Thailand’s banking sector announced the much-anticipated results of their second-quarter performance on Monday.
The results show a sharp contraction in their earnings and higher reserve for possible doubtful loans to come in the near future as TMB says that Q3 may see a contraction of 11.5 per cent.
Kasikorn Bank Plc reported after the mid-day break a sharp decline in its profitability. Within an hour, TMB Bank also reported its revenues and profits for the second quarter.
Other large banks are expected to follow suit on Monday and Tuesday.
The second-quarter financial reports are all showing that these financial institutions have higher reserves for possible bad loans even though they believe that the economy will recover in the third quarter.
In its note to the Stock Exchange of Thailand (SET), TMB said that the domestic economy is expected to gradually recover with Phase 5 of the lockdown leading to the reopening of high-risk activities.
TMB added that the budget spending, which is the main source of growth, will be coupled with continuous stimulus schemes from the previous quarter, the domestic tourism enhancing scheme and the 400 billion baht fiscal stimulus package which is expected to disburse 100 billion baht into the agricultural sector during the third quarter.
These factors will help to shore up private consumption to be in less danger of contraction.
It added that merchandise exports will encounter weak foreign demands, particularly in electronics and vehicle parts, but agricultural products and foods are expected to have consistent demand from abroad.
Accordingly, Thai merchandise exports are forecasted to contract 12.7 per cent for 2020.
TMB also said that due to the severity of COVID-19 in many countries, the Thai government will still maintain restricted cross-border measures.
The tourism sector will consequently not be able to recover within 2020.
TMB Analytics, therefore, expects the Thai economy in the third quarter will contract with a decelerating degree of 11.5 per cent from the second quarter.
The bank said that notwithstanding the current situation, the economy is gaining support from the government’s stimulus spending (approximately 124 billion baht) for those most affected by the outbreak, such as the self-employed, farmers and vulnerable minorities.
It added that government spending, the sole economic driver in this time expanded by a greater degree than the previous quarter after the 2020 fiscal budget was disbursed in April.
Private investment was in a sharp contraction as merchandise exports drop and private consumption weakens.
With prevailing negative factors, the Thai economy in the second quarter will contract by 16.6 per cent before gradually rebounding in the second half of 2020.
TMB said that the bank remains prudent and it will set up extra expected credit loss:
“Given the current trend on asset quality as well as the economic uncertainty, TMB remains prudent and has set aside 4.97 billion baht of expected credit loss (ECL) in the second quarter of 2020. The higher provision in this quarter was due to an extra ECL of 1.6 billion baht for THAI’s bonds exposure which is now under rehabilitation and as management overlay.”
It added that at the same time TMB was proactively writing off non-performing loan (NPL) sales as well as the pre-emptive debt restructuring following the announcement of BOT’s relief measures.
As a result, stage three loans were reduced to 38.805 billion baht, representing an NPL ratio of 2.34 per cent as of June 2020.
This reflects the Bank’s prudent operation and NPL management.
After provision, TMB reported 3.09 billion baht of net profit. The figure decreased by 25.7 per cent quarter on quarter (QoQ) but increased by 61.4 per cent year-on-year (YoY) and represented a return on equity (ROE) of 7.4 per cent.
TMB:
| Q2 2020 | Q1 2019 | H1 2020 | H1 2019 |
| 3.09 | 1.92 | 7.26 | 3.49 |
Unit in Billion Baht
Kasikorn Bank sees a sharp dip in profitability
KBank, the country’s fourth-largest commercial bank, reported a sharp decline in profitability during the second quarter as it added in extra reserve for possible loan loss due to the deteriorating economic situation.
KBank and its subsidiaries reported the operating profit before expected credit loss and an income tax expense of 45.95 billion baht, which was an increase of 2.8 billion baht or 6.50 per cent over the same period in 2019.
The bank said that although it had a higher operating profit, it was prudent and took into consideration other factors.
“KBank and its subsidiaries have a continuously prudent approach [and we] set aside higher expected credit loss from the preceding period of 16.94 billion baht or 111.97 per cent.”
The bank said that this resulted in a decrease of net profit for the first half of 2020 by 10.42 billion baht or 52.18 per cent over the preceding period. Net interest income also increased by 4.14 billion baht or 8.12 per cent mainly from loan growth.
In addition, Contributions to Financial Institutions Development Fund (FIDF) decreased, resulting in NIM which stood at 3.34 per cent.
Non-interest income decreased by 1.81 billion baht or 7 per cent mainly due to fees income related to loan which changes to reflect in interest income and net premiums earned – net.
On the operating performance for the second quarter of 2020 in comparison to the first quarter of 2020, KBank and its subsidiaries reported operating profit before expected credit loss and an income tax expense of 25.38 billion baht which was an increase of 4.81 billion baht or 23.37 per cent from the preceding quarter.
KBank and its subsidiaries set aside higher expected credit loss from the preceding quarter of Baht 8.32 billion baht or 70.08 per cent.
This resulted in a net profit of 2.17 billion baht in the second quarter, a decrease of 5.2 billion baht or 70.50 per cent over the previous quarter because net interest income decreased by 1 billion baht or 3.56 per cent.
NIM stood at 3.22 per cent. However, non-interest income increased by 4.12 billion baht or 41.33 per cent mainly due to mark to market of investments according to market condition.
The Bank made an effort to control other operating expenses, resulting in a decrease in other operating expenses by 1.69 billion baht or 9.64 per cent. Cost to income ratio stood at 38.36 per cent in this quarter.
KBank said that its NPL gross to total loans as of June 30 stood at 3.92 per cent, while at the end of 2019, it stood at 3.65 per cent.
“The Bank has closely monitored, provided support and assured credit quality for customers affected by COVID-19. Coverage ratio as of June 30, 2020, stood at 155.68 per cent, in comparison to the end of 2019 which stood at 148.60 per cent.”
In addition, KASIKORNBANK FINANCIAL CONGLOMERATE’s Capital Adequacy Ratio (CAR), according to the Basel III Accord, was 18.09 per cent, with a Tier-1 Capital ratio of 15.38 per cent.
The bank’s first half of 2020 compared to the first half of 2019 saw a net interest income amounting to 55.16 billion baht, rising by 4.14 billion baht or 8.12 per cent, mainly due to an increase in interest income from loans to customers and a decrease in interest expense from Contributions to Financial Institutions Development Fund and Deposit Protection Agency.
Measures to mitigate the economic impact as per the Bank of Thailand guidelines that TMB implemented:
Auto loan
- Reduce installment by extending tenure (for cash your car)
- Reduce 30 per cent of installment for 6 months and cut interest rate not over 22 per cent (for cash your book)
Mortgage loan
- A six-month grace period of principle payment (Pay only interest) or
- A reduction of 50 per cent of installment for six months or
- A three-month debt suspension for the principal and interest payment
Unsecured loan
- Reduce 50 per cent of installment for six months and cut interest rate, not over 22 per cent
- Lower interest rate for unsecured loans to 25 per cent from 28 per cent per year, effective from August 1, 2020 (for new applications)
Credit card
- Convert current outstanding balance to term loan or convert to installment pay plan (IPP) with interest rate, limit of 12 percent and maximum 48 tenors
- Minimum payments for credit cards will be reduced to 5 per cent in 2020-2021, 8 per cent in 2022 and back to 10 per cent in 2023, effective from the April 20 billing cycle onwards
- Lower interest rates for credit cards to 16 per cent from 18 per cent per year, effective from August 1, 2020
Cash card
- Convert current outstanding balance to term loan or convert to installment pay plan (IPP) with an interest rate (limit at 22 per cent and maximum 60 tenors)
- Minimum payments for cash cards will be reduced to 3 per cent, effective from the April 20 billing cycle onwards
- Reduce the minimum payment from 3 per cent to 1 per cent for three months
- Lower interest rate for cash card to 25 per cent from 28 per cent per year, effective from 1 August 2020
SME (Juristic and NonJuristic) with total group limit (based on SLL)
- Loan payment holiday for Term Loan, Overdraft, Promissory Note, Trade Finance for 6 months, starting from 23 Apr 2020 onwards
- Loan payment holiday both principal and interest for term loan and all revolving loans for commercial purpose
- Provide soft loan to support Liquidity problem or to continue business for reducing impact of unemployment
- Maximum limit is 20 per cent of the loan outstanding as of the end of December 2019
- Interest rate at 2 per cent p.a. for the period not over 24 months
- 12-month TCG’s guarantee fee suspension
SME (Juristic and NonJuristic) with total group limit (based on SLL)
- Provide soft loan to support Liquidity problem or to continue business for reducing the impact of unemployment
- Maximum limit is 20 per cent of the loan outstanding as of the end of December 2019
- Interest rate at 2 per cent p.a. for the period not over 24 months
Large corporate
- Long-term lending: Suspension for the principal and extend installment period 6 months
- Short-term lending: Extend principal payment for 3 months
