Fitch analysts raise concerns about Thailand’s recovery amid global slowdown

However, Fitch expects Thai banks to have some headroom in ratings thanks to improved financial performance, and in some cases, expectations of government or shareholder support.

James McCormack, Fitch Rating’s managing director and global head of sovereigns, said a mild recession in the US, below-trend growth in Europe and slower-than-expected growth in China have all had an impact on the global economy. These developed economies are grappling with persistent inflation, which will remain above most countries’ targets into 2024, he said.

While the US may maintain high-interest rates to combat stubborn inflation, China’s property sector downturn is affecting confidence globally. Though both countries have introduced modest stimulus and policy easing measures, it is still unclear whether they will be enough to ensure Thailand’s target of “around 5%” growth in 2023.

McCormack noted that the global scenario is not favourable for Thailand’s growth. Merchandise exports have declined year on year since October 2022, and though tourist arrivals have increased, they still lie well below pre-pandemic levels, he said.

Despite these challenges, he said, Fitch believes that the multi-party coalition government could encourage consensus-led policymaking. However, wide-ranging views within the coalition may complicate the process and delay the 2024 fiscal budget.

Fiscal consolidation is also likely to be constrained by parties’ campaign pledges to raise social spending, which could boost short-term growth but potentially raise government debt relative to GDP unless sustainable growth can be maintained.
 

“I believe the fiscal issue will be the most evident in terms of potential rating pressure, but we do not believe they are significant enough to warrant rating action or consideration. I believe it is simply something that needs to be monitored to see how Thailand compares to other countries," he said.

Jonathan Cornish, Fitch Rating managing director and head of Asia-Pacific banks, said the mid-year outlook for banking systems in developed economies was skewed downwards.

He said business generation prospects are expected to deteriorate this year compared to last year, with certain core financial metrics weakening in markets like the US, the United Kingdom, Germany and Australia over 2023 and into 2024.

In comparison, the outlook for emerging-market banking systems appears more favourable, despite challenging conditions in some major markets.

Fitch-rated banks appear to be most resilient, especially in China, but strengthening headwinds means a rising number of smaller unrated banks will likely struggle to sustain growth in business volumes, margins and profitability, while asset quality and balance sheets are further strained.

In Thailand, all banks’ ratings remain stable for various reasons. The largest private commercial banks’ Issuer Default Ratings are all “BBB” with stable outlooks, driven by their viability ratings or they are at the same level as their government support ratings.

“Fitch expects the environment in Thailand to become more conducive for banks to grow profitably and generate capital over the next two years, despite the risk of further impairment on restructured loans. That said, major banks are eager to seek opportunities for growth both domestically and internationally," Cornish said.