Thai Banks Resilient to Rising Global Volatility

31 Mar 2023

Thai banks will most likely have stronger performances in 2023 due to lower credit costs and a pick-up in loan growth, supported by a stronger economic recovery, according to Fitch Ratings' 2023 briefing, "Thailand's Economic and Bank Outlook", in Bangkok on Friday.

Dr Somprawin Manprasert, Chief Economist of the Economic Intelligence Center (EIC) at The Siam Commercial Bank Public Company Limited (SCB, BBB/Stable), said in his presentation the global economy should perform better than previously forecast. China's economy will experience stronger growth after reopening. SCB EIC expects the major central banks to stay the course on interest rate hikes and keep policy rates high for an extended period, as core inflation remains high. SCB EIC has revised up its 2023 economic growth forecast for Thailand to 3.9%, from 3.4%, on a strong rebound from the tourism and service sectors.

Jindarat Sirisithichote, Associate Director, Financial Institutions, at Fitch Ratings (Thailand), said in her presentation that Fitch expects Thai banks' earnings to improve gradually in 2023 on declining credit costs and stronger loan growth. Even so, pressures will persist on asset quality as relief measures expire and banks gradually clear their backlog of restructured loans. Thai banks continue to maintain strong buffers against downside risks. The sector average for common equity Tier 1 capital and loan loss allowance coverage was 15.3% and 171%, respectively, at end-2022.

Fitch also expects Thai banks' liquidity to remain broadly stable because they are mainly funded by deposits, with no significant dependence on wholesale or foreign funding. The sector liquidity coverage ratio remained high at 192% at end-2022. Fitch recently revised up its 2023 GDP forecast for Thailand to 4.0%, from 3.8%, as it expects the tourism revival to gain more traction, underpinned by China's reopening.