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14 Mar 2023

Econ Digest

How much will the US bank collapse affect Thailand?


        The two troubled US banks, namely Silicon Valley Bank and Signature Bank, were shut down after having to deal with a bank run by depositors in the past few days. However, US authorities have accelerated the imposition of measures to protect depositors and other financial institutions affected by this incident. To support depositors, prior limits to deposit protection have been eased, allowing all depositors of those two banks to access their deposits starting Monday, March 13, 2023, to maintain confidence. At the same time, the Fed has relaxed its conditions to provide liquidity to financial institutions. However, KResearch holds the view that close attention must be paid to the extent of the US banks’ problems at present as well as their future situation. This is because the newly announced measures can neither enhance financial institutions’ profitability, nor can they fully guarantee that weak performance of other financial institutions will not be exposed amid the upward trend of US interest rates.

        Regarding any impact on Thailand, KResearch anticipates that the US banks’ collapse would indirectly cause volatility in the capital market while waiting for clarification and the development of troubled banks in the US banking system. As a result, the Thai currency may become volatile, while the Thai stock market may still be pressured by such risk in line with other stock markets. Nonetheless, safe haven assets like gold may surge when the situation is uncertain. Meanwhile, any direct impact is expected to be limited as Thai financial institutions may have minimal or zero direct exposure to the two troubled US banks. Aside from their diversified asset and deposit portfolios, Thai banks have gradually adjusted their investment strategies in fixed income instruments since 2022 to minimize the impact of rising interest rates. Additionally, Thai commercial banks have liquidity coverage ratios higher than the threshold and more robust capital adequacy ratios than the average of US banks. Moreover, as there are differences between customer behavior in Thailand and the US, and strict and close supervision by the Bank of Thailand (BOT), KResearch therefore believes that Thai banks will not face issues like those that have happened in the US.

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