Thailand's banking system outlook stable, says Moody's

Thai banks have the financial flexibility to withstand a substantial deterioration in asset quality, according to Moody's stress tests.

Moody's Investors Service says the outlook for Thailand's banking system over the next 12 to 18 months is stable.

"The stable outlook is underpinned by our view that reconstruction and inventory replenishment activities will generate the rebound as firms normalize production and the government implements programs introduced after last year's massive floods," said Karolyn Seet, a Moody's Assistant Vice President and Analyst.

Moody's expects annual loan growth of 5%-10%, with the infrastructure and manufacturing sectors accounting for the bulk of the new loans.

Under Moody's adverse scenario, in which non-performing loans reach an average of 10% throughout their loan books, the capital levels of all Moody's-rated banks will remain within a 7%-16% range.

The banking system's overall funding and liquidity profile is also stable, with liquid assets accounting for 30% of total assets, while customer deposits make up 75% of total funding.

Moody's rates 10 banks in Thailand, including eight commercial banks and two policy banks. The eight commercial banks accounted for approximately 89% of total banking system assets as at end-2011.

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