Bangkok--6 Feb--Fitch Ratings
Fitch Ratings says rising loan concentration in major Thai banks, prompted by the recent spate of large corporate M&A transactions, should remain manageable based on the banks’ sound loss-absorption qualities. This is underlined in the Stable Outlooks of Fitch-rated banks with no material changes expected to most major banks’ risk appetite and to regulatory prudential standards over the medium term.
Rapid expansion of corporate loans in Thailand since 2010, and more recently in 2012 the issuance of USD funding by major Thai banks, both underscored growing demand for funding by large Thai corporates for investments, domestically and overseas. In a sign of increasing concentration risk, the major Thai banks’ loan exposures to the top 20 borrowers relative to equity have risen since 2010. However, this remains generally in line with, and for certain banks lower than, regional peers’ ratios of 100%-150%.
On balance, strong core capitalisation and loan loss reserves, together with steady profitability, should continue to help protect most major Thai banks’ credit profiles against loan concentration and other associated risks. Nevertheless, Fitch cautions that signs of aggressive underwriting leading to excessive loan concentration and heightened asset quality risks, and weakened loss-absorption capacities would likely be negative for the banks’ ratings.
Fitch further takes comfort from the Bank of Thailand’s (BoT) cap on financial institutions’ maximum daily exposures to a single party or a group of related parties at 25% of their total capital funds. Thai banks are further required to limit the aggregate of large exposures (exceeding 10% of a bank’s total capital funds) to 300% of a bank’s total capital funds. Such limits are largely in line with many other banking sectors in the region.
BoT has, however, on occasions waived the single borrower limit on a case-by-case basis, largely for companies which it considers to carry strong growth potential, or to be of a sound financial standing. Fitch notes that such waivers are temporary in nature and are not likely to result in more lenient regulatory limits on concentration risk in Thailand.
Contact:
Chutimas Sivamard, CFA
Director
+662 655 4758
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Patchara Sarayudh
Associate Director
+662 655 4761
Additional information is available at www.fitchratings.com.