Fitch Ratings has downgraded the long-term issuer default rating (IDR) for Kasikornbank (KBank), Bangkok Bank (BBL) and Siam Commercial Bank (SCB) to BBB from BBB+ after revising the operating environment mid-point score for Thai banks to bbb from bbb+.
The moves came as a result of significant pressures on the banking sector stemming from the coronavirus pandemic.
The credit rating agency also lowered KBank's and SCB's short-term IDR to F3 from F2 but affirmed BBL's at F2. The credit rating outlook for all three is stable.
The downgrade reflects the three banks' challenging operating environment and the large-scale economic disturbance caused by the pandemic. This is in addition to Thailand's weak operating environment over the past several years in light of muted domestic and global economic growth.
The Bank of Thailand's relief measures to facilitate debt restructuring cannot fully eliminate risks for weaker and more vulnerable debtors, especially the SME segment, to which KBank has large exposure, Fitch said in a release.
Fitch's base-case scenario sees KBank's asset quality and performance being significantly affected over the next two years, with core ratios weakening from 2019. The bank's top-line revenue will continue to be dragged by the low-interest-rate environment and more moderate non-interest income, in addition to rising credit costs.
The duration and trajectory of the coronavirus outbreak remain uncertain. As such, Fitch expects BBL's asset quality and performance to be significantly affected over the next two years in a base-case scenario, with core ratios weakening significantly compared with 2019.
BBL will be affected by rising credit costs, and its top-line revenue will continue to soften, because of the low-interest-rate environment and a moderation in non-interest income. BBL's capital position will also weaken as a result of its pending acquisition of Indonesia-based PT Bank Permata Tbk.
For SCB, Fitch expects in a base-case scenario that asset quality and performance will be significantly affected over the next two years, with core ratios weakening significantly compared with 2019.
Aside from rising credit costs, the bank's top-line revenue will continue to experience drag from the low-interest-rate environment and more moderate non-interest income, Fitch said.
The coronavirus pandemic comes at a relatively challenging point in the business cycle for Thai banks. The banking sector's performance indicators had already been weakening over the past few years because of muted economic conditions, sustained low interest rates and competitive forces that reduced growth in fee income, according to Fitch's latest report.