RETAIL BANKING | Staff Reporter, Thailand

Why Thai banks are well placed to absorb loan losses

They have enough reserves even if 25% of thier restructured loans become NPLs.

Banks in Thailand have ample loan loss reserves and capital cushions, backed by solid profitability, so even if a substantial share of standard restructured loans become NPLs, Moody's analysts believe they will be able to absorb the losses.

In Thailand, the asset-weighted average ratio of loan loss reserves to problem loans at rated banks was 136.8% at end-2016.

Here's more from Moody's:

Our sensitivity analysis shows that banks in Thailand will have sufficient loan loss reserves whether 25% of restructured loans they held at end-2016 become NPLs or the rate increases to 50%.

Under the 25% scenario, the aggregate NPL ratio of rated banks will rise 0.7 percentage points but their provision coverage ratio will still remain above 100% (Exhibit 10 and 11). If 50% of standard restructured loans turn non-performing, their NPL ratio will climb 1.4 percentage points, reducing their problem loan coverage ratio to a decent level of 96%.

Among the four biggest banks, Bangkok Bank has the strongest loan loss coverage, and it will be still above 120% even under the 50% scenario. Among the four, the impact will be the greatest on CIMB Thai Bank Public Company Limited (Baa2 stable, ba2), which will see its loan loss coverage ratio drop to near 72% and 68%, should 25% and 50% of its restructured loans slip into NPLs, respectively.

The asset-weighted average Tier 1 capital ratio of rated banks in Thailand was a healthy 13.5% at end-2016, which will provide an ample cushion against a spike in NPLs.

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