S&P downgrades 4 Thai banks on structural issues, fragile economic recovery

S&P Global Ratings downgraded its ratings on 4 Thai banks, as it expects systematic risks have increased for banks operating in Thailand, it said on Tuesday (Mar 22).

The credit ratings agency lowered its ratings on Siam Commercial Bank and Kasikornbank to "BBB" from "BBB+" and Krung Thai Bank and TMBThanachart Bank to '"BBB-" from "BBB".

Meanwhile, it affirmed its "BBB+" ratings on Bangkok Bank, as the lender's high systemic importance in Thailand offsets this risk, and Bank of Ayudhya, which benefits from being a strategic subsidiary of Mitsubishi UFJ Financial Group.

The research team, however, revised down the standalone credit profiles of all 6 banks by 1 notch, as it expects high leverage among borrowers will likely persist for longer than expected, and regulatory relaxation will likely result in a delay in resolving structural issues.

While steps taken by the government and central bank should reduce risks, the regulatory forbearance is likely just prolonging the pain of underlying problem loans, S&P said.

It noted that the high proportion of banks' loan books under relief measures, at 14 per cent, "points to incipient problems in the system".

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It added that economic recovery remains fragile and uneven across sectors in Thailand, particularly the tourism sector, which may be further hindered by the Ukraine conflict by delaying international travel.

S&P expects non-performing loans in the Thai banking sector to rise gradually over the next 24 months to 5 per cent, which is the highest since the 2008 global financial crisis.

While restructuring could provide a temporary lifeline, borrowers will remain dependent on better economic conditions and low interest rates, amid the absence of any effective measures to reduce the high household debt burden.

S&P noted, however, that the banks have stable outlooks, as they are maintaining good capitalisation and healthy provision coverage ratios, which should offer some cushion. The ratings have also already factored in some deterioration in the banks' asset quality over the next 12 to 24 months.

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