During its 2022 Thailand Sovereign and Bank Outlook Webinar, Fitch Ratings analysts said that Thailand’s economic recovery is improving, despite growing inflationary pressures and weaker global growth posing risks to the short-term comeback.
In his presentation, Jeremy Zook, Director of Asia-Pacific Sovereigns at Fitch, stated that he expects Thailand’s GDP to grow by 3.2% in 2022 and 4.5% in 2023, supported by steady improvements in tourism and domestic demand, while noting that higher inflation and slower global growth are downside risks to the forecast. The ‘BBB+’/Stable rating for Thailand highlights the country’s ongoing external financial strength and robust macroeconomic policy framework, which should help it handle possible volatility in the context of tightening global credit conditions.
Some other south-east Asian nations, such as Vietnam (BB/Positive), may have a substantial rebound in GDP growth, according to Zook. In 2022 and 2023, he expects the Vietnamese economy to grow by 6.1% and 6.3%, respectively, due to growing exports and domestic spending. However, weakening global demand poses a danger to the negative. Laos (CCC) is under severe strain due to a shock in commodity prices, which has caused foreign-exchange liquidity shortages and a significant devaluation of the local currency, according to Zook.
According to Parson Singha, Senior Director of Financial Institutions at Fitch Ratings Thailand, bank profits are on the rise, however upside potential is limited since economic activity remains below pre-pandemic levels. As regulatory assistance wanes, Fitch anticipates an increase in bad loans over the year, while substantial loan-loss coverage should decrease the need for further provisions.
Vietnamese banks’ prospects may benefit from favorable economic conditions, said Singha. Loan growth remains strong, which will support near-term asset quality and profitability metrics. However, rapid growth also means that capital buffers are likely to remain thin, which leave banks vulnerable to unexpected shocks.