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Thank you for subscribing to the Southeast Asia Insider, showcasing the best of Asia Times’ latest reporting, commentary and analysis from across Southeast Asia.
This week’s edition includes:
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Tourism drought
raises Thai bank risks
In his latest report, Senior Southeast Asia correspondent Shawn W. Crispin delved into a recent reassessment by ratings agency S&P Global that downgraded top Thai lenders Siam Commercial Bank, Kasikorn Bank and Krungthai Bank’s creditworthiness citing rising “systemic risk” and a “fragile” economic recovery.
Deteriorating financial transparency in Thailand since the onset of Covid-19 is giving markets and investors pause as questions around banks’ reported non-performing loans (NPLs) and their related exposure to unsalvageable tourism assets rise to the fore. Crispin shared his thoughts on hidden financial risks facing the kingdom in this week’s Q&A.
Why did S&P Global recently downgrade top Thai banks at a time the Thai economy and tourism industry is showing signs of recovery from the darkest days of the pandemic?
My sense is that ratings agencies and financial analysts are beginning to get a clearer picture from the earlier fog that enshrouded Covid-19’s economic devastation in Thailand. In particular, it’s evident by now that the crucial tourism industry, which pre-pandemic contributed as much as 20% to gross domestic product (GDP), isn’t bouncing back any time soon.
Thai banks claim that tourism-related loans account for only 3% of their loan books, a figure S&P suggested in a recent revealing report is likely to be “much higher” due to “indirect exposure to tourism-related activities”, which could include anything and everything from massage parlors to night markets to laundry services to tour group-friendly restaurants. It’s nearly impossible to disaggregate tourism-related services from wider economic measures, which makes accurate accounting and hence bank exposure difficult to gauge.
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A lone tourist walks past deck chairs along an almost-empty Patong beach in Phuket on October 1, 2020. Photo: AFP
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Much of this tourism infrastructure now lies in shuttered ruins, with many shops, restaurants and stalls likely to be unsalvageable. So while tourism numbers are now slowly picking up as the pandemic wanes, for now, in Europe, the US and pockets of Asia, they were still only 3% of 2019 levels during the fourth quarter holiday “high season.” The market is now starting to understand that Thailand’s road back will be longer and harder than previously envisioned.
The Bank of Thailand (BoT) countered S&P’s downgrade by saying Thai banks are well-capitalized and thus resilient to withstand any future risks and uncertainties. Who to believe – S&P or the BoT?
Since the pandemic, there has been a large measure of regulatory forbearance around non-performing loan classification regionwide. But the BoT has maintained that NPLs have remained steady at 3% of all outstanding loans in the banking system throughout the pandemic, a figure that aims to maintain market confidence in the kingdom’s finances but one that is implausible considering its widespread and clearly visible economic devastation.
S&P said in its report that it expects the Thai banking sector’s NPLs to rise gradually over the next 24 months to 5%, which it noted would be the highest level since the 2008-9 global financial crisis. But that assessment, in my estimation, is still charitable as loans move from debt moratorium relief measures to restructuring. That process will likely reveal that Thai banks are much more exposed to irretrievable tourism assets than they’re currently acknowledging.
The BoT’s rebuttal to S&P’s downgrades noted that banks carry exceptionally high capital-adequacy ratios of 20%, which at 1.6 times systemwide NPLs is much higher than comparable markets and would seem to indicate sufficient provisions to absorb a certain uptick in bad loans. But that capital buffer will suddenly look a lot thinner if and when it becomes apparent NPLs are actually much higher than 3%. Debtor “relief” measures to date are only putting off the inevitable moment of financial reckoning which will often be spelled default.
Beyond bad tourism assets, where are the financial fault lines in S&P’s rising systemic risk assessment?
The initial collapse and expected slow recovery of the tourism industry has and will continue to put pressure on already sky-high household debt levels, which S&P estimates are “unsustainable” at around 90% of GDP. That figure was already considered dangerously high before the pandemic when it hit 82%.
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People line up April 29, 2020 in front of the State Audit Office in Bangkok to demand their 5,000 baht relief package. Photo: Khaosod English
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Millions of middle-class Thais have lost their well-paid hotel and tourism-related jobs to the Covid crisis, precisely the segment that banks have in recent years extended mortgage and personal loans for big-ticket consumer purchases such as condos and automobiles. Until they are fully and gainfully re-employed, and with debt moratorium measures expiring, these loans which are not classified as tourism-related on the books are also at high risk of going bad.
That’s at the ripple effect core of the Thai banking sector’s rising “systemic risk” and explains why Thai authorities are moving fast and furious to roll back previously strict entry requirements for foreign travelers, despite notching record-high daily Covid cases and deaths. It’s by now dawned on the Thai government that, as S&P suggests, the kingdom’s health crisis risks becoming a financial one if its one-time money-spinning tourism industry isn’t rapidly revived.
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Weak ASEAN backing for Russia’s expulsion from UN rights body
The United Nations General Assembly (UNGA) suspended Russia from the UN Human Rights Council on April 7 over reports of "gross and systematic violations and abuses of human rights" in Ukraine, with 93 countries in favor, 24 against and 58 abstained. With the exception of the Philippines and Myanmar’s UN representative, an appointee from the deposed civilian government, every other country from the Association of Southeast Asian Nations (ASEAN) either abstained or voted against the resolution. Despite Indonesia, Thailand, Singapore, Brunei and Malaysia voting last month in favor of UN resolutions to condemn Russia’s invasion of Ukraine, all five abstained from this week’s vote.
Southeast Asian lawmakers call out Philippine election disinformation
Advocacy group ASEAN Parliamentarians for Human Rights (APHR) issued a statement this week voicing alarm over “the dangerous use of offline and online disinformation” ahead of national and local elections on May 9 in the Philippines. The group called out smear campaign tactics known as “red-tagging” and “narco-tagging” allegedly used by President Rodrigo Duterte’s administration to paint critics as having links to communist New People’s Army rebels and drug trafficking. APHR called for an end to disinformation efforts that “are a grave threat to democracy and the safety and security of candidates” and said all concerned authorities must ensure a free, fair, and peaceful electoral process.
Burma Act passes US House of Representatives
The US House of Representatives Wednesday passed the Burma Act of 2021 earlier this week, authorizing over US$450 million in humanitarian aid and support for the pro-democracy movement in Myanmar over five years, expanding sanction authorizations, and creating a coordinator position to oversee Myanmar policy in the US. The act further calls for the US to influence the UN to hold accountable those responsible for the February 2021 coup, to engage with ASEAN member states to promote a return to Myanmar democratic transition, and support the centrality of ASEAN within the regional architecture of the Indo-Pacific. The US Senate must also pass the act before it becomes law.
Malaysia’s anti-hopping bill marred by vagueness and delays
A proposed bill to deter political defections among elected lawmakers in Malaysia has been repeatedly delayed due to "differences of opinion” among those in Prime Minister Ismail Sabri Yaakob’s cabinet, which is notably comprised of individuals with a history of “party-hopping.” Ismail’s government had agreed to enact an anti-hopping law by March 2022 to stop defections as one of the conditions of a memorandum of understanding with the opposition Pakatan Harapan (PH) coalition. Ismail’s cabinet has reportedly decided to table a bill to amend the constitution that would allow for "anti-hopping" legislation in the future at an upcoming special sitting of parliament on April 11, though details remain vague.
Upstart Vietnamese automaker files for IPO in the US
VinFast, the automobile unit of Vietnam's biggest conglomerate, registered for an initial public offering (IPO) in the US earlier this week to raise funds for expansion plans that include a US$4 billion factory complex in North Carolina. Vietnam’s first domestic carmaker reportedly hopes to raise between $2 to $3 billion and aims to compete with legacy automakers and startups in the US market by pushing electric SUVs and a battery leasing model. The IPO filing to the Securities and Exchange Commission could put the Vingroup subsidiary on track to list shares by the end of the year. If successful, it would be the first major listing in the US for a Vietnamese company.
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Lee shines light on a US-China middle path
Nile Bowie | April 7, 2022
Singapore’s Prime Minister Lee Hsien Loong has called on America’s leaders to engage China and think harder about avoiding paths to a great power conflict between the world’s two largest economies. The city-state’s own diplomatic balancing act, meanwhile, is under stress amid perceptions it has sided with the West against Beijing’s ally Russia over Ukraine.
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Islamic school sex abuse under assault in Indonesia
John McBeth | April 6, 2022
An Indonesian court has sentenced a married religious school principal to death for raping 13 schoolgirls, nine of whom were impregnated, in a landmark case that draws an emphatic line under the controversial Sexual Violence Eradication Bill now nearing a final vote in the House of Representatives (DPR).
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Asia picking sides in US-Russia Cold War
Richard Javad Heydarian | April 5, 2022
Russia’s invasion of Ukraine, and the subsequent divergence in regional powers’ responses, have rapidly and in places radically reshuffled strategic alignments in Asia in what some see as the advent of a new Cold War. Moscow’s aggression is bringing Japan, South Korea and Singapore closer to the US while India is breaking away.
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Indonesia could win Russia’s lost gas sales
John McBeth | April 5, 2022
Indonesia’s natural gas potential has taken on new importance because of the impact of the Russian invasion of Ukraine, which has compelled Europe to rethink its reliance on Russian piped gas, and the realization the fuel will be needed to bridge the longer-term gap between coal and renewables.
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Annihilation over compromise for Myanmar’s generals
Bertil Lintner | April 4, 2022
While the world’s attention is now almost entirely focused on Russia’s invasion of Ukraine, another massive tragedy is playing out in Myanmar, and very little is being done about it by the international community. Myanmar’s ruling military junta is pushing ahead its brutal campaign to wipe out resistance forces and secure control over the country.
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Thailand’s banks not as healthy as they claim
Shawn W. Crispin | April 4, 2022
Covid ambulance sirens are ringing out in Bangkok as the kingdom continues to grapple with record-breaking daily caseloads. But it’s the warning bells sounding around Thailand’s banks that are potentially the greater cause for alarm in one of Asia’s worst pandemic-hit and slowest recovering economies.
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Ridiculous: Untold Tales of Singapore
Edited by Teo Soh Lung and Low Yit Leng
Function 8, March 2022
To the outsider, Singapore is a much sought-after place to live in. The country is peaceful; the streets are safe; people appear satisfied. No one protests in public spaces. Singapore seems to be a perfect place, the envy of governments in messy, democratic countries. But beneath this surface of calm, peace and orderliness are a slew of rules and laws that keep the people hushed and pliant. Dissent is not tolerated. Critical comments are often seen as defamatory. Protests, even by one person, are prohibited. Government officials have wide discretionary powers. Disobedience to any rule leads to consequences.
This book is divided into two parts. Part 1 contains 11 essays. The writers narrate personal experiences. Part 2 contains summaries of incidents, cases and significant laws passed during the period 1970 to October 2021. They touch on personal liberties and judicial decisions that impact Singaporeans.
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