Fitch: Rising Regional Risks Could Erode Thailand's Resilience

Fri Sep 27, 2013 1:01am EDT

BANGKOK/SINGAPORE, September 27 (Fitch) Fitch Ratings (Thailand) Limited says Thailand's resilience continues with broadly Stable Outlooks on the country's sovereign rating, as well as on major Thai financial institutions and corporations, although the agency notes that eroding buffers, the potential for further regional volatility, and rising private sector leverage pose risks. This was the key message at Fitch Ratings' annual Thai conference, which concluded successfully in Bangkok today. Dr. Prasarn Trairatvorakul, Governor of the Bank of Thailand, was the guest of honour at the event and provided the keynote opening address. Heads of Fitch's Asia-Pacific analytical teams also discussed the prospects, challenges and credit implications for their respective sectors. Mr. Andrew Steel, Head of Asia-Pacific Corporates, remarked that Fitch sees ongoing disruption to financial markets resulting from changing monetary policies of the world's major central banks. This disruption, combined with asset quality deterioration, has the potential to negatively impact credit markets across the Asia-Pacific region and cause difficulties for corporates in many sectors as refinancing of the previous 'hot money' flows falls due over the next 12-18 months. That said, the magnitude and impact of risks in the Asia-Pacific credit markets remain far lower than those of concern in the US or European markets, said Mr. Steel. Fitch's Head of Asia-Pacific Sovereigns, Mr. Andrew Colquhoun, noted that credit profiles have strengthened since 1997 in various ways, including for most countries much higher foreign reserves and reduced external indebtedness. However, those buffers have been eroding for some economies including Thailand. Fitch thinks the resilience of Emerging Asian sovereign credit profiles will depend to a large degree on the credibility and consistency of macro policy management. Thailand's sizable net external creditor position and moderate public debt provide a considerable buffer and the economy has not been afflicted with the kind of volatility experienced by Indonesia or India. However, Thailand's combination of an eroding current account surplus, low real interest rates and a widening fiscal deficit coupled with high private sector leverage are outliers among Emerging Asian economies that could still prove to be sources of vulnerability. A risk for the region and Thailand has been the rapid build-up of credit and whether this will lead to substantially higher credit losses when economic conditions become more challenging, said Mr. Mark Young, Head of Asia-Pacific Financial Institutions. For Thailand, one of the concerns relates to the build-up of household credit that has occurred since 2010, which is partly due to the high auto loan growth that stemmed from tax incentives, he added. While Fitch expects overall loan growth to decline in the short term, a sizeable part of the growth that occurred was outside the commercial banks in the government-owned specialised financial institutions and private savings cooperatives which are more susceptible to credit losses due to their lower income borrowers. A roundtable discussion addressed the outlook and challenges in the banking, corporate and infrastructure sectors in Thailand. The panelists comprised of Mr. Boontuck Wungcharoen, chief executive, TMB Bank Public Company Limited; Mr. Chawan Theungsang, executive director, Emerald Capital Asia Ltd. and Mr. Win Phromphaet, CFA, head of investment, Social Security Office of Thailand. The discussion was moderated by Mr. Vincent Milton, Managing Director of Fitch Ratings (Thailand) Limited. The conference was attended by over 350 senior executives and officials across the investor, regulatory, financial and corporate sectors. Contact: Vincent Milton Managing Director +66 2108 0169 Fitch Ratings (Thailand) Limited Park Ventures Level 17, 57 Wireless Road, Lumpini Patumwan, Bangkok 10330 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. 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.