Thai banks stable amid poor outlook elsewhere: Moody's

Though Thai banks face two great domestic risks – rising household debt and property prices – the situation in other countries looks worse.

Also on Wednesday, Standard & Poor’s Ratings Services warned against threats from asset quality deterioration, shortage of capital or slowing credit growth to banks in the BRICMT – Brazil, Russia, India, China, Mexico and Turkey.

"While economic growth has been slowing moderately, Thai banks are well positioned to withstand potential asset-quality challenges because of their strong capitalisation levels and increasing provisioning coverage," said Simon Chen, an assistant vice president and analyst at Moody’s.

"In addition, we expect loans to grow at a more moderate rate, after four years of loan growth having outpaced deposit growth. The slower rate of loan growth will contain and even perhaps reverse the recent deterioration in the banks’ loan-to-deposit ratios," he said.

While Thai banks’ loan-to-deposit ratios will stay well below 100 per cent, foreign currency loan-to-deposit ratios should remain elevated. However, such loans represent only a fraction of the banks’ portfolios and the central bank’s reserves.

Moody’s said banks will face risks from household indebtedness, which has increased to 79 per cent of GDP as of June from 64 per cent in the first quarter of 2011, and rising property prices.

While much of the household lending has been from government-owned institutions outside the commercial banking system, rising household debt and property prices have increased the banks’ vulnerability to adverse shocks.

Moody’s, which rates 10 Thai banks, points out that the banks’ exposures to residential mortgages and other household loans comprised 35 per cent of the banks’ loan portfolios as of the second quarter, up from 30 per cent in 2009.

However, the banks’ capitalisation levels remain above regulatory minimums under Moody’s stress tests and will benefit from less rapid loan growth.

"We expect profitability in the overall system to remain much the same as current levels in the next 12-18 months, although banks should face pressure on their net interest margins, given the intense competition in the industry," Chen said.

"At the same time, fee-based income is growing from increased investment sales, insurance products and other non-lending products to the growing middle class."

S&P expressed reservations over the health of BRICMT banks

"In addition, we remain concerned about the rising household debt burden, given still low, although increasing, GDP per capita and cyclicality of these major emerging market economies," said Cynthia Freue, a credit analyst.

The expectation of the US Federal Reserve’s reversal of its loose monetary policy has hit most emerging markets, pushing financing costs higher and currencies lower, and reducing the pace of global and regional market issuance. The resulting global capital outflow will have varying effects on banks in the BRICMT nations.