FRIDAY, March 29, 2024
nationthailand

High reserves, loan rate cuts to lower bank profits

High reserves, loan rate cuts to lower bank profits

The Bank of Thailand foresees the overall net earnings of the banking industry this year falling for a second consecutive year, due to a combination of the ongoing high level of loan-loss provisioning and recent lending-rate cuts, Don Nakornthab, the cent

Last year, the sector reported a combined net profit of Bt192.3 billion, 10 per cent lower than the Bt214 billion achieved in 2014.
 The banking industry in the first quarter of this year reported a net profit of Bt51.3 billion, rising just 1.7 per cent year on year, while overall operating profit in the period increased by 15.8 per cent to Bt100.1 billion.
 Net-earnings growth was low because of the banks’ huge loan-loss reserves of Bt38 billion in the quarter, he said.
 The economic slowdown, together with the banks’ awareness of the need for additional caution in regard to their lending, caused overall lending to expand by only 3.3 per cent compared with the same period last year.
 Loans to small and medium-sized enterprises grew by just 2.5 per cent, compared to 5.6 per cent last year, he added.
 Loan-loss provisioning in the first quarter increased from Bt34 billion in the fourth quarter of last year, in line with the rise in banking sector non-performing loans (NPLs), mainly among SMEs.
 The industry is also expected to set aside further high loan-loss reserves as a cushion for the unexpected and to cope with the ongoing increase in NPLs, chiefly among SME customers, Don said.
 This high provisioning will pull down the net profits of the country’s banks this year, he added.
 He raised the case of Sahaviriya Steel Industries, for which the banks have set high provisioning in order to reduce the impact from the loss-making borrower’s debt-repayment problems.
 On top of the provisioning factor, the recent cut in lending rates by the banks will affect banking profits from the current quarter onwards, the senior director warned.
 However, the central bank does not think the new structure for fee income will seriously impact on the banking industry’s profitability, as it should be largely offset by customers’ higher transactional activities, he added.
 Don said the level of NPLs was an indicator of the slower recovery of the economy, with NPLs among SMEs on an upward trend, especially among enterprises in the commercial segment, where businesses are affected by weak domestic consumption.
 In the first quarter, NPLs of both corporate and SME borrowers in the commercial segment increased to Bt82.6 billion, from Bt71.8 billion at the end of last year.
 At the end of the first quarter, total NPLs in the banking industry amounted to Bt357.4 billion, up Bt19.9 billion from the previous quarter, with gross NPLs rising to to 2.61 per cent from 2.55 per cent during the three months.

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