Krungthai Bank plans to hike monthly provisioning as prudency measure

Praralee Ratanaprasartporn, KTB’s senior executive vice president and head of the Retail Shared Services Group, said recently that the bank would seek board approval for the new provisioning soon.
If approved, the yearly normalised provision will be Bt14.4 billion, against Bt12 billion at present. 
KTB last year set an overall loan-loss reserve, including extra provisioning, of Bt33.43 billion, nearly Bt3 billion higher than the Bt30.54 billion set in 2015.
Even though this year’s non-performing loans (NPLs) will be lower than last year’s thanks to the implementation of its “loan factory” tool, KTB wants to make sure it operates under the best-possible prudency measures, and at the same time strengthen its coverage ratio, she said.
Its coverage ratio at the end of last year stood at 121.6 per cent, lower than the average of 130 per cent among its peers in the banking sector.
The bank believes its loan factory is efficient enough to resume aggressive loan growth in retail banking, including mortgages, this year, Praralee said.
KTB initiated a loan factory for retail banking in 2014, aimed at centralising its loan-approval system from the branch level and underwriting its credit policy in order to tackle bad debt.
The loan factory was fully implemented in September 2015.
The Bank of Thailand has been happy with the quality of debt at KTB after it embraced the tool for retail clients, although it must be said that economic conditions during the past two years were unlikely to support much activity in the area of new retail lending, she added.
The senior executive said two state-run banks had visited the loan factory and expressed interest in using KTB as an outsourcing provider. Both banks must, however, consult the central bank first because of the sensitive regulations concerning the handling of bad debt, she pointed out.
The loan factory is a suitable tool for small loans and, after using it to screen personal loans for a full year, KTB’s NPLs are less than 1 per cent of its personal-loan portfolio of Bt300 billion, she said.
“The computer database, which profiles those customers who will be good borrowers and those with a chance of becoming bad debtors, uses four systems to screen each application. The lower NPL ratio achieved assures us that we are on the right path, and the bank is now ready to take off in terms of growing its retail lending,” she explained. Moreover, KTB has acted in response to a rising NPL trend in its mortgage lending among customers in their third year of instalment repayments.
With housing-loan NPLs peaking in the third year, the loan-factory tool to underwrite this category of borrowers is now more prudent, with the bank also adjusting the KYC (know-your-customer) facility from the front end to the back end, she said.
As a result, new NPLs among mortgage borrowers are now below 1 per cent as well, she added.
The loan factory has also enabled the bank improve the approval rate for housing-loan applications, which last year stood at 75 per cent, compared to 55-60 per cent in the banking industry as a whole, the senior executive said.
However, the bank has to do better in the area of pre-finance for residential projects in order to drive post-financing of housing loans, she acknowledged.
KTB, which this year targets overall loan growth of 4-6 per cent, wants to do better in lending to business and retail customers in provinces close to the Kingdom’s borders under a strategy of area-based financing, its president Payong Srivanich has said.
The bank has had to modify its system to cater to new segments under area-based financing, Praralee added.