Fitch sees pressures facing Thai banks
Written by Writer on Saturday, October 25th, 2008
FINANCE
Fitch sees pressures facing Thai banks
POST REPORTERS
Thai banks have been relatively unscathed by the global financial crisis, but political turmoil and a darkening economic outlook could hurt profitability and ratings going into 2009, according to Fitch Ratings.
Vincent Milton, the managing director of Fitch Ratings Thailand, said Thai banks are advantaged by their limited exposure to offshore instruments such as collateralised debt obligations. Leverage ratios in the Thai corporate and bank sectors are also low, reflecting risk aversion in the modest economic recovery since the 1997 crisis.
In addition, the credit exposure of Thai banks to failed offshore banks has been relatively small, Mr Milton said.
Bank funding has been primarily through domestic deposits, limiting the impact of the global credit crunch on the sector.
Mr Milton also described loan-to-deposit ratios for the banking system as ”relatively moderate” at 90% _ although smaller banks with higher ratios and weaker funding structures through a reliance on large depositors are a concern in the current volatile market.
Mr Milton said the Deposit Insurance Act should help maintain stability. Depositors will continue to be fully guaranteed by the state until August 2009. Coverage will then decline to one million baht per depositor per bank by August 2012.
The cabinet on Tuesday is expected to approve a delay in the limited deposit programme and continue full state guarantees for another three years.
But while bank performance in 2008 is expected to stay strong, thanks to high loan growth in the first half, pressure would increase in 2009.
”Thai banks are likely to face renewed asset quality and margin pressures due to higher funding costs and declining loan growth in 2009,” said Mr Milton.
But he said Thailand’s top banks _ with capital funds averaging 15% of risk assets and average net interest margins of 3.5% _ compared favourably with regional competitors and should ”provide some buffer in absorbing an economic slowdown.”
”But if political troubles continue or the economy slows sharply, this could impact the banks’ rating outlooks in 2009,” he said, adding that more diversified banks such as Bangkok Bank, Siam Commercial Bank and Kasikornbank should be most resilient.
Bangkok Post
Saturday October 25, 2008
