High loan-loss reserve, rise in NPL mar BBL’s first-quarter performance

The risk inherent in BBL’s loan exposure to digital-TV station customers will put pressure on the bank’s non-performing loans (NPLs) in the current and remaining quarters of the year, according to Tisco Securities.

BBL and its subsidiaries reported a consolidated net profit of Bt8.3 billion for the first three months, down 11.6 per cent year on year.

 The earnings were 7 per cent below the consensus forecast among securities houses due to Bt3.6-billion loan-loss provisioning for the first quarter, which was 22 per cent higher than in the same period last year. 

NPLs stood at Bt62 billion as of March 31, accounting for 2.9 per cent of outstanding lending against 2.8 per cent at the end of last year, due to a slower economic recovery and high household debt, the bank reported to the Stock Exchange of Thailand. 

Finansia Syrus Securities noted that the Bt62 billion-worth of NPLs was the highest amount experienced by BBL for eight years. 

The bank set aside provisioning expenses of Bt3.64 billion during the quarter, compared to Bt2.98 billion in the same period last year, resulting in the loan-loss reserve in relation to NPLs declining to 174.4 per cent on March 31 from 185.3 per cent as of the end of last year.

Tisco Securities said in its research that the bank’s NPLs were higher than the brokerage house had expected and, when looking ahead, BBL did not currently have positive factors to support its business growth.

Moreover, its net interest margin (NIM) is on a downturn after the bank cut lending rates for business customers last month.

 In the first quarter, the bank’s NIM stood at 2.28 per cent, a year-on-year improvement from 2.08 per cent thanks to lower deposit costs. 

 

Under pressure 

 KGI Securities (Thailand) noted in its research that BBL’s profitability in the remaining quarters would still be under pressure from an expected high credit cost at the bank and the expected fall in interest income after reducing its lending rates. 

The NIM at BBL is narrower than at other banks because its major customers are corporates, therefore it is more greatly affected by a reduction in interest rates.

BBL reported net interest income of Bt16 billion for the first quarter, an increase of 2.7 per cent year on year, but non-interest income declined by 1.1 per cent to Bt10.6 billion, due largely to the decline in gains from the disposal of assets. 

An interest-income downturn will damage BBL almost as much as it will Krungthai Bank, because its structure of floating-rate borrowers accounts for 69 per cent of outstanding lending, according to Asia Plus Securities’ research.

The bank’s floating-rate deposit customers account for 48 per cent of outstanding deposits, it added. 

BBL is a net lender in the financial market, and its net interest income this year is expected to fall by 4.7 per cent from the previously expected Bt57.4 billion, the securities house said.

BBL’s net profit this year is now expected to drop by 6.4 per cent from the previously expected level of Bt30.4 billion, Asia Plus Securities said in its research. 

According to BBL, the slow economic recovery has negatively impacted on the solvency of both businesses and households, causing its lending growth to increase by just 0.3 per cent, mainly contributed by loans to small and medium-sized businesses and loans made through the bank’s international network.

Bualuang Securities forecast in its research that BBL would deliver year-on-year earnings growth during the current quarter, boosted by continuing loan growth, well-managed operating expenditure and a sustainable NIM. 

The securities house said that despite the rising amount of NPLs during the first quarter, BBL’s asset quality looked sufficiently resilient to cope with a possible rise in NPLs above the level experienced by its peers, as about 61 per cent of its total loan portfolio was lending to corporate clients – a segment that would recover ahead of retail lending.