Bangkok--31 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited today hosted its annual conference in Bangkok, focusing on the global financial crisis, as well as on economic and political risks faced by Thailand and the outlook for the country's major banks and corporations. Deputy Minister of Finance Mr. Pradit Phataraprasit graciously opened the conference and provided the government's view on Thailand's outlook and policy responses to this crisis.
James McCormack, Fitch's Managing Director and Head of Asia Sovereigns says: "Thailand's fiscal deficit is forecast to reach 4.2% of GDP in 2009 (fiscal year 2008-2009), the highest since 2002, although this should not impact Thailand's sovereign ratings, since the government debt burden is modest, and its external balance sheet remains sound.
However, Mr. McCormack notes that "Fitch believes that Thailand could face a prolonged period of political instability. The agency downgraded Thailand's sovereign ratings to 'BBB' from 'BBB+' in April 2009 based on its assessment that continued political disorder has undermined the functioning of government which may impact the country's medium-term growth." Fitch now forecasts GDP growth of negative 3.1% in 2009 and a modest recovery to 3% in 2010.
Vincent Milton, Fitch's Managing Director of its Thai office and Senior Director, Financial Institutions says that "Thai banks' H109 results indicate, that despite a significant decline in GDP of over 4%, their performances so far appear resilient to domestic political troubles and the global financial crisis, although downside risks remain." First half results show that net profit results fell slightly to 1% ROA, due to a surprising fall in provisioning costs and despite a sharper than projected decline in loan growth. "Fitch believes there is still a risk of a jump in provisioning in the next six to 12 months and projects a rise in NPLs to about 10%, although on a stricter qualitative basis the figure could be higher. Special mention loans for most banks have doubled in the past two years indicating rising asset quality pressures. At any rate, strong capital ratios of 11% Tier 1 and high profit margins for most banks should provide a solid cushion if economic conditions remain weak into 2010. Fitch expects the overall performance of the stronger banks - Bangkok Bank, Siam Commercial Bank and Kasikornbank - to continue to show resilience," adds Mr. Milton.
Lertchai Kochareonrattanakul, Senior Director of Corporates comments that "Despite substantial negative rating actions on corporations globally during Q408-Q109, Thai corporations were more resilient with relatively low negative actions, thanks to adequate liquidity and more conservative leverage". Mr. Kochareonrattanakul also notes that despite credit trends in 2009 having generally been more negative, the outlook appears to be stabilising. "Fitch expects that the performance of Thai companies it covers, while weakening in 2009, should remain relatively strong and improve in 2010, based on a moderate recovery in the Thai economy. The pick-up in investment in some sectors since 2006 is expected to be scaled back due to lower medium-term growth projections," he adds.
David Marshall, Fitch's Managing Director and Head of Asia-Pacific Bank group says that "Asian banking systems are proving more resilient to the economic downturn than expected. The agency believes a key factor is that with the experience of the late 1990s behind them, most Asian banking systems had been maintaining relatively modest levels of credit growth - in contrast to the credit-fuelled asset bubbles seen in some Western markets - and so entered the downturn in generally good shape."
Fitch also notes that the economic numbers are turning out to be better than expected. Nevertheless, it also recognises that there is a timing issue and that asset quality tends to lag developments in the real economy, suggesting that asset quality will continue to weaken over the next year. For this reason, Mr. Marshall says: "Fitch remains cautious on Asian banks' prospects given the likely weak recovery in developed economies and is keeping an especially close watch on the credit-fuelled economic recovery unfolding in China."
Mr. McCormack noted finally that "The worst of Asia's export collapse has passed, and economic growth in the short term is likely to be further supported across the region by accommodative fiscal and monetary policies. However, larger government deficits and debt burdens have already resulted in ratings downgrades in Malaysia and Vietnam this year, while a number of other regional sovereigns remain on Negative Outlook."
Fitch believes managing the effects of the global recession may continue to be challenging for regional policymakers, especially if US household consumption remains relatively weak.
Contacts: James McCormack, Hong Kong, +852 2263 9925/ [email protected]; David Marshall, Singapore, +65 6796 7211/ [email protected]; Vincent Milton, Bangkok, +662 655 4759/ [email protected].; Lertchai Kochareonrattanakul, Bangkok, +662 655 4760/ [email protected].
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].