Thailand unscathed by Western banking turmoil
Most economists from the public and private sectors expect the ongoing US and European banking crisis to have a limited effect on the Thai banking sector thanks to the solid fundamentals of local banks and the strong supervision of the Bank of Thailand.
Finance Minister Arkhom Termpittayapaisith last Wednesday insisted Thai financial institutions will not be affected by the banking debacle in the US and Europe as local organisations have little exposure to such banks.
Suwannee Jatsadasak, assistant governor of the Bank of Thailand, said in a statement on March 20 the US banking fallout would have a limited impact on Thailand’s financial stability because local commercial banks have no direct exposure to the troubled US banks.
According to Ms Suwannee, the total exposure of local banks to startups and fintech firms globally represents a marginal level of less than 1% of Thai banks’ capital.
No local banks are investing in digital assets, while their subsidiaries invest in digital assets worth around 200 million baht, according to the central bank.
Nevertheless, questions persist about whether Thai financial institutions and banks are actually as solid as proclaimed. Leading economists attributed their confidence in local banks to their solid fundamentals.
Thanyalak Vacharachaisurapol, deputy manager of Kasikorn Research Center, forecasts the US and European banking crises will not impact the Thai banking sector because of the solid condition of local banks as well as the strong supervision of the central bank.
She said the contexts of the US and Thai banking industries differ.
There are around 4,000 banks in the US, with the troubled banks mid-sized institutions with specific problems in terms of balance sheets and risk concentration.
Bank closure is a normal occurrence in the US that happens every year, usually involving small to medium-sized banks.
US authorities also take more time to find a solution for troubled banks, said Ms Thanyalak.
“However, the US and European banking problems will not result in a global banking crisis because the related authorities have taken swift action to deal with the fallout,” she said.
“The Western banking crisis will not impact the Thai banking sector.”
Naris Sathapholdeja, head of ttb analytics, said troubled banks in the US and Europe are specific risk cases and the problem would not cause systemic risk as the authorities have handled the problem promptly.
Amonthep Chawla, chief economist at CIMB Thai Bank, said American and European authorities should be able to handle the troubled banks.
However, the debacle affects investor confidence in the capital and bond markets. This risk factor will lead to higher financial costs, in addition to rising interest rates, said Mr Amonthep.
He said the banking crisis will not affect Thailand’s financial stability given the strong financial conditions of the local banking sector.
However, the Bank of Thailand’s firm regulation of local banks through both micro and macro-prudential measures could impact the country’s financial inclusivity, especially in vulnerable sectors, said Mr Amonthep.
Kris Chantanotoke, chief executive of Siam Commercial Bank (SCB), said the Bank of Thailand has been monitoring banks’ financial conditions during the crisis and talking with financial institutions.
With strong risk management guidelines and a firm financial footing, the local banking sector and SCB should be able to weather any turbulence caused by the bank failures, he said. The Western banking fiasco will not impact the Thai banking industry, said Mr Kris.
Parson Singha, senior director of Fitch Ratings Thailand, said last week he believes Thai banks are financially sound. Core capital and loan-loss allowance coverage are reasonably strong, offering sound buffers against downside risks.
“Thai banks generally have stable liquidity and there is no significant dependence on offshore funding,” Mr Parson said.
Last week the central bank said it expects a limited impact on the country’s financial system from the problems besetting banks in the US and Europe.
The central bank is monitoring the situation, said Ms Suwannee.
She said the Bank of Thailand’s supervision of banks complies with international standards and it applies capital and liquidity regulations to all banks.
The central bank reported the financial position of the commercial banking sector remains strong. At the end of 2022, Thailand’s commercial banks had a capital adequacy ratio of 19.4%, higher than the minimum requirement of 8.5%, a liquidity coverage ratio of 197% and a non-performing loan (NPL) coverage ratio of 172%.
The NPL ratio stood at a low level of 2.73%.
“The current position of local banks is better than during the 2008 global financial meltdown,” Ms Suwannee said.
According to Krungsri Research, the Thai banking system’s capital adequacy ratio at the end of 2022 is No.2 in Asean after Indonesia.
Mr Arkhom, the finance minister, discussed the matter with the Bank of Thailand and found local institutions’ transactions with the troubled banks totalled only 2 million baht in value.
Thailand implemented stricter supervision of local institutions following the 1997 Asian financial crisis, strengthening the system.
UNLIKELY TO ESCALATE
Pakorn Peetathawatchai, president of the Stock Exchange of Thailand, said the banking crises in both the US and Europe were caused by deposit runs and a liquidity crunch.
As liquidity quickly disappeared from the financial system, both the central banks and the governments of the US and Switzerland acted in a timely manner to cope with the problems by offering deposit guarantees to stop a bank run, with the situation resolved shortly.
He said regarding Credit Suisse, the Swiss National Bank quickly dealt with an unprecedented problem.
“If you can’t restore confidence and many people continue to withdraw money at the same time, any bank will collapse even if it is the best bank in the world,” said Mr Pakorn.
Silicon Valley Bank (SVB) also faced a liquidity crunch. He recommends investors consider all information thoroughly before buying or selling stocks.
“The Thai unit of Credit Suisse offers investment banking and private banking businesses, and I think it has experienced no impact from the Swiss parent’s trouble. It serves mainly high net worth clients investing abroad, including debt securities insurance,” Mr Pakorn said.
“It remains to be seen whether Credit Suisse can continue its operations after the merger with UBS into a ‘super bank’. Of note, UBS is very conservative with a focus on a niche market.”
He said Thai commercial banks have diversified into insurance and mutual fund business, offering clients a variety of financial products.
The Bank of Thailand supervises commercial banks rigorously and Thai banks have one of the highest capital rates in Asia, said Mr Pakorn.
He advises a diverse investment portfolio in a variety of products and markets because no one knows where future risks will arise.
Pote Harinasuta, chief executive of One Asset Management, said the banking crises in the US and Europe caused short-term volatility for banking stocks, but he believes the situation won’t spread widely.
“What happened in the US and Europe affects investment sentiment in financial and growth stocks, but we are confident the situation will not escalate,” he said.
Global bourses are likely to remain volatile because of concerns about Credit Suisse’s contingent convertible additional tier 1 (AT1) bonds, which are the bank’s debt securities that can be converted into equity.
The debentures are now valued at zero because they were written down following the merger with UBS.
However, Mr Pote said the AT1 case is unique to the Swiss merger.
“We believe the trouble in both the US and Europe will be confined, not escalating into a new financial crisis,” he said.
“The central banks and governments have quickly moved to handle the situation by increasing liquidity and deposit guarantees, key to controlling the panic and limiting further systemic risks.”
CRISIS NOT OVER
Luke Ellis, chief executive of hedge fund Man Group, warned the banking crisis that sent shockwaves through markets this month isn’t over and more lenders could fail.
“A significant number of additional banks will not exist 12 to 24 months from now,” he said in an interview with Dani Burger at the Bloomberg Invest conference in London last Wednesday.
Fears of a global banking crisis emerged after SVB collapsed, followed by two other banks failing and Credit Suisse being forced to merge with rival UBS Group as regulators sought to avoid a broader financial collapse.
Another bank in the US, First Republic Bank, is wobbling.