Thai banks' loan growths, asset quality may dwindle due to coronavirus

Profit levels, strong capital, and good coverage ratios may soften short-term impacts.

The coronavirus will test the resilience of Thailand’s banks as loan growths and asset quality may weaken, but short-term impacts will be cushioned by profit levels, strong capital, and good coverage ratios, said a S&P Global Ratings report.

"We believe the outbreak will have a greater impact on Thai banks than on any other banking system in the Association of Southeast Asian Nations, given the country's high credit risk and high linkages with China for tourism and trade," credit analyst Deepali Seth-Chhabria said.

Whilst the country has rebounded strongly after previous crises, Seth believes that the outbreak will worsen the current economic downturn due to a weak external demand. A delay in recovery spells further trouble amidst high household leverage, aggressive underwriting standards, and weaknesses in the SMEs sector.

“Some bank ratings have limited buffers. If the outbreak is prolonged, these ratings could come under pressure should credit costs rise sharply, loan quality deteriorate severely, or capitalization weaken significantly,” she said.

The government may introduce short-term economic stimulus packages for SMEs and the retail sector which could also support the economy and banking segments, she noted. The Bank of Thailand has already slashed its policy rate by 25 bp to a record low of 1% to boost the economy.

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