Bangkok--17 Oct--Fitch's rating
Fitch Ratings has today said, in its special report “Impact of Global Financial Crisis and Political Turmoil on Thai Banks: Resilient But Outlook Worsens”, that Thai banks have so far proven resilient to the financial sector troubles in the US and Europe, but notes that prolonged domestic political turmoil could compound the economic slowdown in Thailand. The agency recently revised its economic growth forecast for Thailand to 4.2% (from 4.6%) for 2008 and 4% (from 4.4%) for 2009.
“Credit exposure of Thai banks to failed offshore banks is relatively small,” comments Vincent Milton, Managing Director of Fitch Ratings Thailand and a Senior Director of Financial Institutions for Fitch. “Thai banks are still funded predominantly by domestic deposits so funding is also less of a concern. Thai banks have limited exposure to complex offshore instruments such as CDOs or other foreign securities. Leverage ratios in Thailand’s corporate and bank sectors are relatively low, reflecting in part, a more modest recovery and risk aversion since the 1997 crisis, as well as slower growth over the past three years due to the domestic political turmoil,” adds Mr. Milton.
Bangkok Bank Public Company Limited (BBL) had the largest direct exposure of THB3.5bn to Lehman Brothers, which accounts for only about 2% of its equity. While this is expected to affect the bank’s Q308 results, BBL’s full-year results should still be reasonably strong. Siam City Bank Public Company Limited (SCIB) and Bankthai Public Company Limited (BT) also hold a substantial amount of foreign securities (3.4% and 13.8% of assets, respectively), made up of both government and bank debt securities. Krung Thai Bank Public Company Limited (KTB) and Bank of Ayudhya Public Company Limited (BAY) are expected to report further writedowns on CDOs in Q308 although the impact on their overall results should not be significant.
While system loan to deposit ratios (LDR) are relatively moderate at about 90% and liquid assets ratio at about 20%, some smaller banks have higher LDR ratios and weaker funding structures. The latter’s short-term funding structures and reliance on large depositors, is a concern in the current volatile environment. Mitigating these risks to some degree is the full protection of depositors under Thailand’s new deposit protection law which should help maintain system stability. Deposit protection will be reduced gradually from August 2009 to THB100m per depositor per bank, and each year afterward to THB50m, THB10m, and eventually THB1m in August 2012.
On the outlook for Thai banks, the agency notes that following a strong performance in H108 on the back of high loan growth, Thai banks now face a much weaker environment. Third quarter results to be released shortly are expected to indicate the first signs of weakening performance. “While overall results for the year should still be strong, Thai banks are likely to face renewed asset quality and margin pressures due to higher funding costs and declining loan growth in 2009. Strong capital - average Tier 1 of 11%; total capital of 15% - and profitability - average net interest margin of 3.5% - ratios for the major Thai banks compare favorably with regional peers and provide some buffer in absorbing an economic slowdown. But, if political troubles continue or the economy slows sharply, this could impact the banks’ rating Outlooks in 2009. The larger, more diversified banks such as BBL, Siam Commercial Bank Public Company Limited (SCB) and Kasikornbank Public Company Limited (KBANK) should continue to be more resilient,” says Mr. Milton.
The special report, “Impact of Global Financial Crisis and Political Turmoil on Thai Banks: Resilient But Outlook Worsens”, will be available shortly on the agency’s website, www.fitchratings.com.
Contacts: Vincent Milton, Bangkok +662 655 4759; Patchara Sarayudh, +662 655 4761.
Disclosure: Kasikorn Asset Management Company Limited (of which KBANK holds 99.99%) owns 10% of the shares in Fitch Ratings (Thailand) Limited. TISCO Asset Management Company Limited (of which TISCO Bank Public Company Limited holds 99.9%) 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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