Bangkok--6 Sep--Fitch Ratings
Fitch Ratings today said that ongoing political uncertainty in Thailand is affecting the country’s economic growth prospects, but is not, as yet, altering the agency's view on its sovereign creditworthiness. During Fitch’s annual conference in Bangkok focusing on “Regional & Thai Economic & Banking Risks for 2007”, the agency’s analysts said that assuming the political situation is resolved this year, they are cautiously optimistic on a rebound in Thai growth in 2007 which should see banks continue to perform well and any asset quality problems there contained.
Speaking on the Asian and Thai economic and political outlook, James McCormack, head of Asia sovereigns, indicated that among other things, a strong external story was offsetting the ill-effects of ongoing political uncertainty in Thailand. "Thailand's ratings remain supported by a steady decline in government debt and a robust external liquidity position, with official foreign reserves approaching an all-time high of USD60 billion," said Mr. McCormack. Nonetheless, he pointed out the economic impact of the political situation. "Consumer and investor sentiment has suffered, and the much-publicised surge in demand from the mega-projects has simply not materialised." Assuming a resolution of the political situation later this year, Fitch expects Thai GDP growth to rebound in 2007. However, an unexpected extension of the current political environment would cause the agency to review Thailand's medium-term growth prospects, and could cause a more disruptive response in financial markets.
Meanwhile in his presentation on Thai banks and finance companies, David Marshall, head of Asia Pacific financial institutions, noted that overall asset quality has shown only a slight deterioration in 2006 despite the country’s political turmoil and slower economic growth. “The larger Thai banks in particular have been performing very well, some featuring among the most profitable banks in Asia in Fitch's regional rankings in 2005. If, as Fitch expects, economic growth rebounds in 2007, the banks should continue to perform well and any asset quality problems should prove limited and short-lived,” said Mr. Marshall. However, he cautioned that any extension of the uncertainties would likely impact the property market, which has fallen back since 2005 following very strong price rises over the previous two years, and lenders could see some defaults by developers and mortgage borrowers.
In assessing asset quality trends, Fitch sees at present only pockets of more notable deterioration, especially in hire purchase, both auto and non-auto, in the latter cases arising from the severe competition that has led to a relaxation of loan origination standards over the past few years. The impact of these trends is more significant for finance companies and the smaller banks than for the large banks. The agency sees some evidence of rising credit card delinquencies but they are generally not high by international standards, although trends at the subprime level are more worrying. Fitch also considers the level of household indebtedness in Thailand to be moderate although increasing from a low base (household debt to income was 58% in 2004). Additionally, the experience of other markets that have suffered consumer lending crises such as Korea and more recently Taiwan, suggests that a seemingly moderate overall number does not rule out overborrowing and ultimately, serious defaults by some borrowers.
On the broader Asian region, Mr. McCormack indicated that the region remains reasonably well placed to deal with an impending slowdown in external demand amid higher interest rates. "Leading indicators for the export sector suggest weaker growth in the months ahead, not only in the US, but across the OECD," Mr. McCormack said. Fitch expects global GDP growth to fall to 3.2% in 2007 from 3.5% in 2006, led lower by the US, where growth is expected to decline to 2.6% from 3.2%. The agency believes Asian export growth can continue to be supported by demand from China, at least in the initial stages of a cyclical downturn. Higher interest rates are also a factor in assessing Asia's economic prospects in the short term. Asian central banks were initially slow to follow US policy, but rates are now higher across the region, especially in Hong Kong and Thailand. According to Fitch, while interest rates are higher, credit growth is still mixed, suggesting the effects on domestic demand have not been particularly pronounced in the region.
Contacts: James McCormack, Hong Kong, +852 2263 9925/ [email protected] ; David Marshall, +852 2263 9911/ [email protected] ; Vincent Milton, Bangkok, +662 655 4759/ [email protected]
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