Tris: Politics a risk to tourism sector

Thailand will keep its stable credit outlook over the next few years but political risk is a major credit constraint as it could have a spillover effect on the tourism industry, a major part of the economy, says Tris Rating.

The risk is a key concern because the tourism sector will play a large role in GDP growth this year, said the ratings agency’s president Watana Tiranuchit. She said Thai economic growth is estimated at 2.7-3% this year.

Other negative factors for 2016’s economic outlook are higher non-performing loans (NPLs), the severe drought, China’s cooling economy and its effect on Thai exports, and interest rate manoeuvres by major economies, said Ms Watana.

The local credit rating agency is not the only one to voice concerns over political risk, as S&P Global Ratings — renamed from Standard & Poor’s Ratings Services — said earlier this week the main uncertainty is when political normalisation will occur, allowing policymakers to focus on issues that affect the long-term growth potential of the Thai economy.

Raithiwa Naruemol, executive vicepresident at Tris, said the Thai banking sector remained under pressure because of narrowed interest rate spreads and higher credit costs.

The earning asset yields of 11 listed commercial banks continued to decline because of falling interest rates constrained by competition as well as higher bad loans, according to research compiled by Tris.

However, she was not worried much about the NPL rises as local banks have strong a capital base, sufficient liquidity and stringent credit risk management to cushion against potential risks.

Lending is expected to be slow at around 3-5%, crippled by sluggish economic growth, high household debt, tepid private consumption and the high leverage accumulated by small and medium-sized enterprises.

Wiyada Pratoomsuwan, senior executive vice-president at Tris, said the biggest worry was the seafood sector as it could be stung if the European Union gives a red card to Thailand’s fishing industry for failure to deal with illegal, unreported and unregulated fishing.

For chicken and meat producers in the agricultural sector, Tris’s customers Charoen Pokphand Foods Plc and Betagro are likely to be unscathed even if demand wilts because of their ability to adjust to a changing situation.

Ms Wiyada said Tris, which rated 19 property developers with 60-65% of real estate sales in Bangkok, gave the property sector a neutral outlook.

Developers’ revenue growth this year is expected to be flat or contract because of the country’s faltering economic recovery and banks’ tighter mortgage approvals.