Impact of US taper on emerging markets more significant than domestic political troubles International banks active in Thailand have not yet reduced counterparty limits with domestic institutions despite the country's latest bout of political violence, with market participants instead pointing to further tapering by the US Federal Reserve as the greater current threat. Last week the Bank of Thailand warned of a "substantial risk" to the economy from a failure to resolve continuing political instability, however market participants say that international bank financial institution groups (FIG) active in the country remain comfortable with their residual risk exposure. One Bangkok-based insurance portfolio manager says he has discussed the issue with the small number of international firms active in the South-east Asian country and so far none are yet planning to scale back their swap activity on the domestic market. "We have talked to a few international firms' FIG teams and they haven't received a change in policy from their regional headquarters and so far we haven't seen a shift from banks in terms of reducing their exposures to use in terms of offering us swaps." Raghavan Rajagopalan, Singapore-based global head of financial markets structuring at Standard Chartered, one of the main three international banks active onshore in Thailand in the market, alongside HSBC and Deutsche Bank, confirms there have been no major changes so far. "There haven't been any dramatic pull-outs from the market but while banks have not scaled back credit limits, they have been more cautious in their risk appetite." HSBC and Deutsche Bank declined to comment. Thiti Tantikulanan, Bangkok-based head of Kasikornbank's capital market business, says that in any case counterparty exposures to Thai banks should be limited due to the widespread use of credit support annexes (CSAs) for derivative transactions in the kingdom. Similarly, despite the Bank of Thailand's warning, it has not reduced its exposure to domestic counterparties. "We haven't seen any impact so far because most of the interbank counterparties we trade heavily with require us to put a CSA in place which obviously negates the counterparty risk. And so far we haven't reviewed our exposure to domestic counterparties yet – the equity market is quite healthy, and the slowdown is a general one across the economy, it's not affecting the banks yet: there has been no significant rise in non-performing loans for example." Rajagopalan instead points to the impact of US Federal Reserve's tapering of its bond buying programme as a greater short-term threat than the current political uncertainty. "The current issues are being exacerbated by what we are seeing globally – as the emerging market contagion moves from Latin America and Turkey it is clearly having an impact on South-east Asian markets: Thailand, Malaysia and Indonesia have all suffered. This is having a much bigger impact on the Thai financial market than the current political turmoil: the sovereign debt rating could get downgraded this year, but it's not a huge credit risk at this point." This was confirmed by Tantikulanan, who says the failure of US economic data to meet market expectations, and therefore speed up the tapering process, has led to a drop-off in Thai corporates hedging their forex risk. "It's been quite an easy quarter so far for customers to manage their risks. In December and early January we saw a lot of hedging interest from corporates but in the last two months we have seen a series of less than stellar data coming out of the US so people have dampened down their expectations of a rise in the US dollar." Siam Commercial Bank didn't respond to requests to comment....
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