The Government Housing Bank, one of the largest non-listed but government-owned banks, announced that it was preparing to book more loan loss reserves to handle a surge of non-performing loans (NPLs).
Chatchai Sirilai, the president of Government Housing Bank (GHB), said the current volume of non-performing loans (NPLs) at the end of the second quarter of 2020 stood at 4.52 per cent of total loans, rising up by 0.43 per cent from 4.09 per cent at the end of 2019.
He expects the bank’s NPL ratio for 2020 to be at 4.75 per cent as a result of decreased income among borrowers amid the economic downturn. Forty per cent of GH Bank customers are also in the low-income bracket.
From the GH Bank report for the second quarter of 2020, in comparison to the end of 2019, GH bank’s outstanding loans increased by 3.89 per cent to 1,256,305 million baht with an additional 4.52 per cent increase of assets up to 1,300,881 million baht and 6.67 per cent increase of deposit up to 1,060,970 million baht.
The bank’s cumulative earnings are predicted to be around 4.83 billion baht, 14.87 per cent lower than the target, as additional loan loss reserves are issued to support borrowers affected by the COVID-19 recession.
The plan for the remainder of 2020 is to use 2.5 billion baht to implement assistance measures and monthly reserves of 500 million baht to comply with Bank of Thailand (BOT)’s regulations.
The bank, which has the highest mortgage loan in the country, said that it plans to increase loan-loss reserves for the remaining five months, using a sum of 2.5 billion baht as a cushion to implement eight measures and reserves of 500 million per month following BOT regulations, said Chatchai.
Don Nakornthap, the senior director of the economics and policy department, said in a seminar organized by Kasikorn Bank that all sectors should prepare for the second wave of the outbreak although it may not be as severe as the first round.
He maintained his optimism about NPLs at commercial banks which are currently standing at a very low percentage of 3 per cent. He added that the damage of a COVID-19 second wave may not lead to major disruption to economic activities and businesses.
Brokers expect lower banks’ earning
Most investors and brokers have said that the slowing economy is likely to have a negative impact on the repayments of loans and thus creating a possible increase in NPLs.
Phatra securities reported in a paper to its clients that it was concerned about the poor results for unsecured loans during the lockdown measures period from March to May in 2020.
The bank earnings in the second quarter of 2020 are expected to underperform with high credit cost as the key pressure.
Another estimate from Tisco Securities showed that they see NPLs rise gradually throughout 2020 as measures from the BOT should be sufficient to head off an NPL surge, but the credit cost should remain elevated around the first quarter of 2020.
Tisco expects a drop for the 2Q20 sector due to the narrowing of the Net Interest Margin (NIM) as the main reason. However, they see scope for NIM improvement in the second half of 2020 from the yield curve because of the government’s borrowing.
The surge in NPLs is a major concern to all investors, according to Tisco.
The NPLs’ outlook and the prospect of the sector continuing to underperform are the biggest pushback. It is believed, however, that measures from the BOT should support NPLs in the short-term.
