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BOT’s extension of reduced FIDF contribution boosts bank shares, but experts warn of decline in profits

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The price of bank shares rose in response to news that the Bank of Thailand (BOT) will extend the period of reduced contributions to the Financial Institutions Development Fund (FIDF) to reduce costs and boost liquidity for financial institutions so they can continue helping customers.

BOT had brought down the contribution to FIDF from 0.46 per cent to 0.23 per cent.

As of Wednesday (July 15), Bangkok Bank (BBL) shares rose by 2.35 per cent to Bt109 per share, Siam Commercial Bank (SCB) rose by 2.41 per cent to Bt74.50 per share, and Kasikorn Bank (KBANK) by 2.18 per cent.

An analyst at Capital Nomura Securities said that extending the period of reduced FIDF contributions, which was scheduled to end in 2021, will help banks reduce their costs and increase their net interest margin (NIM). However, he said, big banks will benefit more than small and medium banks because they have a higher deposit rate.

“At the end of the first quarter, BBL had the biggest deposit base at Bt2.51 trillion, followed by Krungthai Bank [KTB]’s Bt2.35 trillion, SCB’s Bt2.27 trillion and KBANK’s Bt2.2 trillion,” the analyst said.

“If BOT extends the FIDF reduction period to 2022, then the profits of seven banks, namely BBL, KTB, SCB, KBANK, TMB Bank [TMB], Kiatnakin Bank [KKP] and Tisco Financial Group [TISCO] will rise by Bt18.5 billion. Profits made by BBL, KTB and SCB will increase by approximately 13 per cent,” the analyst said.

However, Pasakorn Wangvivatchareon, a research assistant at Asia Plus Securities, disagreed, saying BOT’s move will not help boost banks’ revenue because they are having to cut interest rates for loans. Instead, he said, the FIDF reduction helps reduce debtors’ interest burden and maintains assets quality.

“We still weight investment in bank shares at lower than the market, because non-performing loans [NPLs] have not reached the highest point and the economy should recover in the first quarter of 2021,” he said.

Meanwhile, a stock analyst at Bualuang Securities said TMB’s profits will rise by 25 per cent now that it has merged its loan portfolio with Thanachart Bank, while the profits of other banks, namely Bank of Ayudhya (BAY), SCB, KBANK, TISCO, KTB, BBL and KKP, will drop due to their provision for doubtful debt and a drop in returns from investment.

“We expect banks’ profits in the second quarter of this year to be at Bt32 billion, down 38 per cent year on year, and banks’ provision for doubtful debts to be at Bt43 billion, up 20 per cent year on year but down 16 per cent quarter on quarter," the analyst said.

“Banks' performance in the third quarter of this year would be at Bt38 billion, up 21 per cent quarter on quarter, but down 28 per cent year on year."

The analyst added that banks' price to book value (P/BV) is at 0.7 times, the same as it was during the 2008 financial crisis.

Published : July 16, 2020

By : The Nation