With Thailand’s foreign tourism sector closed and stasis at the top driven by virus fears, the economy’s industrial and domestic base is also being ravaged. This week, Thailand’s stock market focused on banking stocks with investor’s putting the spotlight on rising non-performing loans in all sectors and not just limited to small and medium-sized firms.
As a new ministerial team in government and Bank of Thailand boss prepare to take office, there are increasing signs of the economic consequences of this unprecedented virus crisis burrowing deeper with unemployment assistance queues lengthening, factory doors being closed and the contagion of all this now making its way into Thailand’s bank sector where despite an initial boost in loan deposits reported in May, lending is being curtailed while non-performing loans are rising quickly.
Thailand’s stock market saw sharp falls in banking stocks last week with a slight rebound in late Friday trading.
The concern is over rising non-performing loans and bad debts as debt repayment holidays expire and signals for the Thai central bank that from September debt rescheduling must be the preferred approach in dealing with the growing impact of the coronavirus crisis which still has Thailand and the rest of the world in its grip.
An analyst with Asia Plus Securities attributed the nervous market to declining results from the banks in the second half and rising concern over provisions for bad debt.
This is despite a bolstering of bank balance sheets last year in Thailand, driven by the Bank of Thailand to prepare the banks for such a crisis. This initiative was pushed strongly by outgoing Bank of Thailand Director Veerathai Santiprabhob.
Fears of rising bank bad debts
Pasakorn Wangvivatchareon, highlights rising bad debt worries and a general, negative outlook as the key reasons which saw, at one point, bank shares off by 4.1% before a slight recovery.
The price of bank shares has also been dampened by a prohibition on dividend payments ordered in recent weeks by the Bank of Thailand in order for banks to preserve their balance sheet position.
Mr Pasakorn said that any signs of an economic uplift may see short term recovery in bank share prices but was still less than optimistic about the medium-term outlook.
‘Signs of economic recovery will lift the price of bank shares,’ he said. ‘However, we still weigh investment in banks lower than the market due to various uncertainties.’
New economic team in government and incoming boss at the Bank of Thailand on October 1st
This week, the Prime Minister announced a new cabinet lineup with a revamped economic team led by former Kasikorn Bank President, Predee Daochai who becomes Deputy Prime Minister and the new Minister of Finance.
The new cabinet lineup was augmented by the selection of Setthaput Suthiwart-Narueput as the new Bank of Thailand governor to commence on October 1st.
Mr Setthaput is a former colleague and contemporary of the incumbent Veerathai Santiprabhob who is stepping down for personal reasons at the end of September. The new appointee is also a former senior economic adviser to the Thai PM.
Banks are making proper provisions as the non-performing loan rate surges with the economic slump
An analyst working with Tisco Securities told The Nation newspaper that he believed that many banks are on the threshold of revealing a rate of 40% for non-performing loans at this stage in the evolution of the economic crisis.
He singled out some commercial banks who are ahead of the game in making provisions against such a situation while others are catching up.
‘Banks that have set up allowances in advance are Bangkok Bank and Kasikorn Bank, while those gradually setting up allowances are Siam Commercial Bank and TMB Bank,’ he declared.
Bank ratios are still healthy but problems are not confined to small and medium business sectors
While most analysts still point to robust ratios such as a 92.15% loan to deposit ratio for Kasikorn Bank with over 18% capital funds of which 15.38% is regarded as Tier 1 capital at the end of June, there are concerns that all banks may not be as strong and the unpredictable course of events such as the impact of the emergency being increasingly felt with a stark rise in unemployment.
It has also emerged that the concern for loan quality is not just limited to the small and medium-sized business sector hardest hit by the downturn.
Based on current estimates from the banks, only 40% of customers availing of bank relief measures were small and medium-sized concerns.
It is not clear why this is but it may well be that many smaller firms were not in a position to participate at all.
Banks are tightening their lending criteria excluding more vulnerable firms and people
The latest economic and bank data comes as Thai banks, across the board, are tightening their lending criteria particularly to small and medium-sized business operators who are bearing the brunt of this contraction.
Deposits on cars have been raised from 5% to 10% by SET-listed Kiatnakin Bank with 52 branches in Thailand.
Bank President, Philip Chen Chong Tan, announced this week stricter lending criteria saying that the financial institution will be focused more on debt repayment ability while also bolstering its screening and vetting of loan applicants.
Other banks are also following suit, Krungsri Consumer, part of the Krungsri Bank Group, has raised the income threshold to ฿20,000 per month for loan applicants. A new level has been set at ฿12,000 per month for those seeking credit cards.
Siam Commercial Bank placing an emphasis on stronger collateral for loan proposal consideration
There has also been further tightening at Siam Commercial Bank which last year announced that it was introducing stricter lending criteria for smaller-scale business in more traditional sectors of the economy even before the Covid 19 downturn.
Now bank president, Apiphan Charoenanusorn, is saying that the bank, one of Thailand’s largest commercial operators with over 27,000 employees, will be placing more of an emphasis on collateral to support loans.
The bank president, who revealed in May that the crisis had boosted the bank’s deposits, now says that loan applications have dwindled as borrowers have seen a precipitous drop in their income because of the crisis.
Bank of Thailand official says there was some sign of improvement in June even as economic indicators continued to drop to record 1998 levels
This week, Don Nakornthab, a senior official at the Bank of Thailand, suggested that economic data for June had shown an improvement in trends within the economy despite heavy contractions seen across all metrics including exports, investment, domestic consumption and manufacturing for the second quarter overall.
Mr Don suggested that the contraction for the second quarter will be somewhere between 12% and 13% which would be the equivalent of what was seen in 1998 at the height of the Financial Crisis.
Bank estimates that there are currently 5 million people unemployed but this could rise higher
At Bank of Thailand, Mr Don now estimates that there are 5 million unemployed with some estimates suggesting that 8 million have lost their jobs while more pessimistic analysts suggest that the level of job losses may approach 10 million.
This economic crisis has hit the most vulnerable and the impact is still growing.
On Friday, 800 workers who enthusiastically thought they were going back to work at the Body Fashion (Thailand) factory in Nakhon Sawan were greeted by closed gates and doors. A posted notice listed the 800 employees by name informing them that their jobs at the garment manufacturing facility were axed.
The factory had closed for three months and its workers had been looking forward to returning to gainful employment after making a personal sacrifice to counter the risk from the Covid 19 pandemic.
Representatives of the workers and union officials met with local representatives from the labour department and the workers must now wait to see if some form of assistance can be made available.
Similar stories have become commonplace throughout Thailand.
Triumph, headquartered in Switzerland the former owner of newly closed plant says it is not involved
On Friday also, Triumph International, the former owner of the plant in Nakhon Sawan and another in Bangkok, headquartered in Geneva, Switzerland, issued a statement to say that the production facilities had been taken over in 2016 by Malaysian rag trade entrepreneur Robert Ng.
The plant produced underwear and swimwear linked to the Triumph brand while Triumph still retains a separate and vibrant marketing outlet in Bangkok.
Triumph, as part of its cost-cutting and efficiency drive in recent years, had divested itself of production facilities in Thailand and other countries across the world including Europe.
Economic slump is even greater in western countries and Europe all with double-digit contractions in the second quarter
The rolling after-effects of the virus crisis which has seen double-digit economic contraction not only in Thailand but in western and European economies at a time when heightened and dangerous friction between the US and China is now beginning to be felt.
It comes as Thailand stands also to lose at least ฿1.5 trillion in lost foreign tourism earnings with the complete closure of the sector since early April this year.
The question now is the speed of any recovery in the third and fourth quarter.
Intractable difficulties in finding a way to bring the coronavirus under control are still creating significant uncertainty as well as the economic effects of protective measures which are deeply damaging to the economy for example within the entertainment and hospitality sector where the ‘new normal’ is simply not viable.
There is no doubt, as Mr Don of the Bank of Thailand announced this week, that Thailand is now experiencing an unprecedented unemployment crisis and is still at the mercy of a sub-microscopic infectious agent or virus.