Bangkok--2 Oct--Fitch Ratings
Fitch Ratings today commented that Thailand’s major banks should be able to absorb the short-term negative impact of the political crisis on economic growth and already declining consumer and business confidence. The agency made these comments after the appointment of the country’s interim prime minister, which it said is a positive first step in stabilising the political situation.
“If the political crisis is resolved quickly and confidence is restored after the past several months of political turmoil, then the implications for the Thai economy and for the banks could even be positive,” said Vincent Milton, managing director at Fitch Ratings Thailand. “However if the crisis is prolonged, the negative effects on the economy and ultimately on the banks, could be significant,” warned Mr. Milton. The agency placed the sovereign ratings of the Kingdom of Thailand and the ratings of seven major Thai banks on Rating Watch Negative following the military coup on 19 September.
“Based on assessment of trends in recently released full year accounts for the first half of 2006, the larger Thai banks, particularly Siam Commercial Bank and Kasikornbank, continue to perform strongly, although performance could weaken in H206 due to low loan growth,” said Mr. Milton in a recently published report entitled “Major Thai Banks-Weathering the Storm into 2007”. Average loan growth year-to-date has fallen significantly short of expectations, being affected by weaker consumer and corporate loan demand as retail sales slowed, particularly autos and housing, and corporate investment plans have been delayed. The agency also notes that the improvement in asset quality for most Thai banks appears to have stalled, with some signs of deterioration due to the relapse of restructured loans. Ongoing political uncertainty could affect economic growth and lead to pressure on asset quality in 2007. On the other hand, if confidence is restored quickly, a rebound in consumer and investment spending could see higher growth in 2007. Most Thai banks still expect impaired loans to fall to about 5% by end-2007.
The lagged effect of the fixed deposit rate increase and slower loan growth is likely to affect margins in H206, particularly for smaller banks focused on autos and consumer finance. Fitch cautioned that any extension of the political turmoil and economic slowdown could affect the Thai property market, which has fallen back since 2005 following strong price rises over the previous two years, and lenders may see some defaults by developers and mortgage borrowers. The asset quality of auto and consumer finance lenders could also worsen in light of the aggressive high growth strategy they have actively pursued over the past several years. Fitch also sees some evidence of rising credit card delinquencies but they are generally not high by international standards, with the agency noting that trends at the sub-prime level are more worrying.
While GE Capital’s (“GE”) acquisition of a significant stake in Bank of Ayudhya (“BAY”) was postponed to January 2007, the agency expects this to proceed provided the political situation stabilises. “Given the strength of GE’s balance sheet and global expertise in consumer banking, this should significantly improve BAY’s financial strength and franchise, as well as positively impact the overall development of retail banking and risk management standards in Thailand in the medium term,” said Mr. Milton. “This could lead other large banks to consider strategic tie-ups with other global players, which would result in greater consolidation pressure on the smaller banks,” he added.
The full report, “Major Thai Banks-Weathering the Storm into 2007”, is available to subscribers on the agency’s website www.fitchratings.com
Contacts: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759
Disclosure: Kasikorn Asset Management Company Limited (of which KBANK holds 99.99%) owns 10% of the shares in Fitch Ratings (Thailand) Limited. No shareholder, other than Fitch Ratings Limited of the UK, is involved in the day-to-day operation of, or credit rating reviews undertaken by, Fitch Ratings (Thailand) Limited.
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