Thai banks' asset quality continues to weaken

Risks are prevalent in the SME and unsecured retail loans segments.

According to Fitch Ratings, asset quality risks are particularly present in more vulnerable segments such as SME (which accounts for 39% of sector lending) and unsecured retail loans (9% of sector lending), which are generally affected faster by a weak economy.

Here's more from Fitch:

Furthermore, leverage in the private sector and in households remains high (at 149% and 81% of GDP, respectively, as of 1H16), which adds to potential downside risks.

Fitch expects these asset-quality pressures to remain manageable for most banks – the banking sector has relatively high levels of loan-loss reserve coverage at 127%.

Banks have also been reducing loan growth over the past four quarters (in 1H16 loan growth was below nominal GDP growth), and tightening up credit standards in response to the weaker business climate.