The Bank of Thailand's capital distribution restrictions, announced last Friday in response to the coronavirus pandemic, provide further support to Thai banks' capital buffers and are in line with regulations in other countries, says Fitch Ratings.
Thailand is asking banks to suspend 2020 interim dividend payments and share buybacks and to prepare capital management plans covering the next one to three years.
Financial regulators globally have implemented aggressive measures over the past several months in response to the pandemic. Similar restrictions on bank dividend payments have been announced in Australia, the euro zone, India, Vietnam and Britain.
The Thai central bank's decision is linked to a broader policy to ensure credit access and stimulate business activity. The measures will help the country's banks maintain the necessary resources to support their lending activities and absorb credit losses during this economically fraught period, Fitch said.
The Thai banking sector's average common equity Tier 1 ratio was sound at 15.8% as of April. Fitch considers capital a strength of the majority of Thai commercial banks under coverage, reflected in how the capitalisation scores of most of the banks are higher than their viability ratings.
Fitch revised the Thai banking sector's operating environment score to BBB from BBB+ in April on expectations that poor economic conditions would materially affect the banks' asset quality and profitability over the next two years.
Fitch expects the banks' core capital to remain sound in the base-case scenario, despite the challenging backdrop and potential volatility from the implementation of new accounting standards.