Fitch Ratings on Thai economy: Fundamentals strong despite political problems
By Jon Fernquest
This
week Fitch Ratings
held a conference in Bangkok. Thailand's sovereign credit rating as well as the health of banks and the outlook for the economy were discussed.
Today's article is a summary of points made during the conference.
The article starts after the vocabulary below:
Read a previous article on Thailand's sovereign debt ratings during last year's protests.
(Photo on right of Red Shirt protesters crashing through front doors of ASEAN conference and on top of soldiers guarding the door)
Fitch
Ratings - an international credit rating agency
dual-headquartered in New York City and London. It was one of the three
Nationally Recognized Statistical Rating Organizations (NRSRO)
designated by the U.S. Securities and Exchange Commission in 1975,
together with Moody's and Standard & Poor's (See Wikipedia
and website)
rating, credit rating - a measure of credit worthiness, a measure of the risk of loaning to a borrower, a measure of how likely (See Wikipedia) การจัดอันดับความน่าเชื่อถือ
sovereign - related to a country ("sovereign debt" means the debt of a country)
a country's rating, sovereign credit rating - the credit rating given to a whole country which affects the borrowing of the government (ease of getting loan and interest rate)
agency, a credit rating agency - a company that estimates how likely a borrower is to not pay back the money it has borrowed (default) and assigns a numerical score to measure this (credit rating) (See Wikipedia) หน่วยงานจัดอันดับความน่าเชื่อถือ
the fundamentals - underlying factors in an economy that make it healthy or unhealthy (despite factors outside of its control)
a factor - something that causes good or bad effects
sovereign credit rating -
the outlook - what people think will happen in the future ภาพรวมในอนาคต
a point - an idea or opinion among many others
make a point (points made) - to mention or talk about one idea or opinion in a presentation or argument
rating, credit rating - a measure of credit worthiness, a measure of the risk of loaning to a borrower, a measure of how likely (See Wikipedia) การจัดอันดับความน่าเชื่อถือ
sovereign - related to a country ("sovereign debt" means the debt of a country)
a country's rating, sovereign credit rating - the credit rating given to a whole country which affects the borrowing of the government (ease of getting loan and interest rate)
agency, a credit rating agency - a company that estimates how likely a borrower is to not pay back the money it has borrowed (default) and assigns a numerical score to measure this (credit rating) (See Wikipedia) หน่วยงานจัดอันดับความน่าเชื่อถือ
the fundamentals - underlying factors in an economy that make it healthy or unhealthy (despite factors outside of its control)
a factor - something that causes good or bad effects
sovereign credit rating -
the outlook - what people think will happen in the future ภาพรวมในอนาคต
a point - an idea or opinion among many others
make a point (points made) - to mention or talk about one idea or opinion in a presentation or argument
Fitch warns of political risks
Rating upgrade hinges on resolving conflictPORNNALAT PRACHYAKORN and DARANA CHUDASRI
1/09/2009
Political stability has become a major structural factor in determining Thailand's ability to recover from economic recession, says Fitch Ratings.
The possibility to upgrade the country's rating is subject to its medium-to long-term solutions to the current political uncertainty, said James McCormack, managing director and head of Asia-Pacific Sovereigns Ratings at Fitch Ratings.
He added that fundamentals for the Thai economy remained relatively strong, despite the political problems.
Fitch currently assigns a BBB rating to Thailand with a stable outlook. The agency lowered Thailand's long-term foreign currency rating from BBB+ in April, with the local currency rating cut to A- from A.
upgrade -
raised to a higher and better status or level
downgraded, downward revision - lowered to a lower and worse status or level
risk - the chance that things might turn out bad, worse than expected (See The Economist Glossary and Wikipedia) ความเสี่ยง
political risk - the chance that political events might negatively affect the success of a project ความเสี่ยงทางการเมือง
a factor - something that causes good or bad effects
a structural factor - something in the structure of the economy that causes bad or good effects
X subject to Y - X depends on Y, X will be determined by Y
political uncertainty - when the political situation is changing suddenly and unpredictably
a stable outlook - people believe that there will be political stability in the future ความมั่นคงในอนาคต
downgraded, downward revision - lowered to a lower and worse status or level
risk - the chance that things might turn out bad, worse than expected (See The Economist Glossary and Wikipedia) ความเสี่ยง
political risk - the chance that political events might negatively affect the success of a project ความเสี่ยงทางการเมือง
a factor - something that causes good or bad effects
a structural factor - something in the structure of the economy that causes bad or good effects
X subject to Y - X depends on Y, X will be determined by Y
political uncertainty - when the political situation is changing suddenly and unpredictably
a stable outlook - people believe that there will be political stability in the future ความมั่นคงในอนาคต
Fitch forecasts Thailand's GDP growth this year will contract by 3.1% as diminished consumption has deterred economic growth.
Cyclical considerations for Thailand's economic recovery include falling average wages despite growing employment and month-on-month rising exports since May due the recovering European market.
Mr McCormack said the worst of Asia's export decline may have come and gone as imports to advanced economies are starting to turn around.
forecasts - saying
what might happen in the future
contract - reduce in size, grow smaller
diminished consumption - reduced consumption
deterred Y - caused reduction or ending of activity Y
starting to turn around - stopped decreasing and started increasing
contract - reduce in size, grow smaller
diminished consumption - reduced consumption
deterred Y - caused reduction or ending of activity Y
starting to turn around - stopped decreasing and started increasing
Thailand has started to see positive impacts from the government's stimulus packages, such as low interest rates and fiscal support, he said.
David Marshall, managing director at Fitch, said the Asia Pacific region's economic growth would likely be negative at 0 to -5% in 2009.
Overall, the region's banks have remained resilient over the past two years, when compared to the 1997 Asian financial crisis, but the full impact of bad loans has not been seen yet.
Vincent Milton, managing director of financial institutions at Fitch Ratings Thailand said the weak global recovery and unstable domestic politics remain key risks. Non-performing loans at Thai banks could deteriorate as could profitability over the next six to 12 months.
positive impacts - positive
effects
stimulus, fiscal stimulus - temporary increases in government spending or tax cuts to get the economy moving and growing again
government's stimulus packages - government programmes of fiscal stimulus
resilient - able to succeed after failure, able to get strong after being weak
1997 Asian Financial Crisis - the economic problems that Thailand suffered from 10 years ago (See Wikipedia)
see the impact of Y - the effect of Y has happened already
the full impact of bad loans not been seen yet - all the bad effects from bad loans (from bad economy) have not been happened yet
stimulus, fiscal stimulus - temporary increases in government spending or tax cuts to get the economy moving and growing again
government's stimulus packages - government programmes of fiscal stimulus
resilient - able to succeed after failure, able to get strong after being weak
1997 Asian Financial Crisis - the economic problems that Thailand suffered from 10 years ago (See Wikipedia)
see the impact of Y - the effect of Y has happened already
the full impact of bad loans not been seen yet - all the bad effects from bad loans (from bad economy) have not been happened yet
Loan and revenue growth is expected to be modest into 2010 and strong capital buffers may be needed if the economy remains weak.
But Mr Milton said net profits for Thai banks should be resilient. And while asset quality is weaker, overall capital and profitability for Thai banks are comparable with other regional banks.
Lertchai Kochareonrattanakul, senior corporate director at Fitch Ratings Thailand said the financial crisis and global recession has seen credit restrictions, weak consumer and business demand, a decline in commodity prices and increased margin pressure.
For Thai firms, he said overall liquidity is much stronger than during the 1997 crisis. The operating cashflow of companies listed on the Stock Exchange of Thailand, excluding the financial sector, is about two times higher than its short-term debt.
modest growth -
growth by only a small amount
capital - money invested in a business
capital buffers - extra capital to be used if there is a problem (not used now)
bank capital - money invested in a bank (regulated by the government because it is used to support loans much greater than capital)
weak consumer and business demand - households and businesses are not buying a lot
credit - loans in the economy
credit restrictions - reductions in the loans available in the economy
margin pressure - reduced profits
X excluding Y - X not including Y
capital - money invested in a business
capital buffers - extra capital to be used if there is a problem (not used now)
bank capital - money invested in a bank (regulated by the government because it is used to support loans much greater than capital)
weak consumer and business demand - households and businesses are not buying a lot
credit - loans in the economy
credit restrictions - reductions in the loans available in the economy
margin pressure - reduced profits
X excluding Y - X not including Y
The overall financial position of Thai firms is solid but it was still at risk from negative factors, he said.
These include weak consumer and business demand, margin pressure, liquidity, and domestic political risk.
financial position - the
financial situation
or condition
of a company, organisation, or country (balance sheet shows financial
position)
the overall financial position of Y - the financial situation with everything included and considered
solid financial position - a very good financial position (safe from negative events in future)
at risk - possibility that something bad might happen in the future
negative factors - things that have a negative effect
liquidity - the availability of cash in the economy (through loans) to businesses and consumers (to meet their needs)
the overall financial position of Y - the financial situation with everything included and considered
solid financial position - a very good financial position (safe from negative events in future)
at risk - possibility that something bad might happen in the future
negative factors - things that have a negative effect
liquidity - the availability of cash in the economy (through loans) to businesses and consumers (to meet their needs)
(Source: Bangkok Post, Fitch warns of political risks: Rating upgrade hinges on resolving conflict, PORNNALAT PRACHYAKORN and DARANA CHUDASRI, 1/09/2009, link)
