The Thai Bankers’ Association (TBA) said on Monday that they support the Bank of Thailand (BOT)’s move to stop banks from paying interim dividends for the first half of 2020 and suspend share buybacks.
The central bank said the move was to preserve the level of capital within the commercial banking system which would act as a barrier against future uncertainties amid the coronavirus pandemic.
Predee Daochai, TBA’s chairman, said the ban on paying dividends is only for the interim dividend during the first half of 2020, not the full-year dividends.
He said the move is in line with the International Monetary Fund’s recommendation which has already been implemented by the European Central Bank (ECB) and the Bank of England (BOE).
“The capital level and liquidity within Thailand’s commercial banking system is in accord with the global standard, and the BOT’s measures will further support it,” he said.
“This adds to the confidence that banks will be able to provide loans to help customers that have been affected by the outbreak in every sector,” he added.
Similar to the BOT, both the ECB and BOE went forward with this measure as the capital level within the banking system was still high, with a capital adequacy ratio of 18.4 per cent and 20 per cent respectively, said Predee.
For Thailand, the capital level within the commercial banking system was at 2.62 trillion baht at the end of April with a BIS ratio of 18.9 per cent during the first four months of 2020.
The BOT’s minimum capital requirement is at 11 per cent.
Bankers
Adisorn Sermchaiwong, the outgoing head of CIMB Thailand (CIMBT), told local news on Monday that banks’ revenue has been significantly hit in the first half of 2020 because of measures to help debtors.
CIMBT announced a record profit of 1.9 billion baht in 2019 with a profit of 1.08 billion baht in the first quarter of 2020, representing a profit growth of 144.3 per cent when compared to the same period in 2019.
However, he still supports banks to continue to help debtors, saying that “if the customers survive, banks will survive.”
For BOT’s measures, he said they might affect shareholders, especially shareholders that are waiting for the returns that will be reflected in bank share prices on Monday.
A senior banker told Thai Enquirer that the move will definitely impact shareholders who were expecting the returns this round.
Some will sell their shares but he said the effect will only be short-term as the BOT’s measures would benefit banks in the long run.
Analysts
Avin Sony, head of Institutional Sales at Asia Plus Securities, told Thai Enquirer that BOT’s measures are nothing out of the ordinary but it might be “too late.”
“ECB, BOE and RBI (the Reserve Bank of India) have all put similar measures out but they did it at the height of the pandemic while BOT is doing it when we are looking to reopen,” he said.
“This raises market concerns that the BOT might see something that we don’t as the banning of the yields will create overblown concerns and will result in shareholders being hurt,” he added.
He also said that apart from banning dividends, BOT also announced a reduction in credit card interests from 18 per cent to 16 per cent.
This would significantly hurt companies with heavy exposure to credit card business such as Krungthai Card (KTC) and Aeon Thana Sinsap (AEONTS).
Avin said that flows will move out from banks and rich dividends sectors will benefit instead of property sectors, but they also have problems of their own.
Asia Plus Securities has, therefore, pointed to shares within the utility and telecommunication sectors as the biggest beneficiaries of any potential flow out of banks.
These include INTUCH, TTW, RATCH, and ADVANC as their yields are near or above 4 per cent with lower comparative risks.
SCB Securities also said BOT’s measure to omit interim dividends for the first half of 2020 could have a negative impact on stock prices as investors expected decent dividend yield.
They said that this is a preemptive measure as banks can still pay dividends but at a lower payout ratio for 2020 and 2021 operations which would cut dividends per share for the entirety of 2020 and 2021 in half.
With the exception of KTB, TMB and TISCO, all banks under SCBS coverage historically paid an interim dividend.
With that, SCBS has cut its forecast dividend payout for 2020-2021 in half.
