VZCZCXRO3754
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3530/01 3371047
ZNR UUUUU ZZH
P 021047Z DEC 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 5275
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 5933
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BANGKOK 003530 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR 
TREASURY FOR OASIA 
SINGAPORE FOR FINATT BAKER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD TH
SUBJECT: Thai Banks Remain Strong Despite Crisis 
 
BANGKOK 00003530  001.2 OF 002 
 
 
Sensitive But Unclassified.  For Official Use Only. 
 
REFS: A) Bangkok 3519  B) Bangkok 2885 
 
¶1.  (SBU) Summary: Despite the economic impact of Thailand's 
prolonged political stalemate, including the ongoing airport closure 
crisis (ref a), financial sector leaders in Thailand believe the 
local banking sector remains sound.  Even though credit rating 
agencies have downgraded Thailand's credit outlook and that of many 
major Thai banks (although not/not Thailand's sovereign rating), 
financial leaders believe lessons learned from the 1997 financial 
crisis have prepared Thailand well for the current downturn.  High 
levels of foreign reserves, low levels of debt, and strong oversight 
are some of the factors pointed to as evidence of a strong banking 
sector.  Pressured by the Bank of Thailand, however, commercial 
banks are reducing loans to bolster their balance sheets, while the 
government would prefer to push credit availability to spur GDP 
growth.  End Summary. 
 
¶2.  (SBU) The closing of Bangkok's two main airports by protesters 
is causing the nation's growth rate projections to be revised 
downward.  Thai government and private estimates of GDP growth for 
2009 are at or below two percent (ref a).  When describing 
Thailand's moribund stock market, managers of two investment houses 
told Econoff December 1 that many foreign investors have sold off 
equities in the Stock Exchange of Thailand (SET) to reduce their 
exposure.  Meanwhile, financial analysts report that Thai investors 
are fleeing the market for the relative safety of government bonds, 
contributing to the stock market's 50 percent plunge this year.  As 
one put it, while there has not been any wholesale capital flight, 
there is increased risk aversion. 
 
¶3.  (SBU) Along the same lines, financial analysts opined that the 
baht's slow depreciation against the US dollar of late, and expected 
depreciation over the coming months, would be welcome since 
inflationary fears are down and exporters could use the help.  The 
Commerce Ministry reported December 1 that inflation slowed to 2.2 
percent in November from 3.9 percent in October, the largest decline 
since July 2002.  The Bank of Thailand (BOT) is widely expected to 
cut the policy interest rate by at least 25 basis points on December 
¶3.  One investment bank forecasts the baht will depreciate to 37 per 
dollar within three months.  Experts argue that with approximately 
USD 110 billion in foreign reserves, the Bank of Thailand (BOT) has 
more than enough capital available to defend the baht, even though 
it generally intervenes to do so less than any other nation in ASEAN 
(according to a UBS report, the BOT has spent an average of USD 2.5 
billion per month to support the baht against the dollar since 
March). 
 
¶4.  (SBU) When asked specifically about the state of Thailand's 
financial sector, analysts are quick to point out it remains strong. 
 One investment firm head, who has deep concerns about Thailand's 
political situation, insists that Thai banks are "stronger than 
ever," with plenty of liquidity, high capital to debt ratios, a 
blanket guarantee on deposits, low exposure to foreign debt, and in 
business with Thai corporations that also have low debt on their 
balance sheets (ref b). 
 
¶5.  (SBU) The head of a foreign bank in Bangkok expanded on this 
point with Econoff on November 25.  He described the situation in 
Thailand today as not as severe as during the 1997 financial crisis. 
Leading to that crisis, Thai banks achieved growth through cheap 
foreign exchange debt whereas now they do so through local savings 
and debt.  Banks that survived the 1997 crisis learned from the 
experience and manage their risk exposure accordingly, as does the 
Bank of Thailand, which is strict on its oversight of private banks 
and "sees everything through a 1997 lens."  Also, the ongoing 
political crisis has prevented the bubble in asset values that has 
happened elsewhere.  As one wryly put it, "the shorter the time at 
the party, the less the hangover."  The question for banks is not 
how to stay alive, but how to grow in the current environment. 
¶6.  (SBU) Despite these bullish comments, challenges for the 
financial industry remain.  Fitch Ratings and Standard and Poor's 
both revised Thailand's credit outlook downward from stable to 
negative, indicating an increased level of risk to Thailand's 
sovereign creditworthiness.  Fitch also revised the outlook of nine 
of Thailand's major banks from stable to negative.  (Note: According 
to S and P, a rating outlook assesses the potential direction of a 
long-term credit rating over the intermediate term, typically six 
months to two years. An outlook is not necessarily a precursor of a 
rating change.  End Note). 
¶7. (SBU) The general economic climate is also having an impact. 
Corporate clients of banks are and will continue to be affected by 
 
BANGKOK 00003530  002.2 OF 002 
 
 
the general economic slowdown, first small and medium enterprises 
(SMEs) and then larger firms.  Meanwhile, under pressure from the 
Bank of Thailand, financial institutions and banks are holding more 
cash and cutting back on lending to make sure their balance sheets 
remain solid.  This trend is unfortunate from the Government's 
perspective, as bolstering credit in the market would help GDP 
growth.