More provisions might be needed for bad debt if oil-inflated prices become a problem
Thai banks risk realising negative impacts from the US-Israeli military strikes on Iran, especially if oil prices remain above UScopy00 per barrel, potentially forcing them to set aside extra provisions or expected credit losses for management overlay from the conflicts, say analysts.
The banking sector could initially be affected by rising living costs for borrowers, which would reduce debt repayment capacity, resulting in higher provisioning expenses than estimated, said Chayaporn Tocharoen, banking analyst at Krungsri Securities.
Weerapat Wonk-Urai, an analyst at CGS International Securities Group, said if the conflict between Iran and the US-Israel alliance ends within one month, there will be no impact on the Thai banking sector.
CGS analysed banking sector data during oil price spikes in 2003, 2019 and 2023. Based on its analysis, Thai banks were not materially affected in terms of aggregate loan growth, pre-provision operating profit growth, credit cost and return on equity during those periods.
However, Thai banks may have to set aside 20-30 basis points in credit costs if the oil price stays at or above copy00 per barrel for more than six months, noted Mr Weerapat.
“If the oil price stays at or above copy00 per barrel for six months, we believe the direct impact on banks’ loan growth and earnings will be small. Thai banks focus their lending and non-lending businesses on domestic activities with diversified loan portfolios in different business sectors,” he said.
In this scenario, it could lead to a 2.6-3.9% downside to CGS’s net profit estimates this year for the eight banks covered by the brokerage, said Mr Weerapat.
On the contrary, banks could benefit from high volatility in foreign exchange rates and commodity prices if the Middle East conflict ends within one month, given that corporate clients will likely need hedging services from financial institutions, noted CGS. This could pave the way for strong non-interest income growth for Thai banks this year, he said.
In CGS’s view, further asset quality deterioration could result in elevated credit costs despite banks’ efforts to manage non-performing loans (NPLs) by writing off and selling NPLs to distressed asset management companies.
The new government is likely to announce populist policies that should lift private consumption and stimulate private investment, said Mr Weerapat, which could provide upside to the sector’s loan growth and net profit forecasts for 2026-2027.
https://www.bangkokpost.com/business/general/3219699/analysts-warn-of-wars-impact-on-thai-banks
ANALYSTS WARN OF WAR’S IMPACT ON THAI BANKS
More provisions might be needed for bad debt if oil-inflated prices become a problem
Thai banks risk realising negative impacts from the US-Israeli military strikes on Iran, especially if oil prices remain above UScopy00 per barrel, potentially forcing them to set aside extra provisions or expected credit losses for management overlay from the conflicts, say analysts.
The banking sector could initially be affected by rising living costs for borrowers, which would reduce debt repayment capacity, resulting in higher provisioning expenses than estimated, said Chayaporn Tocharoen, banking analyst at Krungsri Securities.
Weerapat Wonk-Urai, an analyst at CGS International Securities Group, said if the conflict between Iran and the US-Israel alliance ends within one month, there will be no impact on the Thai banking sector.
CGS analysed banking sector data during oil price spikes in 2003, 2019 and 2023. Based on its analysis, Thai banks were not materially affected in terms of aggregate loan growth, pre-provision operating profit growth, credit cost and return on equity during those periods.
However, Thai banks may have to set aside 20-30 basis points in credit costs if the oil price stays at or above copy00 per barrel for more than six months, noted Mr Weerapat.
“If the oil price stays at or above copy00 per barrel for six months, we believe the direct impact on banks’ loan growth and earnings will be small. Thai banks focus their lending and non-lending businesses on domestic activities with diversified loan portfolios in different business sectors,” he said.
In this scenario, it could lead to a 2.6-3.9% downside to CGS’s net profit estimates this year for the eight banks covered by the brokerage, said Mr Weerapat.
On the contrary, banks could benefit from high volatility in foreign exchange rates and commodity prices if the Middle East conflict ends within one month, given that corporate clients will likely need hedging services from financial institutions, noted CGS. This could pave the way for strong non-interest income growth for Thai banks this year, he said.
In CGS’s view, further asset quality deterioration could result in elevated credit costs despite banks’ efforts to manage non-performing loans (NPLs) by writing off and selling NPLs to distressed asset management companies.
The new government is likely to announce populist policies that should lift private consumption and stimulate private investment, said Mr Weerapat, which could provide upside to the sector’s loan growth and net profit forecasts for 2026-2027.
https://www.bangkokpost.com/business/general/3219699/analysts-warn-of-wars-impact-on-thai-banks