Bank shares take hit as Q2 results revealed

As of July 20, the share value of Thailand’s top five banks with market capitalisation over Bt100 billion – namely Kasikorn Bank (KBank), Siam Commercial Bank (SCB), Bangkok Bank (BBL), Bank of Ayudhya (BAY) and Krungthai Bank (KTB) – fell by 3.60 per cent, 3.37 per cent, 2.74 per cent, 1.85 per cent, and 0.95 per cent, respectively.

The first two banks to release second-quarter results were Tisco Financial Group (Tisco) and KBank.

Tisco's second-quarter net profit was Bt1.33 billion, down 26 per cent year on year. The figure was 15 per cent lower than market expectation due to a net interest margin (NIM) that dropped to 4.32 per cent from 4.6 per cent in the previous quarter after the bank cut interest to help debtors.

Tisco's non-performing loans (NPLs) rose from 2.56 per cent in Q1 to 3.28 per cent due to the economic slowdown. The bank revealed that only 10 per cent of debtors opted to postpone their debt repayments.

Meanwhile, KBank's second-quarter net profit was Bt2.17 billion, down 78 per cent from the same period last year of Bt9.92 billion, while net profit in the first half of this year was Bt9.55 billion, down 52 per cent from last year’s Bt19.9 billion. The bank's NPLs at the end of June this year rose to 3.92 per cent from 3.65 per cent at the end of 2019.

An analyst at Kasikorn Research Centre (KResearch) said that with debt repayments hit by the economic slowdown, the proportion of NPLs to total loans is expected to increase from 3.05 per cent in the first quarter to 3.4 per cent in the second quarter.

"Meanwhile, credit costs to total loans will rise to 1.65-1.9 per cent from 1.46 per cent in the previous quarter due to increasing credit risks," the analyst said. "Every 0.1-per-cent rise credit cost will reduce banks' net profit by about Bt3.3 billion to Bt4 billion."

The analyst said that banks will plan their business strategy based on an economy hit hard this year, and it may take years for issues like debt quality to return to normal.

"Although the economy is likely to improve next year, NPLs are also likely to increase in the next one or two years, causing several banks to set up more allowance for doubtful accounts," the analyst said.

"We expect banks’ second-quarter net profit to drop by 42-52.2 per cent to Bt26.8 billion-Bt32.5 billion due to the decline in NIM [net interest margin] which we expect will drop to 2.2-2.5 per cent from 3 per cent in the first quarter.

Nuttachart Mekmasin, a research analyst at Trinity Securities, said the decline in bank profits showed that the Bank of Thailand (BOT)’s measure to postpone debt repayments cannot reduce NPLs because the quality of debtors who did not participate in the project has dropped sharply, adding that this factor would cause banks to pay low dividends.

"The consensus is that the banks will pay the same dividends as last year," he said. "However, investors may be disappointed because under the pressure of the current situation banks may not be able to match last year’s dividends, while disappointment among investors may cause the price of bank shares to drop."

He said the share prices would, however, not drop sharply because they were lower than the book value, adding that bank share prices are expected to fluctuate in a narrow range.

"We advise investors to avoid investing in this group because the dividend is likely to drop over 3 per cent," he added.

An analyst at Asia Plus Securities expected the NPLs to increase from 2.4 per cent at the end of 2019 to 4.7 per cent at year-end 2020, adding that the increase may spark negative sentiment for bank shares in the short term.

"Therefore, we advise investors to delay investment in bank shares until they announce the second-quarter performance," the analyst said. "Also, we advise following announcements on banks’ NPLs, loan classification, credit losses, and the number of debtors participating in the loan payment holiday measure."