Bangkok--22 Nov--Moody's Investors
Our outlook for Thailand’s banking system is stable, as it has been since October 2010. The outlook expresses our expectations for the fundamental credit conditions in this system over the next 12-18 months.
In coming to a stable outlook, we weighed the impact of the difficult operating environment -- resulting from the recent floods -- against the broadly more positive fundamentals in the economy and banking system.
The floods will have a significant negative impact on the economy over the initial period of our outlook. The latest estimates of flood-related damage have reached as high as 2.3 percentage points of GDP. We also take into consideration the absence of a robust global recovery and assume that the combined effect of these difficult conditions will lead to asset quality deterioration and higher non-performing loans (NPLs) formation in the coming six months, particularly in the agriculture, automobile and electronics sectors.
Nonetheless, we expect the impact from these negative developments to be temporary, and more importantly, without a lasting impact on Thai banks’ credit standing.
Our outlook testifies to the strengths of the banks — including their strong capitalization and profit-generating capability — that will help the industry weather the current difficult period, and may even open up opportunities to grow earnings and profitability towards the second half of our 12-18-month horizon.
Our relative optimism, despite current circumstances, is based on three broad considerations.
First, there are strong economic and banking sector fundamentals. From a macro-perspective, while Thailand’s trade-dependent economy will continue to face downside risks, posed by the demand weakness from the developed world, we now expect GDP growth to rebound to 4% in 2012 from a flood-hit 1.5% in 2011. Also, we anticipate loan growth to be sustained at an annualized pace of 5%-10% for the coming 12 to 18 months. This will be underpinned by reconstruction as well as calls for better infrastructure (e.g. drainage) following the floods.