Thailand's banking system remains stable: Moody's
Thai banks are expected to show lower profits than in the past three years, due to the politically-driven economic slowdown, said Moody's Investors Service. Yet, the rating agency noted that the Thai banking system's outlook remains stable, as it has been since 2010.
Underpinning this outlook is the stable liquidity and funding conditions and the banks’ ability to withstand the expected moderate increase in non-performing loans over the next 12-18 months. Moody’s rated 12 Thai banks.
"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 small- and medium-size enterprise segments," said Alka Anbarasu, a Moody’s Assistant Vice President and Analyst.
"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 the millionto establish countercyclical provisions and strong capitalization levels," Anbarasu added.
Moody’s conclusions were contained in its just-released "Thailand Banking systemOutlook", which expresses Moody’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 systemsupport. Moody’s assesses each category as stable, except for the operating environment which is deteriorating.
In the report, the rating agency said that 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.
On the banks’ asset quality, Moody’s report says while loans to retail borrowers and small- and medium-size (SME) enterprises will likely demonstrate worsening asset quality, this trend should be partially offset by the resilience of loans to large corporate borrowers.
Moody’s report points out that 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. Moreover, 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.
On liquidity and funding, Moody’s report said Thai banks are largely funded through stable local deposits, with limited reliance on interbank funding and debt. Moreover, the banks’ liquid assets provide a buffer against any sudden deposit outflows, such as those motivated by political concerns.
As for profitability, Moody’s report says 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," said Anbarasu.