Fitch Ratings has affirmed Thailand’s Government Savings Bank (GSB), Bank for Agriculture and Agricultural Cooperatives (BAAC), and Government Housing Bank (GHB) at Support Rating ‘2’.
Fitch believes there is a high probability that state support would be forthcoming on a timely basis for these three policy banks, if necessary. This is based on the respective Acts under which the banks were established, the government’s full ownership (except for BAAC at 99.8%) and the banks’ strong linkage to the state due to their important public policy roles. These banks are integral to the government and have played key roles in Thailand’s financial system, providing support to low-income groups and civil servants. The policy roles of the three banks should remain vital to national welfare and long-term economic and social development.
Based on the respective Acts, GSB is the only policy bank with an explicit state guarantee on all of its liabilities, although the bank has never required capital injection or debt guarantee from the government since its inception. There is strong implicit financial support for GHB via capital injection if necessary and for BAAC, also by compensation for losses from policy lending (effectively a deficiency guarantee). BAAC and GHB have previously received capital injections and debt guarantees upon request from the banks.
While financial support from the state generally requires the cabinet approval, the process could be accelerated to ensure timely support, if needed. Nevertheless, the government has been closely monitoring these three banks’ financial position to prevent such emergency.
All three banks are under the supervision of the Ministry of Finance. Their operations are audited by the Bank of Thailand, while financial statements are audited by the Office of Auditor General. The banks’ Board of Directors is appointed by the cabinet. For BAAC, Thailand’s Finance Minister is the Chairman of the Board.
A change in the Support Rating could result from a change in Thailand’s Long-Term Foreign Currency Issuer Default Rating (‘BBB’/Stable) or from any perceived change in the sovereign’s propensity or capacity to support. In this regard, a legal amendment and/or a change in legal and ownership status that results in the weakening of potential state support could lead to a downgrade of the Support Rating, although this is unlikely given the banks’ key policy roles.
GSB’s (asset size of THB1.6trn at end-June 2011) key policy roles include promoting domestic savings, providing credit to lower income borrowers and civil servants and supporting the government’s social development policies. BAAC (THB875.8bn at end-September 2011) is the government’s key entity in promoting agricultural and rural development. GHB (THB728.9bn at end-September 2011) mainly provides housing finance to low- and middle-income groups and civil servants.