BOT cautious on Greek spillovers
Bank of Thailand official expressed concerns over possible spillovers from the Greek debt crisis, as capital outflows are anticipated if the country could not refinance a huge amount of debt.
Money would flow out of Thailand and other countries, as European banks would be required to recapitalise in the aftermath of such default.
Pongpen Ruengvirayudh, senior director at Bank of Thailand, said that the central bank is closely monitoring the situation in Greece, particularly on March 20.
Greece is waiting for new injection or it would default on the US$14.5 billion debt.
Still, she admitted that the impact on Thailand would be limited, given the moderate amount of investment into Thailand, compared to Indonesia and Malaysia.
According to a report by Moody's Investors Service released on Monday, while banks in Australia, New Zealand, Korea and Vietnam are the most exposed in the event that the euro area crisis continued to deteriorat, banks in Thailand and other Asia Pacific countries would feel less affected.
"While these systems appear less exposed than they were at the time of the Lehman shock, Moody's assesses them as more vulnerable to the first-round impact of a further worsening of the euro area crisis than other systems in Asia Pacific," says Stephen Long, a Moody's Managing Director for the Financial Institutions Group in Asia Pacific.
The sovereign crisis in the euro area has increased the threat of a contagion in Asia and is the greatest risk to the generally robust credit profiles of Asia Pacific banks. Since the second half of 2011, there has been a broad slowdown in Asian exports, general weaknesses in Asian currencies that have reversed their earlier strengths, and increasing anecdotal evidence of European banks selling their portfolios of Asian loan books.
Moody's classifies the 16 banking systems in Asia into three categories, in terms of their exposure to extreme distress in the euro area: More Exposed, Exposed, and Less Exposed. Thailand is in the "exposed" category.
Besides high export dependency, Thailand’s banking system runs a foreign currency loan-to-deposit ratio of around 192 per cent that warns of its strong reliance on market funding to support its foreign currency lending.
Yet, in terms of absolute size, or as a share of total funding, Moody's considers the potential shortfall in foreign currency supplies in Thailand to be relatively small. The overall loan-to-deposit ratio has approached 100 per cent, which places the domestic system in a situation of stress, if it is to absorb the impact of any retreat by European banks.
