Thailand top-ranked emerging market on global ‘danger map’ of systemic risk, according to Deutsche Bank’s study themed ‘Global banks – credit quality in a deleveraging world’.
Thailand’s banks are some of the world’s strongest in times of financial stress, according to a comprehensive review of the global banking system’s resilience to severe financial shocks.
The study suggests that Thai banks would be more resilient to a major spike in bad debts and falling profits than those in the United States, United Kingdom and France.
“Despite the recent slowdown in the global economy, we believe that the asset quality of Thai banks will remain resilient. Risk management systems have greatly improved while Thailand’s strong corporate sector has completed its prolonged de-leveraging cycle post the 1997 crisis,” Deutsche Bank’s report says.
The study measures the risks to various countries’ banking systems according to a set of criteria that include macroeconomic risks, systemic risks, banks’ resilience to a sharp rise in bad debt provisions and stressed pre-provision profits. Each of the nine key risk factors is assigned a score of between 1 and 5, with 5 being the most risky.
According to these ‘danger map’ scores, Thailand scores 16 out of a possible 45, making its banking system the top-ranked among emerging market economies, with Mexico (17) and Indonesia (19) in second and third place respectively. In contrast, France scores 24, the United Kingdom 23 and the United States 22. Greece and Portugal both score 33, while Spain and Ireland each score 32.
Germany, Japan, Australia, Sweden and Israel have the five safest developed market banking systems, according to the criteria.
“We believe a new credit cycle has started in Thailand, led by strong domestic demand, a recovery in private investment and solid consumption. With support from government stimulus programmes and rising agricultural commodity prices, we expect business loan growth to continue to grow,” the report says.
The study also notes Thailand’s banking system is strongly-positioned to withstand a severe credit shock with an average non-performing loan (NPL) coverage ratio of 4.7 times, up from 1.5 times in 2007.
Overall, the study finds that banks in emerging markets score slightly better on the danger map than those in developed markets, with the least risky countries being Mexico, Thailand, Indonesia, Malaysia and Korea. However, prolonged periods of high credit and economic growth, asset price inflation and state interference in lending practices have created risk with Brazil, India, Russia and China the lowest-ranked emerging market countries on the danger map.
Source: The Nation