Banks’ shares are recovering on Tuesday following a massive sellout on Monday that was triggered by the Bank of Thailand (BOT)’s decision to ban them from paying out their interim dividends.
The BOT announced last Friday evening after the stock market closed that they are banning banks from buying back shares and giving out interim dividends for the first half of 2020.
They said they wanted the capital level within the commercial banking system to remain high amid economic uncertainties in 2020.
On top of that, the BOT also announced the second phase of measures to help individual debtors which would lower their income from interest rates even further in 2020. The new round of measures will come into effect in July.
Shares within the banking group traded down by 6.37 per cent on Monday which pulled the Stock Exchange of Thailand (SET)’s index down by 18 points to a closing of 1352.
Institutional investors sold nearly 3.7 billion baht worth of Thai shares on Monday followed by foreign investors at 3.1 billion baht.
Bangkok Bank (BBL), Siam Commercial Bank (SCB), Kasikorn Bank (KBANK), TISCO Financial Group (TISCO) and Kiatnakin Bank (KKP) were the biggest casualties as their shares were down by 9.09, 7.44, 6.79, 5.78 and 5.68 respectively.
BBL, SCB, KBANK and KKP normally pay out the interim dividends while Krung Thai Bank (KTB) and TMB Bank (TMB) and TISCO normally do not.
Capital Nomura Securities said this is part of the reason why BBL, SCB, KBANK and KKP were the biggest casualties on Monday.
They said shareholders were disappointed they did not receive the interim dividends that they normally would get.
However, if they were to pay out in August, it would be smaller than usual since not a single bank did well during the first half of 2020, they added.
With negative sentiment come and gone, bank shares were still in the majority of the top ten most traded shares on Tuesday morning.
KBANK, as the most traded stock in the morning with a trading value of 21.65 billion baht, traded up by 0.56 per cent from the previous closing of 89.25 baht to 89.75 baht before the intermission.
This was followed by BBL, SCB and TISCO as second, third and fifth most traded stocks which all traded up by 1.9, 1.05, and 2.89 per cent respectively.
Maybank Kim Eng said the missing interim dividends is worth 14.3 billion baht which will lower the dividend yield of banks’ shares by 1.15 per cent down to 3.46 per cent.
This has caused a sector rotation done by institutional investors.
They also said that the reason foreign investors were selling bank shares on Monday is that they were not confident in the central bank’s move to interfere with banks’ operation.
BOT said on Monday that foreign investors should understand the reason for its implementation as it is something central banks in Europe, UK, Australia, Canada and New Zealand have already done.
The BOT also said they cannot comment on whether they will ban banks from paying out their full-year dividends.
They said they will have to continue to monitor the outbreak and its impacts on the Thai and global economy in the second half of 2020.
Second phase
BOT said on Monday that the second phase of measures to help individual debtors is needed as some measures from the first phase are about to expire.
BOT expects the second round of measures to help at least 13 million debtors.
The first phase of BOT’s “Credit Assistance Measures” for non-performing loan (NPL) debtors came into effect on April 1 and it involves credit cards, cash flow loans, personal loans that are paid in instalments, vehicle registration loans, hire purchase loans and home loans.
“Some measures including the one for banks to postpone the payment of principal and interest loans for three months is about to expire at the end of June,” he said.
The second phase which will come into effect in July until the end of 2020 include:
- The reduction in credit card interests charged from 18 per cent to 16 per cent with a payback period of 48 months or no more than 12 per cent with a payback period based on debtor’s ability.
- The reduction of interest rate ceiling for personal loans from 28 per cent down to no more than 25-24 per cent based on the type of loans. Debtors with income less than 30,000 baht per month will also be able to take out a personal loan worth no more than 60,000 baht instead of 45,000 baht as well.
- For motorbike and car loans which come in instalments, the amount of instalment per month will be lowered by at least 30 per cent per month for 48 months. The interest rate will be lowered to no more than 22 per cent. Service providers can choose to proceed between deferring the payment of principal and interest for three months or lower the instalment based on the loan period.
- The limit of the loan amount for car and house loans has been lifted.
- For a home loan, service providers have three options. They can choose to proceed between deferring the payment of principal and interest for three months, suspend the payment of principal for three months and consider reducing interest, or lower the instalment based on the loan period.
Impacts on banks
Kasikorn Research Center said BOT’s second phase of measures will further impact banks’ revenues for the third quarter of 2020 after it had been hit by the first phase.
The first phase included a lowered policy interest rate and the measure to stop banks from paying an interim dividend in August.
The research center expected the banks’ revenues to be hit by another 1-2 billion baht or about 0.8-1.5 per cent of its income from interest rates in the third quarter of 2020 because of the second phase of measures.
However, all Thai banks are still well-prepared.
The combined capital within the commercial banking system has exceeded 2.62 trillion baht by the end of April which calculated to a capital adequacy ratio of 18.9 per cent, higher than that of BOT’s safety net of 11 per cent.
The level of capital to non-performing loans was also at 140 per cent which is enough to withstand other uncertainties that could come in the second half of 2020, the think-tank said.
The number of NPLs in commercial banking in the fourth quarter of 2019 increased by 16.7 per cent from the same period in 2018, up 2.81 per cent quarter-to-quarter and accounting for 2.9 per cent of total loans from commercial banks.
