Fitch Ratings View Bank Div Restrictions a Common Move while Core Capital to Remain Sound

Fitch Ratings, a widely-known credit ratings, commentary and research provider, stated that the Bank of Thailand’s capital distribution restrictions announced on 19 June 2020, which follow similar responses from other regulators to the economic uncertainties caused by the coronavirus pandemic, provide further support to Thai banks’ capital buffers.

 

Financial regulators globally have implemented aggressive measures over the past several months in response to the pandemic. Similar restrictions on bank dividend payments have been announced in Australia, the eurozone, India, Vietnam, and the UK. Thailand is asking banks to suspend 2020 interim dividend payments and share buybacks, and to prepare capital management plans covering the next one-three years.

The Thai central bank’s decision is linked to its broader policy to ensure credit access and stimulate business activity. The measures will help the country’s banks maintain the necessary resources to support their lending activities, and absorb credit losses, during this economically fraught period.

The Thai banking sector’s average common equity Tier 1 ratio was sound at 15.8% as of April 2020. Fitch considers capital as a strength of the majority of the Thai commercial banks in Fitch’s coverage, reflected in the capitalization scores of most of the banks, which are higher than their Viability Ratings.

 

Fitch revised the Thai banking sector’s operating environment score to ‘bbb’ from ‘bbb+’ in April due to expectations that poor economic conditions will materially affect the banks’ asset quality and profitability over the next two years. Nevertheless, Fitch expects the banks’ core capital to remain sound in Fitch’s base-case scenario, despite the challenging backdrop and potential volatility from the implementation of TFRS9.