Moody's affirmed the ratings of nine Thai Banks, driven by lower political risk and positive momentum in the economy, expected to result in improved growth for the banking sector.
Moody's has also upgraded the baseline credit assessment (BCA) of two banks: Bank of Ayudhya (BAY) to baa3 from ba1, and TMB Bank to ba1 from ba2.
The BCAs of the other seven affected banks were affirmed: Bangkok Bank (BBL), Kasikornbank (KBank), and Siam Commercial Bank (SCB) at baa2; Krungthai Bank (KTB), United Overseas Bank (UOBT) and Standard Chartered Bank Thai (SCBT) at ba1; and CIMB Thai Bank (CIMBT) at ba2.
In the case of TMB and its Cayman Island branch, the outlook on all its ratings was changed to positive from stable. The ratings outlook for the branches of the other eight Thai banks remain stable.
Moody's raised its full-year real GDP forecast for Thailand to 4% from its previous estimate of 3.6% to reflect a cyclical recovery, driven by growing exports, tourism and consumer demand.
Although Thailand's economic growth will remain low compared with the robust growth rates registered in the mid-2000s and earlier this decade, Moody's expects the positive momentum will translate into improved growth prospects for the banking system.
As a result, Moody's has changed the macro-profile for Thailand to Moderate+ from Moderate, with an improvement to Strong- from Moderate+ in the country's banking country risk score. Another driver for the improvement in the banking country risk score is the easing of political risks in the country.
While Thailand still faces elevated domestic political risks relative to peers, those risks have eased more recently given the orderly royal succession. The promulgation of a new constitution also paves the way for elections, likely to be held in early 2019, said the agency.
Nevertheless, the high leverage levels present in the corporate and household sectors will continue to pose risks to the banking sector's asset quality. The banks have experienced increased stress in their small and medium-sized enterprise and retail loans due to the inability of SME operators to respond quickly to fluctuations in the operating environment.
The affirmation of the banks' ratings reflect Moody's view that the upside and downside risks to the banking sector are equally balanced. In addition, the stand-alone credit profiles or BCAs of a number banks could experience upward pressure if the cyclical economic recovery becomes more broad based, which will positively impact the credit quality of the banking sector's loans.
The upgrade of BAY's BCA to baa3 from ba1 reflects the improvement to the bank's stand-alone credit strength over the last three years, particularly its stable asset quality, supported by strong loan-loss reserves and capital.
The improvement follows BAY's integration with MUFG Bank's operations in Thailand in 2015, which created an entity with a more balanced loan and deposit mix, together with the bank's active problem loan management.
The affirmations of BBL, CIMBT, KBank, KTB, SCB, SCBT and UOBT's BCAs reflect Moody's expectation that the banks' credit profiles will broadly remain stable over the next 12-18 months.