Thai banks suffering from political uncertainty

The Thai banking system’s continuous political volatility and economic uncertainty will suppress domestic demand and investment sentiment.

This is according to a Moody's report, which further states that the condition will add more downside risk to growth.

Entitled, 'Banking System Profile for Thailand', the report also notes that despite improvements, the system's regulatory and supervisory framework is still developing and needs to be tested further.

"The steps taken by the Bank of Thailand to enhance supervisory techniques and oversight are welcome, and its plan to further liberalise the banking sector would be a positive development," said Karolyn Seet, a Moody's AVP/Analyst and author of the report.

"The BoT has also successfully moved Thailand's regulatory framework closer to international standards. Additionally, offsite supervision has emerged as a critical component in the supervisory process, especially now with the adoption of the Basel II accord," Seet added.

The Thai banking sector is highly concentrated at the top, with the four
largest banks -- Bangkok Bank, Krung Thai Bank, Siam Commercial Bank and Kasikornbank—controlling around 55 percent of the system's total assets. However, it remains relatively fragmented at the bottom with another 14 commercial banks accounting for the remaining market share.

The government still holds a sizeable stake in some banks, such as Krung Thai Bank, TMB Bank and Siam City Bank.

Meanwhile, foreign presence in the system is still modest but is likely to increase over time. This is based on growing interest from foreign banks in purchasing stakes in local banks to take advantage of opportunities in Thai markets, as well as to take advantage of the government's willingness to sell its stakes in a number of state-owned entities.