Can Thai banks withstand a financial crisis?

The banks earned US$11.9b in 2016.

Analysts at Maybank Kim Eng thinks Thai banks can better withstand a crisis this time around because they are pretty profitable.

"The nine banks under our coverage raked in THB406b (US$11.9b) in operating profits last year, equivalent to 3.8% of their loans. If new NPL formation (implying credit cost) is not higher than that level (new NPL formation was 1.5% last year), we reckon their equity will be safe."

Here's more from Maybank Kim Eng:

Even if new NPL formation rises beyond that, our nine banks had accumulated a 17.6% CAR last year, of which 14.2% was Tier 1. This is still above the 9.125% required by regulations.

Assuming ALL mortgage loans or 14% of banks’ total loans turn into NPLs and without considering collateral values and current excess loan-loss reserves, the banks’ CAR would fall to 7.3%, a tad below the 9.125% required by BASEL III.

We note this scenario is highly unlikely given that the collateral value of mortgage loans is typically more than the amount of the loans ie loan-to-value ratios are below 100% and usually range between 70-80%.

Furthermore, the banks’ coverage ratio is currently 140%. Given high capital with good profitability, we believe a series of bank runs like in 1997 is unlikely to happen.