THE THAI banking outlook remains stable, as it has been since 2010, reflecting stable liquidity and funding conditions and banks' ability to withstand the moderate increase in non-performing loans expected over the next 12-18 months, according to Moody's
“While political tensions in the country have caused economic growth to slow since 2013, dampening consumption and delaying investments, we expect only a moderate deterioration in the banks’ asset-quality profiles, in particular in their retail and SME segments,” Alka Anbarasu, an assistant vice president and analyst, said in Singapore yesterday.
“Nevertheless, our outlook on the Thai banking system is stable because we consider the banks to be well positioned to withstand the expected moderate increase in non-performing loans over the next 12-18 months, owing to the strong loss-absorbing buffers they have built up, in response to the regulator’s moves to encourage them to establish countercyclical provisions and strong capitalisation levels,” he said.
Moody’s conclusions were contained in its just-released “Thailand Banking System Outlook”, which expresses the firm’s expectations of how bank creditworthiness will evolve in this system over the next 12-18 months.
The report looks at the banking system in the five categories of operating environment, asset quality and capital, funding and liquidity, profitability and efficiency, and system support.
Moody’s assesses each category as stable, except for the operating environment, which is deteriorating.
The political impasse in Thailand has limited the government’s ability to disburse planned funds for infrastructure development, and investor confidence in the economy will likely be eroded if the current political deadlock continues over a prolonged period or if political violence escalates. While loans to retail borrowers and small and medium-sized enterprises will likely demonstrate worsening asset quality, this trend should be partially offset by the resilience of loans to large corporate borrowers.
In the retail segment, for instance, the expansion in consumer credit in recent years, supported by political incentives, has stretched the ability of borrowers to service their debt.
The SME segment is most vulnerable to changing economic conditions and liquidity challenges, as the banks have tightened their underwriting standards and limited credit flows.
Thai banks are largely funded through stable local deposits, with limited reliance on interbank funding and debt. Their liquid assets provide a buffer against any sudden deposit outflows, such as those motivated by political concerns.
The banks’ profitability levels will decline over the next 12-18 months from strong growth levels over the last three years.
“Nonetheless, their profitability profiles should support capital generation and absorb credit costs,” Anbarasu said.
Moody’s rates 12 banks in Thailand – nine commercial and three policy banks. The 12 banks represented 72 per cent of total banking system assets at the end of last year.