Moody's rates Thai banking as stable, warns of debt risks
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Moody's rates Thai banking as stable, warns of debt risks

The banking system outlook in Thailand next year is stable, while the challenges of Asia-Pacific banks include long-term risks related to the high degree of private-sector leverage, says Moody's Investors Service.

Banking systems in Asia-Pacific overall show a stable outlook for 2018, the international credit rating agency said. Of the 16 banking systems discussed, two have positive outlooks, one negative and 13 stable.

The systems with stable outlooks in emerging and developing economies are China, India, Malaysia, Thailand, the Philippines and Mongolia. Those in advanced economies are Australia, Hong Kong, Singapore, Japan, New Zealand, South Korea and Taiwan.

Banking systems in Indonesia and Vietnam have positive outlooks, while Sri Lanka is negative.

"Solvency metrics will be stable in most of the banking systems rated by Moody's in Asia-Pacific, driven by a synchronised global recovery and moderate credit growth," said Eugene Tarzimanov, a vice-president and senior credit officer for Moody's Financial Institutions Group.

"Furthermore, bank funding and liquidity will remain strong, while most governments will maintain their supportive stance towards the banks, with a low likelihood that senior creditors will be required to bail-in banks."

Support for banks' asset quality comes from the steady global and regional economic recovery, as well as largely stable commodity prices, while problem loan ratios are steadying and problem loan coverage is generally strong.

In addition, capital buffers have improved because of moderate growth in risk-weighted assets and more stringent regulatory requirements, and profitability at the banks will be broadly stable in 2018.

Funding and liquidity also remain a strength, and Asian banks are mostly deposit-funded with liquid balance sheets, while their reliance on wholesale funding is moderate.

Meanwhile, banks in Australia and New Zealand -- which rely more heavily on wholesale funding -- have shown tangible improvements since 2008.

The high level of private-sector leverage -- both corporate and household -- remains a medium-term risk but will not spill over into bank balance sheets in 2018.

In this context, China and India are the most exposed to high corporate leverage risks, while Australia, New Zealand and South Korea are the most exposed to household-related risks.

Furthermore, real estate price appreciation is spurring housing loan growth and is linked to a rise in household leverage.

Finally, Moody's expects that governments in the region will remain supportive of the banks, which provides uplift for senior unsecured and deposit ratings, and most economies are unwilling to introduce burden sharing through statutory bail-in for senior creditors.

In Asia-Pacific, the exception is Hong Kong, where officials have introduced a statutory bail-in regime that subjects senior unsecured creditors and uninsured depositors to the risk of burden sharing.

Asia-Pacific banks are also facing several secular trends, among them the rapidly ageing population in some markets, which in the long run may undermine the banks' strong deposit-focused funding bases.

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