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25 Mar 2022

Econ Digest

Why S&P Downgraded Credit Ratings of Four Thai Commercial Banks?

คะแนนเฉลี่ย

        On March 21, 2022, the credit rating agency Standard & Poor’s (S&P) downgraded the credit ratings of four Thai commercial banks, namely Siam Commercial Bank (SCB), KASIKORNBANK (KBANK), Krungthai Bank (KTB) and TMBThanachart Bank (TTB). However, S&P maintained the credit ratings of Bangkok Bank (BBL) and Ayutthaya Bank (BAY) unchanged at BBB+/stable, as Bangkok Bank plays an important role in Thailand’s financial system and Ayutthaya Bank benefits from its status as a subsidiary of a foreign bank with a higher credit rating than Thailand.

        In this downgrade of Thai commercial banks’ credit rating, S&P believes that systemic risks from economic problems will further affect the Thai Bank’s business operations. In addition, the debt burden of various debtor groups remains at a high level. While measures to help debtors and relax debt classification criteria may help slow the rise in the reported NPL ratio, banks must monitor debtors during their exit from bailouts as it relates to the asset quality issue in the banking sector. S&P estimates that the amount of bailout-eligible debt is about 14% of total loans, some of which have deteriorated into non-performing loans, but more than half still require deeper debt restructuring, such as adjusting monthly payments and extending the debt maturity, which will lead to the need for Thai commercial banks to address debt from the impact of the COVID-19 pandemic in the medium to long term. This can be further explained by the fact that this factor will impair the banks’ ability to accumulate capital by limiting profitability.

        At the same time, the household debt in Thailand is still at a high level. In the Asian region, Thailand’s household debt level is second only to that of South Korea, reflecting the weak financial situation of Thai households. Compared to countries such as Singapore, where households have a solid financial position (measured on the asset side such as various forms of savings), Thailand is inferior in this regard and is therefore considered an important drag on this downgrade.

        Credit quality and high household debt will remain challenging for the Thai economy in the coming years, as it is an issue that will take time to resolve. Economic risk factors must be closely tracked in the coming phase, especially the COVID-19 pandemic and the Russia-Ukraine crisis. All of these are important factors affecting the timing of the return of many countries’ economies to the recovery path, including Thailand.

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