Export-Import Bank of Thailand faces elevated asset quality risk, profit pressures

Its gross NPL ratio rose whilst profitability declined in the first half of 2024.

The Export-Import Bank of Thailand (EXIMT) continues to face elevated asset quality risk on the back of its loan clientele and below-average profitability, according to Moody’s Ratings.

EXIMT's profitability declined in the first half of 2024 with annualized net income/tangible assets of -0.4% compared to 0.3% in 2023 on the back of high credit costs amidst higher non-performing loans (NPL).

Its gross NPL ratio rose to 5.1% as of 30 June 2024, from 3.6% a year earlier, driven by delinquencies from its corporate exposures. The bank's high provision coverage of 195% of NPLs provides some buffer against credit risk.

Structurally, the Thai bank faces elevated asset quality risk from its high single-client concentration in loans, exposure to small and medium enterprises (SMEs), and exposures in “emerging and frontier markets”, Moody’s said.

The bank's very large and rapidly growing off-balance sheet exposures, which include guarantees and other commitments, also continues to present credit risks.

“The bank's profitability is prone to volatility as it is vulnerable to sudden spikes in credit costs due to its concentrated loan book,” Moody’s said, adding that its profitability is expected to remain below the average of rated peers in Thailand over the next 12-18 months.

EXIMT's capitalization weakened because of the net loss in the first half of 2024, with its tangible common equity (TCE) as a percentage of its risk weighted assets (RWA) declining to 11% as of 30 June 2024 from 12% a year earlier.

“Whilst the bank's capitalization will be weighed down over the medium term by weaker internal capital generation and a pickup in growth in risk weighted assets, we expect EXIMT's capitalization to be supported through capital injections from the government,” Moody’s said.

EXIMT is highly reliant on market funding, with its market funds as a percentage of tangible banking assets at 52% as of 30 June 2024.

Nonetheless, its refinancing risk is partially tempered by its policy role and strong linkages to the government.

“Although the bank's liquid assets made up only 13% of its tangible banking assets as of 30 June 2024, we consider this small liquidity buffer in the context of the bank's sticky deposit base, which fully comprises state-owned entities,” Moody’s said.

EXIMT is fully-owned by the Thailand government, and has a policy role in supporting Thai foreign trade and investments. The government regularly injects new capital into EXIMT.