THAILAND

Fitch Ratings could upgrade Thailand's sovereign rating from "BBB negative" to "BBB stable" over the next 12 to 18 months if the Central Administrative Court today lifts the injunction on suspended projects in the Map Ta Phut area and foreign investors have the confidence to return to the Kingdom.

Andrew Colquhoun, Fitch's head of sovereign ratings, Asia Pacific, yesterday said if the court verdict were positive, Fitch would keep a close watch for an expected rebound in confidence among foreign investors and for whether they were inclined to pour more money into the country.

"We will not upgrade Thailand's rating in the short term, as our policy is to consider the situation in the medium term. If foreign investors are confident enough to invest in Thailand, it means the economic outlook here is good. We will take 12 to 18 months before revising the rating," he said.

Fitch's local-currency rating for Thailand is "BBB" with a negative outlook, while the foreign-currency rating is "BBB" with a stable outlook.

Colquhoun said investment confidence in Thailand since 2009 had dropped because of three main factors: political uncertainty, an unclear legal framework and the Map Ta Phut crisis.

Political problems have had an especially negative effect on consumer confidence since 2006. However, the country's overall credit situation is quite strong thanks to low government debt, he added.

"The good economic growth in the first half could be a reflection that the political problem did not affect the country's growth by much, as the economy was rebounding from 2009," he said.

Fitch expects the economy this year to expand by 7.4 per cent and by 4 to 5 per cent in 2011, from a contraction last year.

Vincent Milton, managing director of Fitch Ratings (Thailand), said the company forecast a continuous improvement in the performance of the banking sector in the second half of the year and during 2011, thanks to the strong growth in retail banking.

Fitch also expects the proportion of retail banking to increase to 50 per cent of total lending within the next five to 10 years, from the current level of 31 per cent.

The key driver will be the increased income of the middle class, assuming the country's economic outlook remains good and consumer confidence increases.

Malaysia, for example, has been able to grow its proportion of retail banking from 30 per cent to more than 50 per cent within 10 years, he added.

Milton said, however, that if there were no additional concerns over the political problem and the economy continued to grow, corporate banking would be the main driver for the loan market. At present, corporations have alternative ways to mobilise funds for their investments, such as from the bond market.

Fitch foresees a decline in non-performing loans this year and next due to improved economic conditions.