Moody's boosts Thai banking outlook from stable to positive
Following the change in outlook on Thailand's Baa1 sovereign rating to positive from stable, Moody's Investors Service has changed its outlook for the Thai banking system to positive from stable.
The change reflects Moody's view that any upgrade of the sovereign rating will translate into stronger government capacity to provide support for banks.
Despite the boost in outlook, Moody's points out that several challenges remain for Thai banking.
Specifically, Moody's expects the operating environment for Thai banks will deteriorate over the next 12-18 months as weak export growth and tourist arrivals will weigh on the country's economic growth.
The formation of new non-performing loans among small and medium-sized enterprises will accelerate as the financial health of these borrowers, particularly those in export-related sectors, weakens along with the broader economy.
Yet any deterioration of asset quality in the next 12-18 months will be mild and mitigated by the banks' strong loss-absorbing buffers.
Capitalisation, funding and liquidity will all remain strong. Loan to deposit ratios should remain below at 100 per cent at most banks, while funding will continue to be underpinned by the predominance of retail deposits.
A further increase in credit costs, which have weighed on profitability in recent years, is unlikely despite growing asset risks because banks have already built significant reserves against loan losses. Net interest margins (NIMs) will also be broadly stable.
In view of the positive outlook, Moody's could upgrade the ratings of a number of Thai banks as it has upgraded the sovereign rating, to incorporate larger rating uplifts for government support.
