Author/Editor:

International Monetary Fund. Monetary and Capital Markets Department

Publication Date:

October 24, 2019

Electronic Access:

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Summary:

The Thai banking system shows a substantial resilience to severe shocks. The solvency stress tests indicate that the largest banks can withstand an adverse scenario broadly as severe as the Asian financial crisis. While three banks would deplete their capital conservation buffer (CCB) under the adverse scenario, recapitalization needs would be minimal. A battery of complementary sensitivity stress tests, which allows to cover in more detail certain risk factors, also confirmed the overall picture of a resilient baking system: no particular vulnerability emerged from the analysis of the bond portfolio to an increase in government and corporate spreads, exposure to foreign exchange risk, and concentration risk in the loan portfolio, with the possible exception of one entity with a particular concentration on single-name exposures. From a systemic risk perspective, certain risk concentrations can act as shock amplifiers in case of stress, and hence highlight the importance of improving and expanding the range of analytical tools to detect them. The BoT’s solvency stress test exercise, conducted independently based on the same macro scenarios, showed very similar results despite some fundamental differences of approach, providing a mutual check on the overall robustness of the results.