Siam Commercial Bank lowers loan-growth, NIM targets for year
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SIAM COMMERCIAL Bank has cut its lending-growth target for this year to 2.5-3 per cent from the previous projection of 5 per cent in line with lower loan demand.
The bank has also lowered its forecast for net interest margin (NIM) because of its loan exposure to Sahaviriya Steel Industries (SSI).
SCB management met with market analysts yesterday on the SSI case and informed them of the bank’s prudent measures to cushion the impact from the large provisions it has set aside.
In addition to the lowering of its lending-growth target, it has cut its NIM target to 3-3.2 per cent from 3. -3.3 per cent as the bank will no longer be receiving interest income on the SSI debt, according to an analyst at Krungsri Securities.
The analyst noted that the SSI case would drive up SCB’s gross NPL (non-performing loan) rate by 20 basis points to 3.1 per cent and its coverage ratio should drop to 111 per cent in the third quarter from 135 per cent in the second.
Maybank Kim Eng Securities noted in its research that SCB expected its lending in the third quarter to drop by 0.5 per cent from the previous quarter, partly because of its classification of SSI debt as non-performing.
NIM in the third quarter now is expected to fall by 5.8 per cent from the second quarter, and credit cost is also expected to increase by 90 basis points, amounting of Bt16.3 billion in the third quarter. When combined with the extra provision for SSI of Bt10.5 billion, SCB’s net profit in the third quarter should drop by 28 per cent quarter on quarter as well as year on year.
Meanwhile, KGI Securities (Thailand) revealed that SSI UK’s creditors had agreed to a 50-per-cent haircut on their Bt28 billion worth of lending. As loans to SSI Group totalled around Bt52 billion, that haircut brings the balance down to Bt38 billion, for which SSI in Thailand told the lenders that it would take responsibility.
However, in the view of KGI, the remaining balance is a huge burden for SSI, noting that SSI’s cash flow has fallen to below Bt1 billion a year.
The current cash flow of SSI in Thailand will pose risks to creditors, as SCB alone has lent almost Bt10 billion to SSI Thailand. Furthermore, the bank’s provision for the loan was less than 50 per cent, but it might increase the provision for SSI Thailand. Although expenses from provisions will not affect SCB’s net-profit growth this year, the SSI case will affect its profitability and return on equity in the long term.
