Kiatnakin braces for lower profitability
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Kiatnakin Bank is concerned that the higher premiums banks might have to contribute to the central bank would put downward pressure on its profitability.
President and chief executive officer Tawatchai Sudtikipisan said the bank would play down its fund-raising in the form of bills of exchange, as financial institutions might be required to contribute a percentage of issued B/Es as premiums to the Deposit Protection Agency.
For years, many banks have raised funds by selling B/E products to individuals as an alternative investment with attractive rates higher than those for savings deposits.
Currently, banks must contribute 0.4 per cent of their deposits exclud-ing B/Es to the Bank of Thailand. But it is expected that they will be required to contribute an additional proportion in accordance with the government’s policy to raise money to pay off the Bt1.14-trillion debt of the Financial Institutions Development Fund.
Kiatnakin Bank’s interest spread last year dropped to 4.3 per cent from 5.2 per cent in the 2010, because of an increase in the cost of funds, and the spread in 2012 might be lower if the DPA contribution is higher. However, the bank will try to maintain its spread at 4.3 per cent, Tawatchai said.
He said the bank predicted that if it were required to contribute 0.4 per cent of its B/E portfolio, this would cost about Bt101 million. If the contribution were 0.5 per cent, the cost would be Bt238 million; 0.6 per cent, Bt375 million; and 1 per cent, Bt922 million.
Kiatnakin Bank has B/Es worth of Bt67.7 billion and deposits of Bt69 billion.
“We believe B/Es will no longer be sold in the market and our B/E portfolio will be replaced by fixed deposits,” he said.
Loan growth in 2011 was 26.5 per cent to Bt135.75 billion. However, the higher cost of funds ate into the spread, causing its profit to increase by only 0.7 per cent to Bt2.86 billion.
Tawatchai noted that the bank predicted that non-performing loans (NPLs) this year might increase by 0.3 percentage point to 3.7 per cent because of the flood’s impact on some of its clients.
Auto loans are a major segment of the bank’s lending portfolio.
“The rise in fuel prices early this year has had an impact on the sentiment of auto buyers apart from the recent flood, and the global economic slowdown could hurt Thai exporters, both of which are of concern to us,” he said.
However, the bank is optimistic that the huge investment by the government to restore the country quickly after the flood could boost domestic consumption and activity by small and medium-sized enterprises.
Auto and SME loans could grow, and the bank’s business direction will focus more on lending to both segments.
Kiatnakin Bank projects lending growth this year of 21 per cent, with 22-per-cent growth in retail banking including auto loans and 19 per cent in corporate loans including the SME segment.
