BANGKOK: Thailand’s banking sector will likely continue to face difficult operating conditions this year given distant prospects of an economic revival and the return of an elected government, said Standard & Poor’s Ratings Services.
In Standard & Poor’s opinion, weak economic growth, high household leverage, and lack of political stability remain key risks for Thailand’s banking system.
“We expect Thai banks’ asset quality to continue to deteriorate in 2016,” said Standard & Poor’s credit analyst Deepali Seth-Chhabria. “However, the deterioration will be from a strong base. In addition, Thai banks’ good capitalisation and strong reserves should enable them to absorb the deterioration without sacrificing their creditworthiness.”
The rating agency yesterday released a report titled “Thailand’s Banks Will Carry Their Burden Into 2016.” The report showed that small and midsize enterprises and retail loan segments and a one-off big-ticket exposure accounted for the lion’s share of the deterioration in Thai banks’ asset quality in 2015. Household debt remained high, and a slowing global economy, particularly deceleration in China, hurt Thai exports.
Standard & Poor’s expects the trend to continue in 2016, given Thailand’s weak economic indicators and no likelihood of any major change in the political situation. Thailand is unlikely to see the return of an elected government at least until mid-2017.
Nonperforming loans in Thailand’s banking sector will keep rising in 2016, probably 20-30 basis points, it said. However, the increase is expected to be gradual. Banks are expected to stick with the cautious approach they adopted in 2015, and loan growth should remain subdued, supporting capitalisation levels.
“We expect the Thai banking sector’s return on assets to remain at 1.1 per cent in 2016, with a slightly negative bias,” said Seth-Chhabria. “However, profitability should still exceed that of some regional peers due to Thai banks’ good cost efficiency and average margins.”
