Moody's: Credit profiles of Thai banks to remain stable

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Moody's: Credit profiles of Thai banks to remain stable, rise in loan growth and asset quality seen
The Nation

BANGKOK: -- The overall credit profiles of Thai banks will remain stable in the coming quarters as an improvement in operating conditions coupled with accommodative fiscal and monetary policies will boost loan growth and support asset quality, according to Moody's Investors Service.

In its latest report, Moody's said it expected credit growth in Thailand to accelerate in the second half of this year, coming in at about 5-7 per cent on a full-year basis.

"Credit growth will likely accelerate more quickly for banks focused on corporate and small-and-medium-sized-enterprise borrowers, compared [with] retail-focused banks," Daphne Cheng, an associate analyst and a co-author of the report, said yesterday.

The other co-author, Alka Anbarasu, an assistant vice president and analyst, added: "That said, the banks' reported asset-quality metrics will likely continue to show some deterioration, reflecting in part the lagged effects of the earlier turmoil, with assets related to retail and SME borrowers as the most vulnerable, though we expect the extent of the deterioration to be relatively modest and within the banks' capacity to manage."

Since seizing power from the elected government, the military regime has boosted outlays for investment and infrastructure projects that had been delayed. The approval on August 19 of the draft state budget for 2015 has also provided clarity on spending for the year ahead.

For SMEs, the Thai Credit Guarantee Corporation is planning to increase the loans that it guarantees and broaden the scope of assets that are eligible as collateral.

Retail lending growth will remain subdued, as banks are cautious about consumers increasing their indebtedness. Household debt reached a high of 83 per cent of gross domestic product at end-March, and is one of the highest in Asia.

"Reported asset-quality metrics will deteriorate moderately for the rest of the year, reflecting the time lag until loans affected by the political turmoil in the first half become classified as non-performing loans," Cheng said.

However, underlying asset quality is expected to remain broadly stable for large corporate loans.

High levels of indebtedness mean that it will take longer for underlying asset quality to stabilise in the retail segment, affecting some SMEs.

The leading indicators of banks' asset quality - the retail sales index, manufacturing capacity utilisation, exports of goods, and the SET Index - suggest stability for large corporate borrowers and some weakness in retail loans over the next few quarters.

Banks continue to have strong loss-absorbing buffers, supported by stable profitability and capital-generating capacity. The average Tier 1 ratio of Moody's-rated Thai banks was 11.6 per cent at June 30, with loan-loss allowances covering 138 per cent of NPLs.

Pre-provision profitability will remain sufficiently strong to absorb higher credit costs and support capital generation.

"We also expect banks will selectively tap the capital markets to replace their Tier 2 subordinated bonds with Basel III-compliant instruments so that they have capital to capture loan growth as economic activity picks up," Anbarasu said.

Source: http://www.nationmultimedia.com/business/Moodys-Credit-profiles-of-Thai-banks-to-remain-sta-30242834.html


-- The Nation 2014-09-09