Fitch: Thai Banks# Asset Quality Stabilising in Line with Expectations

Stocks and Financial Services Press Releases Wednesday August 1, 2018 15:09
Bangkok--1 Aug--Fitch Ratings

The 1H18 results for listed Thai banks show that the asset-quality cycle has started to stabilise, with positive impact on banks' profitability and buffers. The trend is in line with Fitch Ratings' expectations (see Fitch: Thai Banks' Asset Quality Deterioration to Ease in 2018, published 28 January 2018), and is consistent with our revision of the banking sector outlook for 2018 to stable last November. The outlook had been negative since 2014.

The average impaired-loan ratio of the listed banks was 3.71% at end-June 2018, virtually unchanged from 3.73% as of end-December 2017. Fitch expects the ratio to be stable for the rest of the year due to more benign economic conditions and tighter underwriting standards among commercial banks. Credit growth remains relatively low, with gross loans up by 3.4% so far this year, although some segments, such as auto loans, are picking up. Auto-loan growth is driven by strong car sales growth of 19.3% in 1H18.

Average profitability improved slightly, with return on assets of 1.35% in 1H18 compared with 1.30% in 1H17. This was driven by lower credit costs, which was evident in the decline in loan-impairment charges/pre-impairment operating profit to 36.0% in 1H18 from 39.6% in 1H17. Fitch expects the ratio to remain under control over the course of 2018. The improved business environment mitigated the flat growth in net fee income, which was hurt by intensifying competition and fee waivers for digital banking that began in March 2018. There appears to be downside risk building in some portions of the property sector, but overall property price indices have remained resilient in the last few years and the central bank has room to implement further macro-prudential measures if required.

Listed banks in Thailand continued to report sound loss-absorption buffers. The average loan-loss allowance/impaired loans was 143% (up from 140% at end-2017), and the common equity Tier 1 capital ratio was between 12% and 19%, well above regulatory requirements. Fitch expects Thai banks to continue to maintain excess buffers that would support their ratings in the event of unexpected losses during an economic slowdown.

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