Bangkok--25 Sep--Moody's Despite political uncertainty following the coup in September 2006, Thailand's banking system outlook remainsstable with no new downgrades of Moody's 12 rated banks, says a new report issued by Moody's Investors Service. This is with the exception of Siam Commercial Bank Public Company Ltd's (SCB) D+ Bank Financial Strength Rating (BFSR) and A3 long-term local currency deposit and foreign currency senior debt ratings, which both carry positive outlooks. However, political uncertainty has slowed both the country's economic growth and impacted the rating agency's expected pace of upgrades. "Any protracted and significant slowdown in the economy could weaken Thailand's banks' ability to further improve profitability and reduce non-performing assets levels," notes Karolyn Seet, a Moody's Analyst and author of the report. "These are both key factors in strengthening their recovering capital bases," she says. "In addition, most banks still have high gross non-performing loan (NPL) ratios of over 9%, but this represents only part of their impaired assets. Large balances of restructured loans and foreclosed properties raise questions about the adequacy of reserves at most banks," notes Seet, adding, "However, retention of growing earnings has restored solvency, and, over the next one to two years, will restore capital adequacy at all the banks." In 2006 and 1Q2007, the BFSRs of Bangkok Bank (BBL), Bank of Ayudhya (BAY), Kasikornbank (KBank), Krung Thai Bank (KTB), Standard Chartered Bank (Thai) Public Co Ltd (SCBT), and TMB Bank Public Company Limited (TMB) were upgraded. These upgrades were primarily the result of stronger financial fundamentals, in particular healthier economic solvency, as well as improved risk management controls, reflecting the gradual recovery by Thai banks from the Asian crisis. The report notes that at present, 8 out of the 12 Moody's-rated banks in Thailand have a Baa1 foreign currency deposit rating, or at the country ceiling for foreign currency deposits. Six out of these eight are constrained by the country ceiling. As such, if the country ceiling is lifted, the six constrained deposit ratings could be upgraded; though given Moody's stable outlook on Thailand, upward adjustments will be unlikely in the near future. The effects from the current US sub-prime mortgage sector on Thai banks will also be limited, since exposures at Moody's-rated banks are zero or immaterially small, and pose no threat to either their creditworthiness or liquidity, it says. Elsewhere, tighter loan classification standards and provisioning requirements -- following the implementation of International Accounting Standards No. 39 (IAS 39) -- should prevent the banks from returning too much capital to shareholders before they manage to top up loss reserves. Provisioning charges should speed up in the short term, but economic solvency should improve in the long term. The report also highlights the high country support guideline for Thailand, and that there is no history of bank deposit defaults in the country. In addition, banking assets represent 112% of Gross Domestic Product, signifying the important intermediation role banks play in the economy. Entitled, "Banking System: Thailand," the report can be found on www.moodys.com . Singapore Karolyn C. Seet Analyst Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308 Singapore Beatrice Woo VP - Senior Credit Officer Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308