Moody's reviews 11 banks in Thailand for possible downgrade
Moody's Investors Service has placed the debt and deposit ratings of 11 banks in Thailand on review for possible downgrade. The banks affected are Bangkok Bank (BBL), Bank of Ayudhya (BAY), Export-Import Bank of Thailand (EXIMT), Government Housing Bank (GHB), Kasikornbank (KBank), Krung Thai Bank (KTB), Siam City Bank (SCIB), Siam Commercial Bank (SCB), Standard Chartered Bank Thailand (SCBT), TMB Bank (TMB) and United Overseas Bank Thailand (UOBT). "The review of their debt and deposit ratings will look at the extent to which Thailand's ability to provide support to its banking system, if needed, is converging with the government's own debt capacity as a result of the ongoing global economic and credit crisis," says Karolyn Seet, a Moody's Assistant Vice President and Analyst. "Moody's believes that most governments are at least as likely, if not more likely, to support their banking systems as they are to service their own debt -- a view that has traditionally led to bank ratings often benefiting from significant uplift due to systemic support," says Seet. "However, as the financial crisis continues, the capacity of a country and its central bank to support its banks converges with, and is increasingly constrained by, the government's own debt capacity," says Seet. In this respect, please see Moody's recent report "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries" available on www.moodys.com. "As such, Moody's will be reassessing the level of systemic support for the banks listed above to determine whether the systemic support they receive needs to be more closely aligned to the government's local currency bond rating," says Seet. Moody's will review the specific circumstances of Thailand to determine the appropriate systemic support for Thailand's bank ratings and the implications for the 11 banks that have been identified as being potentially affected. Factors that Moody's will consider in its assessment of systemic support include the size of the banking system in relation to government resources, the level of stress in the banking system, the foreign currency obligations of the banking systems relative to the government's own foreign exchange resources, and changes to the government's political patterns and priorities. Moody's assesses Thailand to be a high support country. This guideline takes into consideration the history of support for banks, the size, strength and the degree of fragmentation of the Thai banking system. Thai banking assets equal around 90% of GDP. Thailand's government debt, low relative to the country's GDP, is underpinned by the hardiness of the domestic banking and financial system, allowing the government a high degree of flexibility in extending support to the banking system through liquidity and capital assistance, as exemplified in the past. The banking system does not rely substantially on the supply of foreign currency to fund its operations. The credit stress evident in the Thai banking system is low relative to other Asian countries, following the worldwide economic recession and domestic political unrest. Banking system NPLs have remained rather resilient to the global downturn and have shown signs of only a gradual increase to date (approximately 0.5% on average). Thai banking system loans have experienced tepid growth in the past 10 years, and are expected to continue to grow during the course of 2009. The rating review has been prompted by the severity and longevity of the global economic crisis and the country's political turmoil -- as reflected by Moody's negative credit outlook on the Thai banking system. Over the next two years, banks are likely to experience higher credit-related write-downs, lower growth and lower revenue, which in turn may pressure the banks' current capitalization levels. With regard to political and historical patterns, necessary procedures and policy instruments to deal with banking system problems have been established and tested since the 1997 Asian Financial Crisis. In Moody's view, in case of need, support is likely to be provided for the system's banks. The support framework for problematic banks will likely aim to maintain ordinary banking functions and to avoid the liquidation of any bank. Moody's notes that the review is unlikely to lead to more than a one-notch change in the debt and deposit ratings of the institutions under review. It expects to conclude the review over the next few weeks. All other bank ratings in Thailand are not impacted by the reassessment of the systemic support level.