Thai central bank backs top lenders after S&P cuts ratings

Bloomberg

Thailand’s banking system remains resilient with high levels of capital buffer to withstand future risks and uncertainties, the nation’s central bank said, a day after S&P Global Ratings downgraded the top lenders citing increased systemic risks.
The capital adequacy ratio of Thai banking system stands at 20% and lenders have increased provisioning against bad loans by $12.8 billion in the past two years, the Bank of Thailand said in a statement. Total provisioning at 890 billion baht is equivalent to 1.6 times of non-performing loans, it said.
S&P’s base case scenario project bad loans ratio of Thai banks jumping to 5% over the 24 months, the highest level since the 2008 global financial crisis, from 3% currently, it said.
But the central bank said regular stress tests on banks’ capital found the “Thai banking system remained resilient and able to withstand future risks and uncertainties.” “Going forward, continued recovery of the Thai economy will help improve income and debt serviceability of borrowers as well as the loan quality of banks,” BOT said.
Various debt relief measures introduced by central bank during the pandemic have been instrumental in bringing down the number of debtors under the financial assistance program of banks to 14% of total loans from a peak of 30% during a surge in Covid-19 outbreak in July 2020, BOT said.
“This reflect banks vigilance against the backdrop of heightened uncertainties,” the central bank said. “Currently, the financial positions of the Thai banking system remain resilient with high levels of buffer.”
S&P Global ratings lowered ratings of Siam Commercial Bank Pcl and Kasikornbank Pcl to BBB from BBB+ and that of Krung Thai Bank Pcl and TMBThanachart Bank Pcl to BBB- from BBB, saying the move reflected its view “that systemic risks have increased for banks operating in Thailand.” The rating company affirmed ratings of Bangkok Bank Pcl and Bank of Ayudhya Pcl at BBB+ and also retained the stable outlooks for all the six lenders.
“Systemic risk for Thailand’s banks has risen, and high leverage among borrowers is likely to persist for longer than we previously expected,” S&P said. “Regulatory relaxation, such as a loosening of loan-to-value ratio requirements for mortgages, or an absence of any concrete action to rein in high household debt would delay a resolution of structural issues, in our view.”

The ratings pressure stemmed from the quality of the bank loans, especially the restructured debt, which may not reflect in financial ratios, Ivan Tan, S&P’s director for financial institutions ratings, told a briefing on Wednesday.
“There is no immediate fix to the structural issues plaguing the country’s lenders and Covid-19 has only inflamed the situation,” S&P said in the statement. “The fragile and uneven recovery is exacerbated by the economy’s high dependence on tourism.”