Fitch forecasts stable outlook for banking

Fitch forecasts stable outlook for banking

Lesser burden from impairment charges

Fitch Ratings expects to maintain its stable outlook for the Thai banking sector next year, with NPLs in check.
Fitch Ratings expects to maintain its stable outlook for the Thai banking sector next year, with NPLs in check.

Fitch Ratings expects to maintain its stable outlook for the banking sector next year, citing a lesser burden from setting aside impairment charges for credit loss amid steady asset quality.

The stable outlook is likely to remain unchanged after the evaluation process is finalised in December, said Parson Singha, senior director of Fitch Ratings Thailand.

The rating agency earlier this year upgraded the credit outlook of the Thai banking sector to stable from negative.

The state of the banking sector's non-performing loans (NPLs), which already peaked and are now stable, will alleviate the burden of setting aside loan-loss provisions and reduce credit cost, Mr Parson said.

He said that while banks need to spend more on technology in preparation for the digital age, this will not harm their 2018 earnings.

Based on these assumptions, Fitch expects local bank profits to meet projections this year. The sector's buffers have improved over the past several years, particularly core capital and loan-loss allowance, Mr Parson said.

The banking sector has delivered positive financial performance over the past five years, even when local and global economies were in a fragile state, he said, adding that credit ratings of local large banks such as Bangkok Bank, Siam Commercial Bank and Kasikornbank are equal to the sovereign credit rating of BBB+.

"The sound fundamentals of the Thai banking sector are a key buffer [against] global financial market uncertainties, and Thai banks are relatively well positioned among emerging peers," Mr Parson said.

The key risks of the regional banking sector include the upward interest rate cycle, foreign exchange volatility and foreign capital movement, which play a role in credit risk, market risk and liquidity risk.

Thai banks, however, have less reliance on foreign funding, given their sound liquidity. Moreover, the US rate hikes have had a limited impact on rate pass-through to local banks, and the baht is strong.

Mr Parson said a series of US rate increases would not affect financial costs in the Thai banking sector, given its small exposure to the dollar and suitable matching of foreign-denominated funding.

Some local large banks have been issuing dollar-denominated debentures to refinance maturing bonds, and the proceeds have been used for foreign business activities.

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