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Fitch: High Private Sector Leverage in Thailand Remains Key Risk
March 12, 2015 / 8:37 AM / 3 years ago

Fitch: High Private Sector Leverage in Thailand Remains Key Risk

(The following statement was released by the rating agency) BANGKOK/SINGAPORE, March 12 (Fitch) The decision by the Bank of Thailand (BOT) to cut its policy rate by 25bp to 1.75% on 11 March is unlikely to have a significant effect on credit risk in the country, says Fitch Ratings. Inflation remains well below the BOT's target. Headline CPI falling into negative territory at -0.5% yoy in February 2015 has given the central bank some space to cut the policy rate. The relative strength of the Thai baht is also likely to have influenced the rate decision. That said, high private sector leverage and rapid credit growth prior to 2014 remain a key source of vulnerability for the wider economy and banking sector. Should further monetary easing result in a rapid re-acceleration in credit growth, this would increase the risks to banks' asset quality. Fitch estimates Thailand's private sector leverage reached 159% of GDP in 2014, significantly higher than the median (61%) of its 'BBB' category peers. The aggregate figure has been driven largely by rapid growth in household debt, which rose to 85% of GDP in 2014 from 56% in 2008. The expansion in credit through to 2014 has left Thai corporates and households more vulnerable in the event of a sudden or unexpected downturn. This, in turn, means that asset-quality problems in the banking system could escalate more quickly than in previous recessions. Downside risks for the banking sector remain pronounced alongside challenging operating conditions, and Fitch maintains a negative outlook on the sector. That said, current buffers in the banking system provide some protection, and the ratings for most individual Thai banks are on a stable outlook. Thus far, banks' asset quality has held up despite the marked slowdown in economic growth in 2014. Real GDP expanded by only 0.7% last year, weighed down by weak consumption and investment, which is most likely the result of high household indebtedness and continued political stability concerns. At the same time, banking sector non-performing loans (NPLs) were largely unchanged from 2013, at 2.6% in December. Loan growth has slowed significantly in 2014 along with the broader economic deceleration, and this has been a positive credit factor for the banks. Asset quality as a lagging indicator means that we could yet see a deterioration in NPLs in 2015 should the economic slowdown continue. Nevertheless, Fitch's base-case scenario is for real GDP growth to rebound to 3.5% in 2015. Contacts: Parson Singha Senior Director Financial Institutions +66 2108 0151 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road Lumpini, Patumwan Bangkok Andrew Fennell Associate Director Sovereigns +852 2263 9925 Justin Patrie Senior Director +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: 2015 Outlook: Thai Banks here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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