The Thai financial system has become more vulnerable due to the more-than-expected contraction of the economic outlook in light of the COVID-19 situation, said Bank of Thailand’s (BoT) monetary policy committee’s latest update.

The Committee assessed that the Thai economy would contract by 8.1 percent in 2020 but would expand at 5.0 percent in 2021 in tandem with a gradual improvement in both domestic and external demand.

However, the Bank of Thailand warned that the Thai economy would contract this year more than the previous assessment due to the more-severe-than-expected COVID-19 pandemic which could lead to (1) sharp correction of asset prices in global financial markets, (2) defaults by businesses and households in many countries including Thailand, and (3) corporate bonds being downgraded to non-investment grade.

Additionally, the Committee deemed it important to prepare financial measures to continuously alleviate impacts on household and business borrowers, especially after the phase-outs of the batch of financial and credit measures.

The financial institution system remained sound

The Committee assessed that the overall financial institution system remained sound. Commercial banks had robust capital funds and loan loss provision levels, capable of absorbing the impacts of COVID-19.

The Committee also deemed it necessary for the Bank of Thailand and other related regulatory agencies to prepare measures for coping with increasing risks if debt servicing capability of borrowers were to deteriorate significantly more than expected.

Meanwhile, the Committee viewed that fiscal policy would still have capacity to restore and restructure the economy and that the government need to focus on supply-side policies to support economic restructuring after the COVID-19 pandemic subsides.

Source: Bank of Thailand

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