Thai banks to see gradually declining delinquencies in 2017

But asset quality pressures will persist.

Fitch Ratings' outlook on Thai banks in 2017 is for the terrain to remain difficult, with continued pressures particularly on asset quality and profitability. Banks will be hampered by the low-interest-rate environment, muted levels of economic growth, and higher loan delinquencies (particularly in the SME and retail segments).

Nevertheless, Fitch expects that these pressures should remain manageable for most banks, which is why most ratings remain on stable outlook. We expect the weaker financial ratios to be in line with what would be seen in a normal downtrend in the business cycle.

"Asset-quality risks are mitigated by relatively high loan-loss reserve coverage (average for the sector is 127%), and we expect the pace of delinquencies to decline gradually in 2017. Banks should also continue to be able to maintain their solid capital ratios (sector Tier 1 ratio is 14.2%), which presents another significant buffer against a worse-than-expected deterioration in sector conditions," says Fitch.