Pro-growth policies and the absence of protests after the election are positive signs for Thai banks and the economy, but uncertainties remain as the winning parties try to form a coalition government, says global financial information provider Fitch Group.
Following Sunday's election, which the Move Forward (MFP) and Pheu Thai parties won in a landslide, questions remain about the formation of a new government as the MFP and other parties invited to join a coalition government are 68 seats short of the 376-seat majority to seat a prime minister of their choice.
The 2017 constitution allows 250 military-appointed senators to decide on the prime minister's appointment alongside the 500 elected lower house members.
The MFP-led coalition is seeking to turn some of the senators in their favour, which seems plausible as the strong voter turnout and the voters' clear rebuke of the military-linked government points to likely protests if the popular vote is not upheld, said CreditSights, a unit of Fitch Group.
"From a banking system perspective, the pro-growth policies of the winning parties and the absence of protests will be helpful for loan growth, fee income and asset quality, while populist proposals and campaign pledges such as cash handouts and doubling of the minimum wage will also deliver a spending boost to the economy," said the credit research firm.
"Ruling out a military coup by the Thai army chief in the event of post-election turmoil supports our base case of a smooth transition of power."
However, the research firm said risks remain if the MFP fails to secure sufficient votes from the upper house to lead the new government, as one of its campaign pledges is to abolish the military-appointed Senate. Another MFP pledge is to reform the lese-majeste law.
"Failure to form a government with an MFP leader will lead to street protests that will affect the tourism rebound, potentially continuing for an indefinite period of time," said CreditSights.
In a related development, Fitch Ratings said sound economic conditions in Asia remain largely conducive for banks to sustain stable credit profiles.
"Fitch Ratings expects 2023 GDP growth in China and Thailand to exceed that of 2022. Growth will ease in other emerging markets, but not fall far below the average medium-term growth before the pandemic," Fitch said in a recent report.
Recent bank failures outside Asia-Pacific have led to greater scrutiny of banking systems in the region and volatility in issuance. However, largely retail funding bases and/or different interest rate cycles mean they have no extra consequence for most banks' intrinsic credit profiles and contagion risks should be limited, according to Fitch Ratings.
"Bank runs remain a possibility, but we think authorities in Asia-Pacific are acutely aware of the implications of not addressing liquidity stress," said Fitch.