Moody’s Downgrades Thai Banks Outlook to Negative amid a Weaken Growth from COVID-19

Moody’s Investors Service, credit ratings, research, tools and analysis for the global capital markets, has downgraded the outlook for Thailand’s banking system from positive to negative due to the outbreak of coronavirus.

 

Moody’s states that the operating environment for Thailand’s banks will deteriorate in the next 12-18 months which will later reflect on the banks’ asset quality and profitability. However, strong capital and liquidity in Thai banks, coupled with the support from the government will provide a cushion to the growing risks.

The negative outlook which will lead to a decline in profit is a result of a weak loan demand as economic growth slows. Moreover, the rate cut will lead to contraction of net interest margins, while credit costs will rise as problem loans increase amid a weak economic growth.

 

However, Moody’s expects capitalization to be stable as both loan growth and internal capital generation weaken. Meanwhile, Thai banks will see limited impact of economic deterioration on funding and liquidity by the predominance of retail deposits with loan-to-deposit ratios remaining below 100%.

In addition, Moody’s believes the support from the Thai government to remain strong and will buoy the banks if needed.