Reuters: Financial Services and Real Estate: TEXT-Fitch affirms Thailand at 'BBB'; otlk stbl

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TEXT-Fitch affirms Thailand at 'BBB'; otlk stbl May 9th 2012, 09:09 Wed May 9, 2012 5:09am EDT (The following statement was released by the rating agency) May 09 - Fitch Ratings has affirmed Thailand's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB' and 'A-' respectively with Stable Outlooks. At the same time, the agency affirmed its Short-Term Foreign Currency IDR at 'F3' and its Country Ceiling at 'BBB+'. "Thailand's ratings and Outlooks reflect its strong external financial position and signs of political stabilisation following the peaceful election in 2011," said Anna Thung, Associate Director in Fitch's Asia-Pacific Sovereign Ratings team. "However, these are balanced by risks to fiscal transparency and policy management, while buoyant credit growth means the banking sector will need to be monitored." Notwithstanding an orderly transition of power in the wake of a free and fair election, Fitch believes it is too early to conclude that Thailand's deep political divisions have been resolved. The agency still sees a certain degree of political 'event risk' although political tensions are not a constraint on the ratings. Fitch expects Thailand's economy to grow 5.5% in 2012 after a flat outturn in 2011 when the country was hit by extensive flooding. Nonetheless, Thailand's five-year average growth rate excluding the floods impact of 3.3% over 2007-2011 is not notably stronger than its 'BBB' peer group (2.9%). Thailand has broader structural weaknesses including low average income (USD5,000, against a 'BBB' median of USD8,800) and deficiencies in infrastructure. The government's response to the floods and other policy pledges under the current administration will drive up the general government debt ratio, bringing it to a level closer to the 'BBB' range median. However, Fitch notes the sovereign's strong financing flexibility and believes Thailand can accommodate higher public debt at the current rating level. The agency does not view the one-off impact on the public finances arising from necessary flood defence improvements as negative for the ratings. Instead Fitch sees risks to fiscal transparency in the government's tendency to resort to off-balance sheet channels to achieve its policy goals such as the use of the central bank to fund a soft-loan scheme for farmers. Fitch also notes that public disagreement between the Bank of Thailand and the government over the conduct of economic policy does not bode well for the coherence of policy management and might ultimately compromise the central bank's independence. While it is not currently a material rating risk, the quality of policy management is an area Fitch will watch closely. The pace of credit growth was rapid at 14.9% in 2011, and has been accompanied by a rise in banks' dependence on non-deposit funding and foreign borrowing. Thailand has a large banking system where credit to the private sector was 132% of GDP at end-2011, double the 'BBB' range median. Continued rapid credit growth could become a risk. However, Fitch views Thailand's financial supervisory arrangements as strong while macro-prudential indicators remain broadly favourable with the non-performing loans ratio at 2.7% at end-2011 and the banking system capital adequacy ratio at 15.1% in 2011. Thailand's net external creditor position was 41.5% of GDP and 50% of current external receipts (CXR) in 2011, much stronger than the 'BBB' medians of net external debt of 3.9% and 13.4% respectively. The country's external debt servicing ability also fares better than the 'BBB' median - as evident from its lower external debt service (2.5% in 2011) and external interest service (0.5%) over CXR than the 'BBB' medians of 3.4% and 4.8%. The country's strong external financial position helps to insulate the economy from external shocks. A stronger commitment to clarity in fiscal management and to a policy framework oriented towards sustainable growth would be positive for the ratings. The ratings would also benefit from growth-enhancing structural reform, narrowing of the fiscal deficit and stabilisation of the government's debt. Further evidence of political stabilisation would be positive for the credit profile. Conversely, a sustained rise in government debt ratios above rating peer medians would be negative for the ratings, although this is not Fitch's expectation. Link this Share this Digg this Email Reprints

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