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Bank profits increase despite rise in bad loans

Nov 18. 2019
Tharith Panpiemras, Senior Director, Banking Supervision and Risk Assessment Department, Bank of Thailand, said that the Thai banking system remained resilient.
Tharith Panpiemras, Senior Director, Banking Supervision and Risk Assessment Department, Bank of Thailand, said that the Thai banking system remained resilient.
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By The Nation

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Bad debts or NPLs in Thailand’s banking system are on the rise as SMEs face difficulties and lower asset quality but bank profits still increased in the third quarter of this year, the central bank said today (November 18).

Tharith Panpiemras, Senior Director, Banking Supervision and Risk Assessment Department, Bank of Thailand, said that the Thai banking system remained resilient with higher levels of capital fund and loan loss provision to withstand a potential adverse impact from economic uncertainty. Meanwhile the banking system’s performance improved. 

The capital fund of the Thai banking system was Bt2,738 billion thanks to an increase in profit appropriation and issuance of subordinated bonds, resulting in higher capital adequacy ratio (BIS ratio) at 19.2 per cent. Loan loss provision increased by Bt9.9 billion from the previous quarter to Bt690.5 billion with a  higher ratio of actual to regulatory loan loss provision at 196.3 per cent to withstand economic uncertainty. Liquidity coverage ratio (LCR) remained high at 185.0 per cent.

The continued economic slowdown adversely impacted bank loan growth and asset quality, particularly for small and medium-sized enterprises. As a consequence, bank loan growth continued to decline from 4.2 per cent last quarter to 3.8 per cent year-on-year. 

Corporate loans (64.7 per cent of total loans) grew at 1.3 per cent year-on-year. Large corporate loan growth (excluding financial business) slightly increased from 2.2per cent last quarter to 2.6per cent year-on-year despite loan repayments by some large corporates that raised funds through the bond market. SME loan (excluding financial business) contracted 1.0per cent from 0.1per cent year-on-year growth last quarter, following a decline in bank lending to both small and medium-sized enterprises. 

Consumer loan (35.3 per cent of total loans) continued to grow robustly despite a decline in the growth rate from 9.2 per cent last quarter to 8.7 per cent. This was largely due to two consecutive quarters of slower growth in mortgage lending following a period of accelerated growth prior to the implementation of the Loan to Value (LTV) measure, as well as a slower growth in auto

loans consistent with a slowdown in domestic car sales. However, personal loan and credit card loans continued to grow at higher pace.

On the loan quality front, the ratio of gross non-performing loans (NPLs) to total loans increased from 2.95 per cent last quarter to 3.01 per cent. Gross NPL outstanding stood at Bt469.5 billion, increasing by Bt19 billion baht from the last quarter, mainly attributed to an increase in the NPL of a large real estate business concern and the deterioration in asset quality of SMEs. Meanwhile, the NPL amount outstanding in mortgage and auto loans continued to increase. However, the ratio of special mention loans (SMs) to total loans declined from 2.74 per cent last quarter to 2.59 per cent as a result of one large corporate being reclassified as NPL.

In the third quarter of 2019, the banking system recorded net profit of Bt96.5 billion baht, increasing from the same period last year. This was mainly driven by an extraordinary item from gains on sale of investment by a large Thai bank. As a result, nine-month net profit rose to Bt214.4 billion. Excluding this extraordinary item, third-quarter net profit still increased compared to the same period last year, which was attributed to an increase in net interest income as a result of retail loan portfolio expansion, higher dividend income and fee income from securities brokerage and bancassurance. Meanwhile, higher provisioning expenses were set aside as a buffer against deteriorating asset quality as well as economic uncertainty. Overall, the return on asset (ROA) increased from 1.26 per cent last quarter to 1.98 per cent, while the ratio of net interest income to average interest-earning assets (Net Interest Margin: NIM) remained stable at 2.74 per cent.

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