Higher DPA fees likely to hit banks

Central bank Governor Prasarn Trairatvorakul yesterday declined to state the specific fee to be levied on commercial banks’ deposits, saying the executive decree to empower the increase had not yet been announced.

"We’re now in the process of discussion," he said.

The Thai Bankers’ Association this week will send a proposal to the BOT indicating what it views as the comfortable level of fees that should not affect banks’ competitiveness. The BOT also requires that the banks not pass the burden to depositors, for example by delaying any possible rise in deposit interest or charging a higher lending rate.

Prasarn noted that commercial banks were also concerned that some deposits would flee to state-owned banks, which are not subject to the fee. Referring to his discussion with Finance Minister Thirachai Phuvanatnaranubala on Saturday, he said the ministry would supervise |the state-owned banks’ asset expansion.

"They [state-owned banks] may not compete with commercial banks for deposits, as their core operations will focus on extending loans to grass-roots people and small businesses. They may not need huge deposits," he said.

DBS Vickers Securities (Thailand) came up with research showing that commercial banks’ earnings will be cut by 8.1-9.1 per cent if the BOT decides to raise the deposit-based contribution to 0.55 per cent and impose fees on B/Es. The forecast is based on the possibility that the fee will be extended to B/Es for the first time. This would hurt institutions that rely heavily on B/Es for raising funds.

The securities house came up with two scenarios.

First, if DPA fees are raised to 0.55 per cent of deposits and 0.35 per cent of B/Es, earnings will drop by 8.1 per cent. In this scenario, the cost of funds would rise by 19 basis points while the net interest margin (NIM) rises by 13 basis points.

Under this scenario, it expects earnings growth in 2012 to be just 4.2 per cent, as compared with anticipated growth of 13.4 per cent without an increase in DPA fees.

Second, if the DPA fees are raised to 0.55 per cent of deposits and 0.50 per cent of B/E, earnings will drop by 9.1 per cent. The cost of funds will be reduced by 23 basis points and NIM by 15 basis points. Under this scenario, DBS expects the industry’s earnings growth to be even lower, at 3.0 per cent.

The DBS research covered eight banking stocks: Bank of Ayudhya, Bangkok Bank, Kasikornbank, Krung Thai Bank, Siam Commercial Bank, Thanachart Capital, Tisco Bank and TMB Bank.

"However, the impact on each bank will differ according to its deposit and B/E mix," it noted.

Based on its estimates, Tisco Securities’ NIM will suffer the biggest negative impact because of its large B/E base. In the second scenario, Tisco will see the cost of funds rising the most, by 37 basis points. KBank will suffer the least, as the costs will rise only 16 basis points.

DBS noted that KBank and Bangkok Bank will be the least affected, as its B/Es only account for 7 per cent of total sources of funds.