Thailand’s banking sector appears to have seen off the worst effects of the global recession and, far closer to home, long-running social unrest and seems to be gaining momentum as the country’s economy begins to gather pace.

A recent report by international ratings agency Fitch said Thailand’s banks were expected to perform soundly in the foreseeable future and continue to show resilience after the economic and political shocks of the past two years. However, the report, issued on July 6, said that while resilient, the Thai banking sector is still susceptible to political instability. According to Vincent Milton, the managing director of Fitch Ratings Thailand, the heightened operating risks from prolonged political turmoil in Thailand and the still weak economic environment could impact profitability, loan growth and asset quality in the medium term. “However, strong capital and liquidity should help at least the stronger banks to maintain overall performance in 2010,” he said.

While Thailand’s economic outlook for 2010 appears to be improving, with GDP tipped to increase by 3.8%, overall conditions are likely to remain weak, which the report warns could lead to an increase this year in the levels of non-performing loans. Another note of caution sounded by Fitch was over asset quality, with the report saying that the disruption to businesses in the tourism, retail and consumer sectors resulting from the recent political unrest will ramp up pressure on such holdings.

The report also noted that while Thai banks posted a significant improvement in performance in the first quarter of the year, this could ease when second-quarter results were issued in late July. However, the agency’s forecasts for the Thai economy, and therefore for the banking sector, could be on the conservative side, with second-quarter results for the country’s leading banks showing that growth trends are continuing.

With Thailand’s seven main banks having posted a 26.5% increase in profits for the first three months of the year over the first quarter of 2009, the industry stepped up the pace even further, with overall net profits rising by 27% in the second quarter. The second-quarter profit total of $870m took the sector’s combined first-half net profits to $1.7bn, almost 26% up on first-half 2009.

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