Thai banks 'stable', Fitch reports
Fitch Ratings says in a new report that the outlook on major Thai banks is stable despite the impact from the flooding and potential risk from a global economic slowdown.
This is based on the agency’s expectation that the banks will remain resilient on the back of strong capital, improved reserve coverage and profitability.
Fitch expects the floods to result in a decline in gross domestic product in the current fourth quarter of this year due to disruptions in business and in spending, although this is likely to be mitigated somewhat by a strong post-flood economic rebound.
Risks over asset-quality deterioration and provisioning as a result of the floods should be alleviated by the Bank of Thailand’s forbearance on flood-affected borrowers by six to 12 months. Downside risks, in Fitch’s view, could stem from a delayed recovery process. In a severe-stress scenario, banks with lower reserves could be hit harder.
Strong loan growth without a parallel expansion of the deposit base has led to a steady rise in the loans-to-deposits ratio and, consequently, growing funding and liquidity risks, the rating agency noted. Increased global financial-market volatility could exacerbate such risks for Thai banks, particularly small-to-medium-sized institutions.
Excessive issuance of bills of exchange and over-reliance on foreign-currency wholesale may also lead Fitch to revise the outlook to negative.
