Bangkok--3 Sep--Fitch Ratings Fitch Ratings (Thailand) Limited today hosted its annual conference in Bangkok, focusing on the outlook for the domestic economy, as well as country trends in the rest of Asia. The conference also touched on a much talked about topic - the exposure of the Asian banking system to the US subprime mortgage sector. Fitch was delighted to welcome the Secretary-General of the Government Pension Fund, Mr. Visit Tantisunthorn, who provided the opening address at the conference on investment perspectives as the key investor in Thailand. "While Thailand is not immune to events globally, the Thai economy is in a much better position to absorb external shocks and a weakening operating environment. Also, growth should pick up in 2008 once there is greater clarity on the political front. Having said that, we are now seeing a sharp rise in volatility and reduction in risk appetite globally following a long period of benign credit markets and historically low interest rates, so this seminar is well-timed to focus on managing risks," noted Mr. Tantisunthorn. The economic view on Thailand was echoed by James McCormack, Head of Asia Sovereigns who suggests that a return to a more stable political environment is critical to ensuring economic recovery. "The growth of domestic demand is extremely low, and net trade is largely responsible for headline GDP growth. In this context, Thailand is among the most vulnerable countries in Asia to a reduction in global economic growth," commented Mr. McCormack. Despite this, he noted that Thailand's sovereign creditworthiness remains sound, and there are no immediate pressures on its sovereign ratings. He continued to explain that Thailand and the rest of the region are well placed to deal with credit market adjustments given the large stock of foreign exchange reserves, strong balance of payments positions and more flexible exchange rate regimes. Mr. McCormack cautioned, however, that Asia remains vulnerable to slowdowns in global economic growth, and large capital inflows in recent years could test regional policymakers if investor sentiment changes quickly. Commenting on the Asia-Pacific banking system's exposure to the US subprime problem, David Marshall, Head of Financial Institutions, Asia Pacific noted that Fitch's recent survey of Asian banks revealed that such investments are very widely spread; the largest exposure - relative to the investing bank's own equity capital - was at a Thai bank, BankThai with 21% of own equity, followed by the Bank of China with 17% (although in absolute terms Bank of China holds a much larger amount: almost USD10 billion vs just USD50 million for BankThai). Having said that, USD10bn is less than a year's operating profits for Bank of China and most of the amount is invested in 'AAA' and 'AA'-rated securities which are not expected to incur material losses. "Our conclusion that the direct impact of investments in the US subprime mortgage sector on Asian banks should be limited. However, Fitch is concerned that there may be indirect effects from providing liquidity to conduits, from losses to investors in banks' asset management arms, and from having to take valuation losses on marking to market non-subprime-related CDOs and other structured securities whose underlying assets remain sound but whose market value has fallen due to market illiquidity," said Mr. Marshall. "While the performance of the large Thai banks and corporates in 2007 has weakened due to a slowdown in domestic growth, most have strong balance sheets and improved risk management to withstand the current market turbulence. An expected pick-up in consumer and investment spending in 2008 should see the performance of the bank and corporate sectors improve," commented Vincent Milton, Managing Director of Fitch's Thai office. He cautioned however, that some smaller banks and corporates face heightened risks. 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]. Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6336 0095. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.