year-end.

However, Fitch said the weakening credit environment and asset disposals could see higher provisioning by some banks and further losses on asset disposals, although capital ratios should remain strong. Funding costs are also expected to rise as liquidity tightens and smaller banks may be subject to rising funding pressures.

While results could weaken in the second half, Fitch expects SCB, KBank and Bangkok Bank to report solid results, and for BAY, TMB and KTB to report improved results.