Market Report

Thailand – More downside risks

by Weerapat Wonk-urai / Jun 17, 2019

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We believe Thailand’s GDP growth forecast of 3.6% this year has downside risk given 1Q19 only managed a disappointing 2.8%. Negative factors include shrinking exports and low public-investment activity. Falling oil prices may result in less working-capital loans from petrochemical-related businesses, which could impact any increase in banks’ lending this year.

More worried about credit cost
Although banks have not seen higher nonperforming-loan risk, we are concerned about an increase in special-mention loans during 1Q19. As this could result in a rise in credit cost, we update our assumptions for the big-four banks in 2019.

Low ROE from mismanaged capital
The big-four banks are unlikely to change their dividend payout ratios as they are too important to the country’s economy. Although Thai banks have low loan-growth outlook, they need to maintain high reserves to satisfy the central bank. Capital mismanagement is negative to banks’ ROE and could affect investor interest.