Reliance on tourism will slow Thailand’s economic recovery: Fitch Ratings
Thailands high reliance on tourism is slowing its economic recovery from the pandemic, according to Fitch Ratings.
The credit rating agency forecasts Thai GDP will grow by 1.8 per cent in 2021 after a sharp 6.1 per cent contraction in 2020. Accelerating recovery in 2022 should lead to a GDP rebound of 4.2 per cent, according to the agency’s Thailand Sovereign and Bank Outlook webinar on Thursday.
Fitch added that sluggish recovery means the operating environment for Thai banks remains challenging, though the risks are mitigated by the banks' adequate buffers.
However, Thailand's tourism-dependent economy will recover more slowly than its peers, said Jeremy Zook, a director in Fitch’s Asia-Pacific Sovereigns team.
Fitch expects the recovery to gather pace in the second half of this year as the vaccination rollout progresses and Thailand reopens. The agency also maintained its BBB+/Stable rating for Thailand, citing robust external and public finances that provide buffers against downside risks amid a prolonged economic recovery.
In her presentation on the banking sector, Jindarat Sirisithichote, associate director of Financial Institutions at Fitch Ratings Thailand, highlighted that bank buffers, such as loan-loss reserves and common equity Tier 1 capital, remain a sound cushion against downside risks. The operating environment remains challenging and will lead to continued pressure on Thai banks’ asset quality and earnings performance in 2021. Thai banks’ earnings have weakened significantly since the onset of the pandemic due to high provisioning. Nonetheless, their profitability should still be able to absorb additional provisioning from the slow recovery.
Thai banks have recently supplemented these cushions through the issuance of subordinated and hybrid capital instruments. The recent focus has been on Additional Tier 1 (AT1) capital due to the need for better loss absorption amid the pandemic. Fitch expects that, under current regulatory guidelines, ratings of Tier 2 and AT1 instruments issued in Thailand would be rated two notches and four notches, respectively, below the anchor rating.
