Thai banking system gets stable Moody’s outlook

The outlook for the Thai banking system is stable over the next 12-18 months, according to Moody’s. Nonetheless, a host of challenges is evident, particularly if prolonged political disruptions pressure economic and financial fundamentals.

"Our stable outlook is underpinned by our view that the banking system remains capable of managing any incremental losses stemming from the country's political turmoil without deeply compromising bank capitalization," says Karolyn Seet, a Moody's Assistant Vice President and Analyst. "However, while the political environment has become calmer in recent months and the economy is growing strongly, the potential for renewed political unrest remains a key concern," says Seet.

Seet pointed out that because of the political instability since 2006, Thailand's loan growth has been tepid, with a very modest rise in credit relative to GDP in the past few years.

Seet was speaking on the release of Moody's latest outlook on Thailand's banking system, and which covers a wide range of themes, including rating drivers, macro-economic issues, the system's key performance measures, government policy and regulation.

Thailand has 18 commercial banks and the system is highly concentrated, with the largest four accounting for close to 60% of the system's assets. Moody's rates 11 banks with their bank financial strength ratings ranging from E+ to D+, mapping to baseline credit assessments from B1 to Baa3.

"Furthermore, Thailand's banks have been cautious lenders, both in terms of targeted sectors and underwriting standards for specific borrowers, and at the same time borrowers themselves have been cautious in terms of leverage," says Seet.

The report notes that non-performing loan ratios across the industry are falling and were 4.6% of total loans at end-September 2010, down from 5.3% at end-2009 and 5.7% at end-2008. Moreover, asset quality indicators are likely to remain largely stable in 2010 and into 2011.