Banks in Thailand face higher systemic risks as economic recovery remains uneven and the Russia-Ukraine conflict could drag on the nation’s tourism industry, according to S&P Global Ratings.

The long period of low activity, especially in the tourism sector, has hurt businesses and reduced household incomes in Thailand. Regulatory measures such as the loosening of loan-to-value ratio requirements for mortgages to rein in high household debt would delay a resolution of structural issues, Ratings analysts said at an online event March 23.

“We estimate that about 10% to 15% of the banking system loans will need restructuring,”

Deepali Seth-Chhabria, Ratings’ associate director for South and Southeast Asia financial institutions ratings.

The agency cut its ratings on The Siam Commercial Bank PCL and Kasikornbank PCL to BBB from BBB+, and on Krung Thai Bank PCL and TMBThanachart Bank PCL to BBB- from BBB, mirroring Ratings’ view of increased systemic risks among the lenders. Meanwhile, Bangkok Bank PCL’s and Bank of Ayudhya PCL’s ratings were affirmed at BBB+ on March 21. All six banks have stable outlooks, Ratings said.

Banks remain resilient

In response, the nation’s central bank said stress tests on banks’ capital showed that the Thai banking system remained resilient and able to withstand future risks and uncertainties.

To make sure financial assistance to debtors does not present a risk to banks’ financial soundness or stability, the central bank has been closely monitoring risks, loan quality and banks’ financial situation, Ronadol Numnonda, deputy governor, financial institutions stability, of the Bank of Thailand, said in a March 22 statement.

The number of borrowers under the nation’s financial assistance program fell to 14% of total loans by the end of 2021, from a peak of 30% in July 2020 during the surge of COVID-19 infections in Thailand, the central bank official said, adding,

“Since then, it has been evident that debtors who had exited from the financial assistance program have regained their debt serviceability.”

Ratings expects the tourism sector to regain its full potential only after 2024, while the Russia-Ukraine conflict could further delay the normalization of international tourist arrivals.

Nonperforming loans ratio has remained relatively stable 

The banking sector’s reported nonperforming loans ratio has remained relatively stable at about 3% due to the relief measures, though Ratings expects it to climb to about 5% over the next 24 months.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.

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