Surprise rate cut a challenge for Bangkok Bank (China)
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The recent cut in China's policy interest rate poses a challenge for Bangkok Bank (China), a wholly owned subsidiary of the Thai bank, as it has to balance the efficient management of capital and double-digit loan growth.
BBC chief executive officer Suwatchai Songwanich said the policy-rate cut could pull down its margin.
The central People’s Bank of China (PBOC) recently lowered the one-year benchmark lending rate by 40 basis points to 5.6 per cent and the one-year deposit rate by 25bps to 2.75 per cent.
“We have to be more cautious on lending because of the risk and the fragility of businesses,” Suwatchai said. “Capital allocation will also have to be more efficient.”
Under BBC’s licence, which is for a foreign bank that has been upgraded to a local bank, it has only received deposits from corporate accounts, and its lending has facilitated corporate customers. This is unlike the case in Thailand, where Bangkok Bank can tap retail customers and offer some high-yield products such as credit cards to sustain margins.
BBC considers that it should increase its focus on fee income, which currently accounts for less than 20 per cent of the total. Suwatchai noted that fee income of foreign banks in China has been smaller than for Chinese banks.
He said the market had not expected the POBC to lower interest rates until the second quarter of next year. However, even though the rate cuts were made sooner than expected, BBC has laid out scenarios and stress tests to guard against the risk of financial fluctuations.
He said BBC previously did not put much emphasis on high loan growth because it wanted to establish a firm foundation to become a local bank. When it was upgraded to local-bank status in 2009, China’s economic growth was slower, so the bank put its focus on quality growth.
This year’s loan-growth target is 10 per cent, higher than in past years. Suwatchai believes that the bank will achieve the target because its customers are strong, reflected by the fact that its non-performing-loan rate has improved, contrary to the situation in China’s overall banking industry.
He did not disclose the NPL rate at BBC but said the rate of bad loans in the overall banking industry had climbed to 1.3 per cent from 0.99 per cent last year.
One-third of BBC’s loan portfolio of US$1.1 billion (Bt36 billion) is Thai corporates, and the rest Chinese companies and multinationals.
He said indications were that the bank would maintain the double-digit loan-growth rate next year. As a small bank, BBC has many ways to avoid the impact of China’s economic slowdown. The free-trade zone in Shanghai is one opportunity, and the bank will open a sub-branch in the zone by early next year.
He said the free-trade zone was set up as a renminbi-denominated offshore borrowing centre, as the PBOC wants to enhance financing support for cross-border investment and trade.
Currently, there are five Thai companies in Shanghai’s free-trade zone.
Bangkok Bank has five branches in China, including the one in Shanghai, which is also the headquarters of BBC. The other four are in Beijing, Xiamen, Shenzhen and Chongqing.
