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Singapore, November 22, 2011 — Moody’s Investors Service says it is maintaining its stable outlook for Thailand’s banking system, given that the economic impact of the floods will likely be temporary and that the fundamentals of Thai banks remain robust.
“In coming to a stable outlook, we weighed the impact of the difficult operating environment — resulting from the recent floods — against the broadly more positive fundamentals in the economy and banking system,”
says Karolyn Seet, a Moody’s Assistant Vice President and Analyst.
“Our maintenance of the stable outlook also takes into consideration the absence of a robust global recovery, and assumes that the combined effect of these difficult conditions will lead to asset quality deteriorations and higher non-performing loans (NPLs) formation in the coming six months, particularly in the agriculture, automobile and electronics sectors,” says Seet.
Seet was speaking on the release of Moody’s outlook for the Thai banking system, and which she authored.
Moody’s rates 10 banks in Thailand, including 8 commercial banks and 2 policy banks. The commercial banks accounted for approximately 87% of Thai commercial banking system assets at end-2010. The other 2 banks are specialized financial institutions and policy banks, with 100% government ownership.
The rated banks’ asset-weighted average long-term bank deposit rating is Baa1. This incorporates our assessment of their stand-alone strength and an average of two notches of systemic support.
“Our outlook testifies to the strengths of the banks — including their strong capitalization and profit-generating capability — that will help the industry weather the current difficult period, and may even open up opportunities to grow earnings and profitability towards the second half of our 12-18-month horizon,” says Seet.
In summary, three broad considerations are strong economic and banking sector fundamentals; the assessment that the direct impact of the floods on bank balance sheets is not major; and the government’s push on spending policies, as well as more emergency assistance measures and flood rehabilitation packages.
“On balance, we thus expect a pickup in loan growth after an initial drop in lending, driven by stronger performances in the construction and infrastructure sectors. Nevertheless, under these circumstances, banks are likely to see some volatility in their asset quality, and which may test their capital positions,” says Seet.