Fitch Sees Bad Debt At Thai Banks Rising Into Next Year

* NPLs to reach 10 pct by end-2009, rise further next year

* Improving economy should be supportive to bank ratings

* Weak consumption and politic put pressure on Thai firms

By Arada Kultawanich

BANGKOK, Aug 31 (Reuters) - The amount of bad debt at Thai commercial banks will swell to 10 percent of total lending by the end of this year, from 7-8 percent in the first half, due to the weak economy, Fitch Ratings said on Monday.

A deterioration in non-performing loans at Thai banks would continue next year, but an emerging economic turnaround should fuel modest loan and revenue growth next year, supporting Thailand's banks and their credit ratings, said Vincent Milton, senior director at Fitch for financial institutions.

Banks across Southeast Asia are struggling against a tide of bad loans sparked by the worst recession since the Asian financial crisis 11 years ago. Fee income has also shrunk, though some banks are reporting signs of a rebound.

Milton said asset quality tends to lag improving economic conditions, so the numbers could appear poor for some time as loans classified as past due for 60 to 90 days are moved into the non-performing category over the next 12 months, he said. "We don't think the NPL numbers at the moment are indicating a full picture of a realised recovery," Milton told reporters on the sidelnes of a conference.

However, profits at Thai bans have shown resilience to the recession and domestic political unrest, especially at Bangkok Bank BBL.BK, Siam Commercial bank SCB.BK and Kasikornbank (KBAN.BK), he added.

Fitch rates all three BBB plus according to its long-term foreign and local currency issuer default ratings.

Their credit outlook was revised to negative from stable on Dec. 2, a day after Fitch cut its outlook on Thailand, citing political turmoil after an anti-government rally forced a week-long closure of Bangkok's international airport.

But shares of Thai banks have performed strongly this year, rising 75 percent after falling 51 percent in 2008.

The sector has outperformed Thailand's benchmark SET index .SETI, which is up 45 percent this year, on optimism that banks would be a big beneficiary of government stimulus.

Fitch projected Thailand's economy would contract 3.1 percent this year and grow 3.0 percent in 2010, boosted by a recovery in exports. For more Fitch's view on economic and political outlook, click on [iD:nBKK498971]

Lertchai Kochareonrattanakul, senior director for corporates at Fitch, said there was less possibility of a change in credit ratings in Thai companies at the moment as they were still under pressure from weak consumer and business demand.

"It should be more negative than positive action for Thai firms, but the downside risks have limitation," he added.

"We are watching closely refinery, petrochemicals, shipping and property sectors due to their volatile cash flow," Lertchai said. ($1=33.98 Baht) (Editing by Jason Szep)

http://www.reuters.com/article/rbssFinanci...K32044520090831

-- Reuters 31/08/09