Economic risk in Thailand remains high, says S&P

SINGAPORE - Global ratings agency, Standard and Poors, says it believes economic risk in Thailand remains high on a global comparison. While the Thai economy is diversified, it has a low per capita GDP, S&P says.

"Slower credit growth in the past couple of years amid an economic recovery in 2017 and 2018 has led to some easing in the build-up of economic imbalances," S&P says.

"We expect this to persist for a couple of years at least, despite our expectation of a pick-up in the credit growth.

"That said, in our view, the improvement in economic imbalances has not led to any material improvement in the high economic risk faced by Thai banks.

"We now believe that credit risk is extremely high in Thailand.

"Our revised view on credit risk takes into account relaxed lending and underwriting standards in the banking industry.

'Household debt and corporate debt remain very high, particularly in the context of the country's low income levels and limited debt-servicing capacity.

'In part, this is due to the relaxed lending and underwriting standards in the Thai banking industry, which has propelled loan growth, especially in the mortgage segment."

But S&P says a large proportion of highly stable core customer deposits supports Thailand's banking industry.

"We expect the industry structure to remain largely stable over the next three years, despite tax incentives that the Government announced in mid-2018 to encourage the merger of local banks."

Effective April 1, 2019, the Bank of Thailand introduced a stricter loan-to-value ratio limit of 70%-95% that is dependent on property price, number of contracts, and type of collateral.

"In our view, this will help curtail risk at the margin, but these norms are still lenient," S&P says.

"We see a stable industry risk trend. Thailand's institutional framework and competitive dynamics should remain stable over the next two years.

"The tax incentives for bank mergers may lead to some mergers at mid-size banks or small banks space, but this is unlikely to meaningfully change the Thai banking structure."

www.standardandpoors.com (ATI).