RETAIL BANKING | Staff Reporter, Thailand

On-going turmoils cause Thai banks to remain resilient

But analysts say with strong capital and liquidity, stronger banks can still maintain overall performance in 2010.

Fitch Ratings has commented that Thai banks are expected to continue to show resilience after economic and political shocks in the past two years, according to a Fitch report on Tuesday.

"The heightened operating risks from the prolonged political turmoil in Thailand and still weak economic environment, could impact profitability, loan growth and asset quality in the medium term. However, strong capital and liquidity should help at least the stronger banks to maintain overall performance in 2010," Vincent Milton, Managing Director of Fitch Ratings (Thailand) and a Senior Director of Financial Institutions at the agency, said in a report released.

Milton noted that three flagships, Bangkok Bank Public Company Limited (BBL), Siam Commercial Bank Public Company Limited (SCB) and Kasikornbank Public Company Limited (KBANK) continue to outperform the sector with Bank of Ayudhya Public Company Limited (BAY) also emerging as a strong performer. TMB Bank Public Company Limited (TMB) still lags, although its performance has stabilised and should improve in 2010, Milton added.

The report entitled "Thai Banks: 2009 and Q110 Review and Outlook -- Resilient, But Risks to Outlook Remain" states that although Thailand's economic outlook for 2010 appears to be improving, overall conditions are likely to remain weak.

In addition, asset-quality pressures, particularly related to the tourism, retail trade and consumer sectors, have increased due to the disruption to these businesses from the recent civil unrest.

Fitch expects a further increase in special-mention loans (SMLs), which have risen sharply since 2008. In light of these stresses, Thai banks' non-performing loans (NPLs) could rise in 2010. Nevertheless, Thai banks' average Tier 1 and total capital of about 12% and 16%, respectively, should provide a strong buffer. While growth could be affected in Q210, Fitch still expects Thailand's economic growth to recover modestly in 2010, with a full-year GDP growth forecast of 3.8%.

While Thai banks reported a significant improvement in performance in Q110, Fitch expects this to weaken in Q210 when they release their results in July. The combined net profit of the largest seven Thai banks -- BBL, Krung Thai Bank Public Company Limited (KTB), SCB, KBANK, BAY, TMB, and Siam City Bank Public Company Limited (SCIB) -- increased sharply in Q110 to THB24.1 billion (up 26.5% year on year), due mainly to lower funding costs and stronger gains on investment and fee incomes. Net interest margins (NIM) and return on assets (ROA) remained stable at 3.5% and 1.2% in Q110 (2009: 3.4% and 1.1%). Their asset quality appeared stable at end-March 2010, with total NPLs at THB352.1bn or 6.5% of total loans, although NPLs could rise in the latter half of 2010 if conditions remain weak.

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