Moody’s Investors Service says that restructured loans have grown substantially in Thailand and Indonesia in recent years — compared with the rest of the ASEAN region — but loss buffers remain strong.
“In particular, increases in standard restructured loans, or restructured loans that are still performing, underscore the high latent asset risks present in these two countries, although by different degrees,” says Alka Anbarasu, a Moody’s Vice President and Senior Analyst.
“However, in our view, banks in both systems for now also have ample buffers against potential losses from these assets,” adds Anbarasu.
Moody’s conclusions are contained in its just-released report for Thailand and Indonesia, “Restructured loan growth raises asset quality concerns but loss buffers are strong”.
The report does not consider non-performing loans (NPLs) that have been restructured because they are already included in reported NPL data, and Moody’s aim is to highlight asset risks not captured by NPL disclosures.
Thailand and Indonesia stand out in ASEAN region for high ratios of restructured loans
Thailand and Indonesia have notably high ratios of restructured loans to gross loans, compared to other ASEAN countries.
In Thailand, standard restructured loans increased to a combined 2.9% of gross loans at nine rated commercial banks at end-2016 from 2.4% a year earlier.
In Indonesia, the ratio, also at nine rated commercial banks, increased to 4.6% at end-2016 from 3.3% a year earlier. As indicated, the ratios of restructured loans in both economies are substantially higher than for other ASEAN countries, such as Singapore and Malaysia.
This build-up in restructured loans raises asset quality concerns, more so in Thailand, than Indonesia, where economic conditions are more favorable.
A substantial share of such loans could turn non-performing in both countries, so a swelling stock of restructured loans is a concern, although both economies are at different stages of the credit cycle.
Although the operating environment has somewhat improved for banks in Thailand following a multiyear economic slowdown, many small and medium-size enterprises (SMEs) are still struggling.
We believe restructured loans in Thailand are mostly for this group of borrowers, and the rapid build-up of these loans will likely continue.
Tellingly, banks with bigger exposures to SMEs, such as KASIKORNBANK Public Company Limited (Baa1 stable, baa2), TMB Bank Public Company Limited (Baa2 stable, ba2), United Overseas Bank (Thai) Public Co Ltd (Baa1 stable, ba1) and Bangkok Bank Public Company
Limited (Baa1 stable, baa2), tend to have higher ratios of restructured loans.
In Indonesia, these loans increased prominently in 2015 after the government eased rules for loan restructuring as a way to stimulate the economy. Indonesia’s resources-rich economy is now on more solid footing, aided by a recovery in commodities prices, so growth in restructured loans will moderate and their NPL slippage rates will gradually decrease.
However, banks in both Thailand and Indonesia have sufficient buffers against potential losses.
Loan-loss coverage ratios in both systems were well above 100% at end-2016, and capital buffers are also strong. In Thailand, the asset-weighted average ratio of loan-loss reserves to problem loans at rated banks was 136.8% at end-2016.
Our sensitivity analysis shows that if 25% of their restructured loans become non- performing, the loan loss coverage ratio would remain above 100% and their NPL ratio would rise by 0.7 percentage points.
If 50% of standard restructured loans turn non-performing, their NPL ratio will climb 1.4 percentage points, reducing their problem loan coverage ratio to a decent level of 96%.
In Indonesia, the system-wide ratio of loan-loss reserves to problem loans at rated banks exceeded 120% at end-2016. This will decline to 110% if 25% of their restructured loans become non-performing, boosting their NPL ratio by 1.1 percentage points . In a situation if 50% of their restructured loans are impaired, then their NPL ratio will rise 2.3 percentage points and their problem-loan coverage will shrink to 76%.
In Thailand the bulk of restructured loans are for SMEs
While banks do not provide a segment breakdown of their restructured loans, we believe that the bulk of restructured loans are for SMEs, and the buildup of restructured loans in Thailand is likely to continue at the current pace.
SME loans made up about 38% of gross loans in Thailand’s banking system at end-March 2017. And half of SME loans are for small businesses that have been hurt the most by the economic downturn.
Thai Baht currency control mulled by central bank
The Industry Minister proposed measures to help business owners, such as the promotion of Thai Baht as a currency for international trade to reduce the risks from US Dollar currency fluctuation
BANGKOK, 15th August 2019 (NNT) – The Minister of Industry has held talks with the Bank of Thailand’s Governor over measures to control the fluctuation of Thai Baht currency, minimize impacts faced by SMEs and promote the import of machinery during this time to take advantage of the stronger currency.(more…)
Thailand’s dangerous debt addiction
Thailand is now a top-ten highest household debt country among 89 countries worldwide and third highest among 29 Asian countries.
Thailand’s household debt has steadily increased to 78.6% of the country’s gross domestic products (GDP), or Bt12.8 trillion in the fourth quarter of last year, according to figures from the National Economic and Social Development Council.(more…)
Thailand’s four challenges : Debt, inequality, plastics and climate change
Thais tended to get into debt faster, for longer and for higher amounts. Indebtedness starts as soon as they begin to work at age 25 and can increase until 56 years old.
Bank of Thailand Governor Veerathai Santiprabhob, in his speech entitled “Formulating for the Future of Corporate Governance”, delivered at the Finance and Beyond National Director Conference 2019 in Bangkok (July 24th), said Thailand faces four challenges that require good governance in businesses to address.(more…)
Thailand Ecommerce Market: Shooting For Success
At present, the Thai ecommerce market is valued at USD 3.5 billion. According to a Google Temasek study, Thailand’s e-commerce...
Aspire Set to Become First SME Neobank in Southeast Asia with US$32.5 Million Raise
The recent financing has been led by Mass-Mutual Ventures Southeast Asia with participation from Silicon Valley’s Arc Labs and existing...
How is Thailand Bringing Technology to the Table?
In Asia, a country like Thailand has taken the initiative to implement agricultural biotechnology in its industry. The country has...