High provisions mar bank’s profit growth

According to the banks’ reports to the Stock Exchange of Thailand, their total loan-loss provisioning was Bt159.45 billion, up by 8.81 per cent from Bt146.526 billion in 2015, indicating that the banks continued to operate with prudence.
Kaikornbank reported the highest provisions in 2016 at Bt33.75 billion, up from Bt26.37 billion in 2015, followed by Krungthai Bank, which set provisions of Bt33.43 billion versus Bt30.54 billion in 2015.
Thanachart Bank, Tisco Bank, Kiatnakin Bank and Siam Commercial Bank reported lower loan-loss provisions.
SCB reported the highest net profit at Bt47.61 billion, but compared with the year before, its net grew by only 0.9 per cent, mainly on a significant plunge in non-interest income. The bank set aside provisions of Bt22.53 billion, down from Bt29.72 billion. In 2015, SCB’s high provision was mainly due to Sahaviriya Steel Industries’ debt restructuring.
As measured by net-profit improvement, Kiatnakin Bank outperformed its peers with growth of 66.86 per cent to Bt5.54 billion year on year even though its lending dropped by 0.8 per cent.
Bank of Ayudhya (Krungsri) also did well, recording net-profit growth of 14.86 per cent to Bt21.40 billion. It is also the only bank to report double-digit loan growth, at 11.2 per cent.
Krungsri president and chief executive officer Noriaki Goto said the bank forecast loan growth of 6-8 per cent for this year, underscoring its vigilant risk-management practices. It believes government investment will provide a key catalyst for economic growth, along with the expected recovery in private consumption, exports and the tourism sector.
Bangkok Bank and TMB Bank both reported a decline in net profit in 2016. BBL’s net dropped by 7 per cent to Bt31.81 billion while provisions rose to Bt15.73 billion against Bt14.65 billion in 2015. 
TMB’s net profit plunged by nearly 12 per cent to Bt8.22 billion and its provisions jumped to Bt8.65 billion from Bt5.48 billion.
CIMB Thai Bank is only one that reported a net loss, attributed to large provisioning, mainly from rising NPLs in isolated commodities-related industries.
The bank’s 2016 net loss was Bt629.5 million, turning around from net profit of Bt1.05 billion a year earlier, after setting loan-loss provisions of Bt9.8 billion. In 2015, CIMBT set loan provisions of Bt6.7 billion. 
The NPL ratio at CIMBT as of the end of 2016 was 6.1 per cent, a jump from 3.1 per cent in 2015. It was the highest NPL ratio in the sector. Consequently, the bank has proposed a rights offering to shareholders to raise capital of Bt5.5 billion on top of its existing registered capital of Bt12.38 billion.
Kittiphun Anutarasoti, president and CEO of CIMBT, said that if the shareholders approve the proposal, its capital-adequacy ratio will be 18.5 per cent, up from 16.1 per cent. But another reason that the Thai unit has to ask for a capital injection from Malaysia-based CIMB Group is a regulation by the Thai Finance Ministry.
The ministry has given notice that any Thai banks that are subsidiaries of foreign banks must be supported by Tier 1 capital from their parent banks by 2018.
Usanee Liurut, executive vice president of Asia Plus Securities, said loan-loss provisioning this year would be lower than in 2016 because credit costs have peaked, while NPLs will not increase as sharply as during the past two years.
BBL’s net profit dropped for two consecutive years (2015 and 2016) because of a decline in corporate lending, which contributes more than half of its total loan portfolio. 
During the past two years, corporates have been raising funds from the capital market rather than commercial banks. However, Asia Plus believes loan demand from corporates will return this year, driven by government projects and the upward trend of interest rates.
Meanwhile, banks in the instalment-loan business that will be affected by higher interest rates are adjusting their financial cost structures by focusing strongly on current accounts and savings accounts (CASA).
Lending and net interest income will be the drivers of the banks’ performance in 2017, while fee incomes from transactional banking will be affected by the arrival of the national e-payment scheme, including the PromptPay system. But Asia Plus expects that the impact of PromptPay on net profits of the banking industry will be no more than 2 per cent because digital banking accounts for 20 per cent of their total income and they will be able to seek fee income from other businesses.