Bangkok--23 Jan--Fitch Ratings
Fitch Ratings says Thai banks face a deteriorating 2009 outlook, after having shown resilience against the severe global financial crisis and domestic political turmoil last year. Banks are likely to face renewed asset quality pressures and lower loan growth amid the sharp economic slowdown, with Fitch projecting GDP growth of minus 1.1% in 2009, although strong underlying fundamentals should help them to weather these challenges.
“With strong underlying profitability, improved asset quality and more modest growth in preceding years, Thai banks should be better prepared to face the expected drastic economic slowdown this year than during the 1997-1998 crisis,” commented Vincent Milton, Managing Director of Fitch Ratings Thailand and Senior Director, Financial Institutions.
Thai banks reported a strong performance with higher average return on assets (ROA) of 1.1% in 2008 compared with 0.3% in 2007 due to lower provisioning and higher loan growth. The system’s non-performing loan (NPL) ratio declined to 7% of total loans in 2008 from 9% in 2007 as a result of accelerated NPL restructuring for some banks. Although capital ratios for Thai banks were affected by strong average loan growth of 11% and the implementation of Basel II at end-December 2008, Thai banks’ capital ratios generally remain strong with average Tier 1 capital and capital adequacy ratio (CAR) of about 11% and 14%, respectively.
The bellwether banks continued to report strong net results and profitability for 2008 as follows -Bangkok Bank Public Company Limited (BBL): THB20.3bn and ROA of 1.2%; Siam Commercial Bank Public Company Limited (SCB): THB21.3bn and ROA of 1.8% and Kasikornbank Public Company Limited (KBANK): THB15.3bn and ROA of 1.3%. While these three banks should be more resilient, Fitch expects overall performance for the Thai banks to weaken in 2009 as loan growth is expected to fall while NPLs and provisioning costs could rise sharply but Thai banks’ strong capital positions should provide some buffer. Liquidity and funding pressures for the smaller banks could also increase, although the current full deposit protection should help maintain funding stability over the next three years.
BankThai Public Company Limited (BT) was the only bank to report a loss of THB1.9bn for 2008. TMB Bank Public Company Limited (TMB) also reported net loss of THB4bn for Q408, mainly due to more stringent provisioning policy, although it was able to report net a small profit for the year of THB0.5bn. Bank of Ayudhya Public Company Limited (BAY) reported a turnaround in performance with net profit of THB4.9bn after reported net loss of THB4bn in 2007. Krung Thai Bank Public Company Limited (KTB) also showed an improvement with net profit of THB12.1bn in 2008, but still faces significant provisioning risks as its loan loss coverage ratio is only about 40% of NPLs.
NPLs for the major banks have continued to decline for the past year mainly due to restructuring, NPLs sales and write-offs. BBL significantly reduced its NPLs by THB27.5bn in 2008 with NPL ratio declining to 4.6% of loans from 7.9% in 2007. Of the major banks, KBANK has the lowest NPL ratio at 3.7% while SCB’s NPL ratio slightly improved to 5.5% from 6.3% in 2007. TMB and BAY which still are burdened by high NPLs of 16.4% and 10.1%, respectively, are expected to accelerate the disposal of their bad loans in the next year. Nonetheless, these improving asset trends for the sector could be reversed in 2009 given the sharp deterioration in the Thai and global economic environment since Q408.
Most banks’ ratings were revised to Negative Outlook from Stable in December 2008 following the revision of Thailand’s sovereign ratings.
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.
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 otherrelevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts: Vincent Milton, Bangkok +662 655 4759; Patchara Sarayudh, Bangkok +662 655 4761.