Moody's maintains stable outlook for Thailand's banking system

Moody's Investors Service is maintaining its stable outlook on Thailand's banking system despite the recent escalation of violence in the country. The sector's asset quality and earnings have shown considerable resilience to political turbulence in recent years. Our base case is that the banking system remains capable of managing -- without deeply compromising its capitalization -- any incremental losses due to the country's political turmoil. However, we will be closely monitoring the impact of the current disruptions on exports and economic activity more generally since lengthy delays to the restoration of transport communications would eventually have a negative impact on many borrowers' cash-flows. Earlier in January, Moody's had changed the system's fundamental credit outlook to stable from negative, reflecting the prevalence of favorable credit conditions in the country. At the same time, Moody's had noted that the sector's ability to withstand the adverse effects of the global financial crisis could be fractured by Thailand's fragile political situation, a result of the tension between the government and anti-government forces. "But, the banking system has instead demonstrated these past few months its resilience and it will continue to benefit from the country's expansionary budget and US$1.4 trillion (US$43 billion) stimulus program," says Karolyn Seet, a Moody's Assistant Vice President and Analyst. "Indeed, the system has in the recent past weathered a coup -- that in September 2006 -- and various other events since then," adds Seet. Analysis by Moody's shows that Thai banks' stand-alone ratings are capable of withstanding material impairments to asset quality and earnings -- relative to the system's present capitalization levels and reserve position --even though the full effects of the anti-government protests are currently undetermined. For example, the system's capitalization metrics do not indicate any imminent threats to its solvency, while its average non-performing loan (NPL) ratio had fallen to 4.6% at end-March from 4.8% at end-2009 and 5.5% at end-2008. In addition, the indicators for the profitability of the rated banks remain strong and are in fact commensurate with those of higher-rated banks in other markets. Moody's has further presented expected losses for several of the system's customer loan segments under various stress case scenarios, ranging from a base case to one of harsh stress, and in line with Moody's global approach to estimating bank credit losses. In addition, the ratings of Thai banks already incorporate a considerable financial and economic cushion for the absorption of potential shocks. But, in the event that the government is unable to find a constructive solution to the political row, the situation could undermine the banking sector's creditworthiness in the long term. And in the near term, earnings growth at the banks could suffer as the riots will likely dampen economic expansion. In 2010, unless the violence ends, real GPD growth may find it hard to reach 5% and loans growth to achieve 10%. By contrast, the corporate sector -- including SMEs -- is relatively unscathed as exports continue to recover. Furthermore, well after calm returns to Bangkok -- the site of most clashes between the government and the anti-government protestors -- tourism receipts and consumer spending are likely to stay depressed. Moody's rates a total of 11Thai banks with their bank financial strength ratings averaging D. The stable outlook could return to negative if (i) asset quality deteriorates in the coming months, such that NPL ratios rise above 10%; (ii) profitability declines, such that pre-provision profits -- as a percentage of risk-weighted assets -- fall below 1.5%; and/or (iii) capital adequacy or liquidity declines significantly, such that Tier 1 ratios fall below 8% and loan-to-deposit ratios rise above 120%. On the sovereign front, Moody's maintains its negative outlook on Thailand's Baa1 rating, but with a heightened degree of uncertainty. As such, any downgrade of the country's government ratings will add downward pressure to the systemic support input for Thai bank ratings, and in turn, negatively affect the deposit ratings of the banks. Moody's will continue to monitor economic and market developments as more detailed information becomes available to reassess the ultimate effects on bank performances. The principal methodologies used in rating Thai banks are "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating Thai banks can also be found in the Rating Methodologies sub-directory on Moody's website. The Thai banks rated by Moody's are Bangkok Bank, Bank of Ayudhya, Export-Import Bank of Thailand, Government Housing Bank, Kasikornbank, Krung Thai Bank, Siam City Bank, Siam Commercial Bank, Standard Chartered Bank (Thai), TMB Bank, and United Overseas Bank (Thai). NOTE TO JOURNALISTS ONLY: For more information please contact New York Press Information +1-212-553-0376; EMEA Press Information in London +44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +33-1-5330-1020; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612 9270 8102; Luiz Tess in S?o Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel R?as in Buenos Aires +54 11-4816-2332 ext. 105; Leon Claassen in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at www.moodys.com Singapore Karolyn C. Seet Asst Vice President - Analyst Financial Institutions Group Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308

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