,Thailand

Relaxed regulation heightens Thailand banks’ systematic risks: S&P

NPL ratio is expected to rise to its highest since the 2009 financial crisis.

Thai banks face rising systematic risks as the central bank continues to remain lenient with its regulatory norms, particularly with the ongoing relaxation of loan classifications, reported S&P Global Ratings.

In its latest banking industry country risk assessment for Thailand, S&P warned that the relaxed regulations will only prolong the recognition of underlying problem loans for the Thai banking system. This, in turn, will lead balance sheets to become less transparent.

“The lax relief measures and the recent extension of relaxed loan classification norms to end 2023 could further distort the Thai banking industry's impaired loan ratio. Therefore, we view the industry risk as having risen,” S&P said.

S&P clarified that it views Thailand's regulation and supervision of its banking system as adequate. “But, in our view, some gaps remain in the regulation and supervision of credit cooperatives and specialized financial institutions, despite these entities' rapid growth and interconnectedness with the banking system,” the ratings agency indeed.

As a result, S&P now expects the average nonperforming loan (NPL) ratio of Thai banks to rise gradually and peak at 6% next year—the highest since the 2009 Global Financial Crisis. Credit losses are estimated to remain steep at 1.7% in 2021, from 1.2% in 2019. 

Whilst the current relaxation will likely be temporary, and unlikely to be extended beyond 2023, it may still lead to an increase in risk for the banking system. Thailand, like other countries in the region, has provided relief measures to its banks. However, the amount of loans covered under the relief measures is amongst the highest in APAC, the ratings agency noted. 

Whilst these numbers are comparable with that of Malaysia and Indonesia, they are still high compared to other APAC countries, where repayment moratoriums have fallen below 5% of system loans. 

Further exacerbating the situation is that Thailand is one of the few countries in APAC that relaxed the loan classification norms, and did so for an extended period. In residential mortgages, Thai banks have higher loan-to-value ratios than some of their regional counterparts.

The latest wave of COVID-19 infections will also put pressure stress in the sector and mould into the shape of problem loans. 

“We expect asset quality may be worse than our base case, especially after the unwinding of forbearance measures,” S&P said.

Elevated credit costs and lower margins, partly tempered by cost control measures, will also keep the banking system's profitability below its long-term average. 

On the other hand, Thailand's competitive dynamics should remain stable over the next two years, according to S&P, and the banking sector's funding profile will remain largely unchanged during this period.

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Anju Abrol has over 30 years of banking experience.
Tse Yi-Mun will lead the bank’s north Asia branch as its managing director and group head.
Clients can now purchase SC Hong Kong’s wealth management products.
Citi plans to offer around 100 types of wealth products from the mainland.
Agents can apply for the loan through the BRILink Mobile application.
The delinquency ratio has been on the decline since May 2018.
The market is forecasted to rebound by over 15% in 2021.
The fund aims to achieve a potential monthly dividend payout of 5% per annum.
Its Vice President of Solution Consulting in Singapore discussed how to bridge the digital gap and humanise the banking experience in the new normal.
There is an increased demand for loans for home purchases and 'jeonse.’
The partnership is eyeing 16 million customers by 2025.
The U-Energy platform has nine partners that can support energy efficiency projects.
The bank expects its own climate financing in 2019-2021 to reach $17b.