Report Summary
Robust export growth is helping to keep the Thai economy afloat, although domestic consumption and investment continue to flounder. A monetary and fiscal stimulus, in our view, will do little to reverse the situation. Consolidation on the political front, which is not expected until the end of this year, should provide the cure, and this suggests an economic recovery in Q108.
The Thai economy grew by 1.2% q-o-q (4.3% y-o-y) in the first quarter, countering market expectations of a deceleration of economic momentum this year. The present political uncertainty following the military coup in September last year has weighed on consumer spending and investment but increased government spending, up by 1.2% y-o-y, and agricultural production, up 4.3% y-o-y, helped to fill the gaps. In addition, exports of goods and services held up fairly well, increasing by 7.1% y-o-y to THB1.22trn (US$36.4bn). Imports fell 6.4% y-o-y to THB1.08trn, lifting the trade balance to a surplus of THB146bn, which compares with a deficit of THB9bn in the same period last year. While the 1.2% q-o-q rate of Q107 is roughly double the 0.6% quarterly expansion of Q406, much of this seems to have been on the back of increased government consumption, which increased 11.9% y-o-y, while household spending growth dropped from 2.5% y-o-y in Q406 to 1.3% y-o-y in Q107. In addition, private investment dropped 2.4% y-o-y in Q107, compared to an increase of 2.3% in Q406.
The Commercial Banking Sector By all accounts Thailand today should have a well performing commercial banking sector due to its previously healthy economic performance and its strong recovery from the Asian financial crisis.
However, the turmoil created by recent political events has meant that despite Thailand being on par with its economic counterparts the overwhelming picture we get from Thailand's bank balance sheets as at December 2006 is one of caution.
Total assets, loans and deposits at December 31 2006 amounted to US$228.3bn, US$145.4bn and US$171.0bn, respectively. Loan/deposit ratios are rising but loan/asset ratios are falling and are currently at 85.1% and 63.7% respectively, while loan/GDP ratios rose to 70.4% and are continuing to rise. At just over US$36bn, the banks' bond portfolios are small in absolute terms and declining in relative terms. The banks' bond holdings amount to about 16% of total assets and BMI considers that, in an international context, the banks are neither highly nor lightly exposed to bonds. Other assets and other liabilities are significant, indicating that there are good links between Thai banks and the global financial markets.
Evidently, the banks are apparently reluctant to recycle loans to non-bank customers or to the government. It appears that the banks are worried about the high level of debt in the economy (as reflected in the loan/GDP ratio) and the political environment. In short, Thailand has been, and has the opportunity to again be, a strong economy and there are some signs of the economy picking up. However, Thailand Commercial Banking Report Q3 2007 Business Monitor International Ltd Page 12 the long term effects of recent events are yet to be seen, and the future performance of the economy and commercial banking sector in Thailand rests heavily on these outcomes and the decisions of the administration. The fluid political situation remains a concern and significant risk to the economy.
Press Reports Political uncertainty, a domestic economic slowdown and declining consumer confidence pressured lending growth of commercial banks. Thai commercial banks were required in December to take initial steps in a phased adoption of new international accounting standards called IAS 39. The standards involve a switch to future cash-flow valuations of collateral that results in higher provisioning requirements for potential losses on non-performing loans (NPLs). Full adoption of the standards is due at the end of 2007. As part of the move to the new standards, leading banks such as Bangkok Bank and Siam Commercial Bank made large provisions but state-run Krung Thai Bank outperformed its peers.
Bangkok Bank reported that net loan growth was flat due to seasonal repayments at the beginning of the year.
The Bank of Thailand says that it will introduce measures to facilitate mergers and acquisitions among commercial banks to strengthen the banking system and prepare for financial liberalisation in 2010.
Deputy Governor Bandid Nijathaworn said the BOT's new financial master plan would be implemented at the beginning of next year after conducting an industry hearing. It will be aimed at reducing factors that have been obstacles in the way of mergers and acquisitions, including tax laws and regulations. In particular, the BOT noted that the Financial Institutions Development Fund (FIDF) was looking for a strategic merger partner for Siam City Bank in which it holds a 47.58% stake. The bank is considering offers made by many groups to buy more shares from the FIDF.
State-controlled BankThai cut its capital and raised THB3.05bn in fresh funds via a stake sale to strategic partners in a financial restructuring aimed at improving its competitiveness and reducing its retained losses. It sold 556.2mn new shares, or a 24.99% stake, to a unit of TPG Newbridge, and 87.6mn new shares, or a 3.94% stake, each to wholly-owned units of Blum Strategic Partners and Marathon Special Opportunity Master Fund.
Bank of Nova Scotia, Canada's third-laregest bank, agreed to buy 25% of Thanachart Bank for THB7.1bn (US$254n), adding to its seven acquisitions in Asia and Latin America in 18 months. The bank has an option to raise its stake to 49% by the end of this year, the companies said in a joint statement.
Signalling ongoing concerns about the strength of the baht, the BOT has urged Thai banks to adjust their net foreign exchange position at the end of each day, and foreign banks within the following day. The central bank is closely monitoring foreign currency trading of commercial banks.
Contents
Executive Summary
Key Issues
Changes To The Commercial Banking Forecast
Thailand Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Business Environment:
Macroeconomic Activity
Industry Forecast Scenario
Comment On The Past
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists
“Thailand Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00404
