Thailand: Moody’s warns of banking sector risks – 23 Aug 2017

  • Thai banks still face a variety of risks, including high household debt, economic growth with high exposure to external demand and rising restructured loans, says Moody’s Investors Service. “Thai banks are still facing many downside risks looking forward, including growth that is not structural, high household leverage and low private investment,” said Alka Anbarasu, a Moody’s vice-president and senior analyst.
  • She said Thai household debt has already stabilised but remains at a high level, which could dent loan growth. Private investment, which has not gained traction with close to zero growth recorded in 2016, lends little support to the banking sector’s credit growth. Credit growth is not expected to vary much from this level in the near future, given that the current economic growth pace is far below the pre-2010 level.
  • “Higher restructured loans is also a key downside risk to Thai banks’ asset quality,” Ms Anbarasu said. Restructured loans that are not classified as non-performing loans (NPLs) at commercial banks rated by Moody’s increased to about 3.5% of gross loans in 2016 from 2.9% in 2015.
  • She said the increase in restructured loans were mainly from small and medium-sized enterprises (SMEs). SME loans, which make up the biggest proportion of Thai banks’ exposure, still face downside risks, as there are still NPLs from that segment. The reason behind the deterioration in SME loans is that those companies have not adjusted to the new reality of slower economic growth, Ms Anbarasu said.
  • Her comment echoed the Bank of Thailand’s recent estimate that the delinquency rate of bad loans would peak in 4Q17 as a broader-based economic recovery and robust export growth take hold. Ms Anbarasu said that despite the recent default of one listed company, Moody’s believes that broad corporate asset quality remains stable. Moody’s outlook for the Thai banking system over the next 12-18 months is stable.

External Link :