Single-digit loan growth seen for 2015

The banking sector is expected to post single-digit loan growth again in 2015, at 8 per cent, a marginal improvement on this year’s forecast 6 per cent – the lowest figure in five years.

The expectation of relatively sluggish growth is due to declining household wealth, which makes the banks more cautious with their credit approvals.

Households have been struggling for the past few years under heavy debt burdens, especially auto loans. This situation has been aggravated by economic uncertainty, with the result that the banks have not seen the high loan growth of previous years.

Kasikorn Research Centre forecasts 6-per-cent loan growth for the banking industry this year, with total net loans of Bt600 billion.

Asia Plus Securities echoes KResearch, forecasting that overall loan growth in 2015 will be 8 per cent even though public spending on infrastructure projects will help boost lending activities. 

Banks will have to be more selective in granting loans, favouring customers they believe have the ability to keep up with their payments. However, one positive result should be a small number of new loans going bad.

Despite sluggish lending growth, the banking sector was able to maintain profitability in the third quarter thanks to higher net interest margins (NIM) and the low cost of funds.

Eight Thai banks last week reported third-quarter profits totalling Bt43.51 billion, compared with Bt40.32 billion in the same quarter last year.

The country’s largest bank by assets, Bangkok Bank, reported profit of Bt9.57 billion, up 6.9 per cent year on year, even though its growth in the first nine months was just 0.6 per cent. It maintained NIM of 2.44 per cent by keeping funding costs down.

Lending was not the driver for the profits, as credit expanded by only 2 per cent, and fee income did not increase much either. Key to the banks’ profitability was efficient fund management, resulting in wider NIM.

Earlier, several analysts expected the banking sector would face a challenge in carrying on margins given the weaker lending growth. However, interest rates paid on new deposit products have been lower than on previous products, lowering the cost of funds. Most lending in the third quarter was in the form of high-yield credit to small and medium-sized enterprises and unsecured loans, which also helped bolster NIM.

The quarterly results of TMB Bank and Tisco Financial Group confirmed the benefits of low-cost funds, helping boost their margins, even though Tisco has seen lending decline by 6.5 per cent so far this year. NIM at Tisco rose to 3.1 per cent from 2.9 per cent in the second quarter, while NIM at TMB improved by 15 basis points to 2.98 per cent. Kasikornbank’s net profit in the third quarter was Bt12.52 billion, up by 17 per cent year on year. NIM in the quarter stood at 3.70 per cent, improving from the same three months of 2013 thanks to the maturity of high-interest deposit products, which decreased the cost of funds. 

KBank’s loan growth year to date is 4.32 per cent. 

In the current fourth quarter, the net profits of the banking industry are expected to be higher than in the third because the final quarter traditionally sees high loan demand, which will shore up both interest and fee income.

But lending activity will mainly be to SMEs and for consumer finance rather than the corporate sector. Big companies will be a key credit driver next year, as the government’s infrastructure mega-projects get under way.