TEXT-Fitch: Thailand Still Resilient But Growing Caution

(The following was released by the rating agency)

BANGKOK/SINGAPORE, October 10 (Fitch) Fitch Ratings (Thailand) Limited says Thailand's economic performance has continued to show resilience to global shocks but slower regional growth and increasing leverage in the corporate and bank sectors will constrain ratings.

This was the key message at Fitch Ratings' annual conference in Bangkok on Wednesday 10 October 2012.

H.E. Kittirat Na Ranong, Deputy Prime Minister and Minister of Finance was the conference's guest of honor and provided the opening address.

David Riley, Managing Director, Sovereigns, Global Head of Sovereigns and Supranationals from Fitch's London head office, commented that the current juncture is an especially uncertain one for the global economy and for Thailand. There are three major risks looming over the global and Thai economy: the US fiscal cliff that would tip the US into recession; the ongoing eurozone crisis; and a potential hard-landing for the Chinese economy.

Mr Riley also said that the US fiscal cliff represents the single biggest near-term external threat to the global economy. While not Fitch's base-case, if political agreement in Washington cannot be reached before year-end, some USD600bn in tax increases and spending cuts would come into effect at the beginning of 2013 which, if permanent, would tip the US and possibly the global economy into recession. Despite Thailand's solid economic fundamentals and resilience, it would not be immune to such a shock.

"On Europe, Fitch analysis suggests that Thailand is well placed to navigate the global spillover from a further intensification of the eurozone financial crisis," ," Mr Riley added, "Thailand's financial exposure to Europe is limited and less than many other economies in the region, while its banks, backed by the fire-power of the Bank of Thailand, have sound capital and liquidity buffers to absorb turbulence in global financial markets."

Over the medium-term, China's economy is expected to become less reliant on investment and exports. This creates opportunities and challenges for China's trading partners, including Thailand, to re-orientate their exports towards consumption in China.

Mark Young, Managing Director, Financial Institutions and Head of Bank Group Asia Pacific from Fitch's Singapore regional office, said that emerging Asia, and in particular, greater China has seen rapidly rising leverage which, together with greater economic exposure to China, means the region is more sensitive to the risks originating out of China. As a progressively weaker operating environment in Asia Pacific exposes potential structural weaknesses, this is leading to greater caution in the region and rating pressure on banks, in particular, China and India. "Thai banks would not be immune to these risks, but credit fundamentals look more stable for their existing rating levels. Non-performing loans are at near historical lows and comfortable absorption features exist. Brisk credit growth and tighter funding indicators are areas to monitor," Mr Young noted.

Lertchai Kochareonrattanakul, Senior Director, Corporates, Head of Corporates, Fitch Ratings (Thailand) Limited said that Thai and regional oil and gas companies have been more active in acquisitions and investments to cope with robust demand. However, the impact on the ratings has so far been limited, due to their solid balance sheets and close rating linkage with sovereigns. Although large acquisition and high capex have pressured PTT's standalone credit profile, PTT's ratings remain intact, supported by a one-notch rating uplift for implicit state support.

A roundtable discussion by Dr Pailin Chuchottaworn, President and CEO, PTT Public Company Limited; Mr Chartsiri Sophonpanich, President, Bangkok Bank Public Company Limited and Mr Win Phromphaet, Head of Global & Real Estate Investment, Social Security Office of Thailand, moderated by Vincent Milton, Managing Director of Fitch Ratings (Thailand), addressed key regional opportunities and risks facing investors.

The conference was well attended by over 350 senior executives and officials across the investor, regulatory, financial and corporate sectors.