A weaker baht since the beginning of the year is the one bright spot but the roiling problems that have beset the Thai economy since early last year have seen shares in Thai banks topple and this week, the Monetary Policy Committee of the central bank has warned of risks to financial stability if the situation persists. The share prices of leading Thai banks have tumbled since last year.
The Governor of the Bank of Thailand Veerathai Santiprabhob said on Thursday that the bank stands ready to assist the economy rattled by the Chinese coronavirus outbreak and a stalled budget in 2020. He was speaking to a seminar in Bangkok.
As the government prioritises its work to deal with the public health crisis and real threat from the coronavirus, the economic indicators and readings are sinking lower.
On Wednesday, the Bank of Thailand dropped interest rates to a record low of 1%. Its Monetary Policy Committee has also warned that the impact of the continued headwinds facing the economy is now being felt by the country’s financial institutions.
Thai bank shares have been falling since March last year when the economic downturn set in despite strong profits last year and healthy bad debt provisions.
Interest rates slashed to a historic 1% low with predictions that another cut will follow
Thailand’s central bank has slashed the country’s lending rate to a historic low of 1% as the country’s economy reels from the devastation of the coronavirus which has decimated this year’s tourism high season in January.
The rate decision came at the first meeting of the bank’s Monetary Policy Committee for 2020.
The vote to cut the base interest rate on loans was unanimous with some commentators still expecting a further cut in the next few months if the situation in Wuhan and Hubei province where Chinese authorities are still grappling with an expanding coronavirus outbreak has not yet been brought under control allowing the Chinese economy a return to some sort of normalcy.
Impact of Wuhan virus has hit Chinese supply chains
Wuhan is a key centre for Asia’s automobile industry and the production of parts necessary for production lines.
Thailand’s automotive sector has already seen its exports drop precipitously in 2019 and this has continued into 2020.
Consumer confidence drops for the 11th consecutive month since the downturn began last year
On Wednesday, the University of the Thai Chambers of Commerce also announced that the Thai consumer confidence index had dropped for the 11th consecutive time since March 2019 when the US-China trade war and the rising value of the Thai baht began to severely impact Thailand’s exports.
The rate dropped to 67.3 in January from 68.3 in December. it is now at the lowest level since May 2014
Thai tourism fell on its knees in January
The President of the University of the Thai Chamber of Commerce Thanavath Phonvichai said the primary factor for this month’s decline was the coronavirus and impact on the Thai tourism sector.
There was some hope that with the government’s stimulus efforts towards the end of last year and the high season in tourism, the mood would improve in January before the devastating outbreak in China.
However, the impact of the virus outbreak in mid-January decimated the tourism industry with hotel and hostelry workers being laid off and placed on short-time work hours.
2020 budget stalled over proxy vote controversy
There is also the impact of the 2020 budget controversy which has been sent to the Constitutional Court due to proxy voting by some members of the House of Representatives.
The government has warned that the delay caused by the legal controversy will lead to slower disbursements of the budget, particularly on the public capital expenditure programme.
Fiscal policy office cuts growth forecast to 2.5%
This week has also seen the government’s own Fiscal Policy Office slash projected growth for 2020 to 2.8% after it had previously accepted that the growth figure for 2019 was 2.5% caused by a sharp contraction in Thailand’s exports.
Indeed, this projection may be optimistic as Thailand’s industry panel, the Standing Committee on Commerce, Industry and Banking has this week revised its outlook on the country’s prospects for 2020. It suggests that growth will be between 2% and 2.5%.
TMB Analytics, the economic policy unity of TMB bank, has an even more jaundiced view. It projects a growth rate of 1.7% to 2.1%.
Bank of Thailand’s Monetary Policy Committee confirms bearish outlook heading further into 2020
At Wednesday’s meeting of the Monetary Policy Committee, this bearish outlook was confirmed. The body also signalled that it was concerned about preserving the future stability of the financial sector as the slowdown takes a firmer economic grasp.
Thai banks have seen their share prices cut substantially on the market in recent weeks by up to 9% as investors take flight as the economic clouds turn darker.
Central bank praised for bank regulation efforts
Last year, rating agencies, the International Monetary Fund and the World Bank lauded the Bank of Thailand or its work on bank regulation in the kingdom.
Tests by the central bank during the latter half of the year showed Thai banks had between 110% and 150% provision for bad debts. This was despite bank shares trading even then at the lowest level for nine years because of the weak economy and outlook.
Concern over asset quality on bank balance sheets, the outlook has now turned markedly darker
Since then, the situation has turned darker. Throughout last year, the banks reported robust profits and only slight rises in bad loans while bolstering provisions.
In January, Siam Commercial Bank reported its biggest share price decline since January 2009 out of fears raised by analysts about the commercial bank’s loan quality. The bank reported bumper profits in the third quarter of 2019.
Therdsak Thaveeteeratham is an analyst at Asia Plus Securities in Bangkok: ‘Thailand’s economy in 2020 is still surrounded by negative factors. Asset quality is still at risk and needs to be watched closely.’
Bank share price down 20% to 32% since 2019
Thai banks have seen their share prices reduced further in 2020.
Kasikorn Bank has seen nearly 28% falloff in its share price since mid-June last year. Siam Commercial Bank has seen 30.5% knocked off its share value since mid-July and Krungthai Bank is down nearly 20% in the same period. Despite its acquisition and expansion by acquiring a controlling stake in Indonesian bank PT Bank Permata, Bangkok Bank is off a whopping 32% since April last year.
Bank moves to ease lending criteria for firms hit by the virus outbreak and new home buyers
The central bank, in recent weeks, has been encouraging banking institutions to ease credit criteria to accommodate borrowers including small and medium-sized business operators hit by the weaker economy and in particular the coronavirus outbreak. The bank also called for banks to ease terms for credit cardholders.
It is also relaxed its lending criteria for those purchasing properties with a value of ฿10 million or less.
Thai economy has had a disastrous opening to 2020
The only bright spot for the Thai economy is that the Thai baht has weakened by up to 5% since the end of last year.
However, given the storm clouds facing the economy right now, it is very much a matter of waiting to see what the lie of the land is when the crisis over the coronavirus begins to clear.
One thing is for sure, Thailand is certainly not in a good place just over one month into 2020.
Further reading:
Prime Minister and Budget director issue strong warning about the legally stalled 2020 budget
Thailand economic prospects are dimming fast even as global agencies talk about its strength
Central bank boss plans to loosen capital controls and decide on broader lending curbs by year’s end
Thai economy remains sound says Fitch the ratings agency as the baht’s surge may be over for now
Thailand’s new move to boost the birth rate and fight the negative impact of an ageing population
