The recent deposit pull-out from Government Savings Bank (GSB) highlights the potential risk that politics could play in undermining the Thai financial system, says Fitch Ratings.
We had recently highlighted that the country’s political turmoil has already raised the risk of a longer-than-expected slowdown, and ultimately greater credit pressure on the banks.
Deposit withdrawals from GSB appear to be of a manageable size for now. GSB reported that the net amount of the pull-out was around THB20bn on 17 February, while its total deposit base was THB1,724bn (as of August 2013). The withdrawals are related to public skepticism over GSB’s new THB20bn credit line to the Bank for Agriculture and Agricultural Cooperatives (BAAC) in support of the government’s rice subsidy programme – and motivated by political suasion rather than heightened financial risk. GSB has already indicated that it will cancel this credit line.
We think GSB’s liquidity buffers, as well as the scope for policy-driven financial support from the central bank or from other state-owned institutions, should enable GSB to surmount any limited, near-term funding challenges.
One key risk, though not a central scenario, is an acceleration of deposit withdrawals from additional state-owned banks. This could place an increasing burden on inter-bank credit lines, and potentially the central bank.
At the moment, we believe the authorities are able to ward off near-term funding challenges for the state-owned banks. However, systemic risks are skewed to the downside – as a resolution of the political deadlock is not in sight, and the funding of the government’s rice subsidy programme remains uncertain.
GSB and BAAC are both backed by acts of parliament, and are likely to obtain high levels of support. They account for 10.6% and 6.1%, respectively, of banking system assets (as of June 2013), and their stability is important for overall confidence across the Thai banking system.
Unusual withdrawals of cash from the Government Savings Bank in Bangkok and the provinces were reported after the bank president said it has provided interbank loans to the Ban for Agriculture and Agricultural Cooperatives to shore up its liquidity.
Political turmoil is not new, and credit conditions have remained resilient against a series of political upheavals and a major flood in late 2011. Since the military coup which ousted then-Prime Minister Thaksin Shinawatra, Thailand’s political rupture has triggered large-scale street protests by competing political factions in 2008, 2009 and 2010.
The Thai economy has withstood these shocks reasonably well, and this is evident from its GDP growth which Fitch estimates has averaged 3.0% between 2009 and 2013 – slightly higher than the ‘BBB’ peer rating group median of 2.7%. In the meantime, there was no significant deterioration in the intrinsic creditworthiness of major banks
noted Fitch in a previous statement of january 22nd.
Can the Subscription Economy Save Financial Services?
Going back to the pre-Covid “normal” is not an option for financial services. Fortunately, the rise of the subscription economy points towards frontiers of untapped growth for the sector.
As the world waits for mass vaccination to revive economic activity, general malaise has overtaken the financial services industry (FSI). And things will probably worsen before they get better: US banks are expected to suffer US$318 billion in net loan losses by the end of 2022, according to Deloitte.(more…)
Asia Pacific Banks shrug off commercial property risks for now
APAC commercial property prices were down around 3% on average in 2020, after a 1% rise in 2019. But the coronavirus-induced decline has been modest compared to past downturns, suggesting that the impact on banks’ commercial real estate loans will generally be much smaller this time.(more…)
Thai banks net profit stood at 146.2 billion baht in 2020
The Thai banking system remained resilient with high levels of capital fund, loan loss provision and liquidity to support economic recovery from the COVID-19 pandemic. according to latest Bot assessment.
Ms. Suwannee Jatsadasak, Senior Director, Bank of Thailand, reported on the Thai banking system’s performance in 2020 that the Thai banking system remained resilient with high levels of capital fund, loan loss provision and liquidity to support economic recovery from the COVID-19 pandemic.(more…)
New Business Registration Tops Highest since January 2019
The top three sectors for new business registrations in January were building and construction (634), real estate (299) and transport...
Asian students are vital to the health of Australian universities
Over 170,000 international student visa holders are stuck outside Australia, unable to enter because of travel bans.
Facebook unplugs Thai military propaganda
Facebook said it deleted accounts intended for targeted audiences in the southern provinces of Thailand, where Muslim insurgent groups fight...
Rapid growth in China post-COVID makes it ripe for investment
Being “first in and first out” of COVID-19, China is the only country among the G20 that is thought by...
Is remote leadership part of the new normal?
With 77% of adults reporting that they would be willing to learn new skills now, or completely retrain, to improve...
Supporting disadvantaged women key to achieving SDGs in ASEAN
The study, which holds a gender lens up to each of the SDGs of the 2030 Agenda, confirms that when...
Subscribe via Email
National6 days ago
Thailand to further ease COVID-19 restrictions
Business6 days ago
THAI airways to sell training center building to raise more funding
Economics3 days ago
1.7 million Thais without smartphones register for "Rao Chana" benefits
Health1 week ago
200,000 doses of COVID-19 vaccine Distributed to 13 Thai provinces