Tough year ahead for Thai economy, says S&P

February 6, 2017

SINGAPORE - Slow economic growth and slow domestic consumption will weigh on Thai banks' asset quality and profitability this year, says ratings agency Standard and Poor’s.

"Thailand's banking industry will continue to face headwinds from problem loans, high credit costs, and subdued growth prospects in 2017," says S&P
Global Ratings credit analyst Ivan Tan. "We expect Thai banks' earnings and loan growth to be sluggish over the next 12 months."

Lacklustre economic growth will continue to push up Thai banks' nonperforming loan (NPL) ratios and constrain earnings growth. Elevated household leverage, persistent political uncertainty, and difficulties in the commodities and SME segments will also continue to strain Thailand's banking sector.

"Loans to SMEs have been the worst hit and will continue to drive Thai banks' asset quality deterioration into 2017," Tan says. "Credit costs will also stay high as banks are under pressure to maintain sufficient provision coverage."

That the credit down-cycle is far from over is highlighted by the sharp increase in special mention loans to 2.38% at the end of the third quarter of 2016, from 2.17% in the previous quarter, reversing five consecutive quarters of improvement. www.standardandpoors.com (ATI).