Exposure to SSI bad debt takes huge bite out of banks' Q3 net earnings
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THE YEAR-ON-YEAR plunge of more than 16 per cent in third-quarter net profits reported by the banking industry stems mainly from the high debt provisioning for Sahaviriya Steel Industries (SSI) by three banks, showing that the Thai banking industry is una
The country’s 11 commercial banks reported a combined net profit of Bt46.51 billion, down from Bt55.48 billion in the third quarter of 2014, while their net profit for the first nine months was Bt153.15 billion, a decline of 4.96 per cent from Bt161.15 billion a year earlier.
The profitability of the banking industry in the first six months was challenged by weak consumption and high household debt, causing overall lending to experience slow growth, with some banks even witnessing shrinkage.
Several banks increased debt provisions for small and medium-sized enterprises (SMEs) and retail clients rather than for corporate clients, in the belief that large companies were strong enough to resist the economic downturn.
However, the special debt provisioning of nearly Bt20 billion combined by three banks for SSI, the country’s biggest steelmaker, is testing the risk management of local banks to the ongoing worldwide uncertainty.
The global economic fragility of the past several years has affected the prices of commodities, including steel.
SSI attempted for some time to sustain its upstream steelmaking in the UK, until the company was recently left with no choice other than to mothball its facilities there after being unable to repay its huge debt to Siam Commercial Bank, Krungthai Bank and Tisco Bank.
The three banks have classified SSI’s debt as bad debt and set aside the full amount of debt provisioning for the period.
SCB has set aside Bt11 billion for SSI, followed by KTB with provisioning of Bt6 billion, and Tisco with Bt2.16 billion.
Compared with the same period last year, this lifted the total debt provisioning at SCB by 400 per cent to Bt16 billion as of the end of last month, followed by Kasikornbank with a 100-per-cent rise to Bt7.5 billion, and Tisco, whose provisioning increased by 88.5 per cent to Bt2.17 billion.
SCB’s third-quarter net profit came in at Bt9.01 billion, down 31.8 per cent year on year and the first time in three years that its quarterly net earnings were lower than Bt10 billion.
The bank used to lead its peers in terms of the amount of net profit it made.
Tisco Financial Group, the holding company of Tisco Bank, reported a 25-per-cent drop in net profit to Bt809 million for the quarter.
Among the 11 banks’ quarterly results, CIMB Thai Bank posted the best net-profit growth at 81.17 per cent, while KTB recorded the worst performance with a drop of 42.27 per cent to Bt5.34 billion.
Kasikornbank was the only one to post net earnings of more than Bt10 billion for the quarter.
However, the ongoing high provision for SME clients and loan restructuring for SMEs hampered its profitability in the third quarter, compared with the same period last year.
KBank posted third-quarter net earnings of Bt10.11 billion, a year-on-year drop of 19.18 per cent.
With banks these days having more exposure in the corporate sector, and supporting large firms financially for activities in offshore markets, they should increase their awareness about the potential problems they could face in light of the SSI case, said a banker who declined to be named.
Meanwhile, KTB president Vorapak Tanyawong said the bank had learned from the SSI case that financial problems might not stem from a customer’s management, but from the environment in which it operates.
In this case, it is the continuing plunge in global steel prices, he said.
To support corporate customers who have offshore activities, banks should add such external factors into their risk management, apart from the repayment ability of these clients, he added.
