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Thai banks in for tougher times – Analysts cite falling loan growth, likely surge in NPLs and provisioning costs

January 26th, 2009 · No Comments


THAI banks face a deteriorating outlook for this year, despite having shown resilience against the effects of the global slowdown last year, but the worst is yet to come, according to analysts.

Lower provisioning and higher loans growth saw Thailand’s banking system report higher average return on assets (ROA) of 1.1 per cent last year, compared with 0.3 per cent in 2007, while its non-performing loan (NPL) ratio dropped to 7 per cent from 9 per cent, said Fitch Ratings.

Loan growth, 11 per cent, was at it highest level since the 1997 Asian financial crisis, mainly boosted by the strong demand for corporate working capital in the first half of last year, though it will decline to 3-5 per cent this year, based on 1.3 per cent GDP growth, said KGI Securities (Thailand).

Falling loan growth, and the chances of a surge in NPLs and provisioning costs, will see Thai banks’ performance weaken in 2009, but the system’s strong capital positions should dampen the effects of any further slowdown, said Fitch Ratings.

‘With strong underlying profitability, improved asset quality and more modest growth in preceding years, Thai banks should be better prepared to face the expected drastic economic slowdown this year than during the 1997-1998 crisis,’ said Vincent Milton, managing director, Fitch Ratings Thailand.

Last year’s figures, which saw operating earnings decline by 2.6 per cent YOY, were disappointing despite the system’s overall growth, and the worst is yet to come, said Worawat Saisuphatphol, banking and finance analyst, KGI Securities (Thailand).

‘Clearly, worsening economic conditions have yet to be reflected in bank earnings,’ he said. ‘The slowdown should be seen in the first quarter as loan growth is set to slow, fee income is losing momentum, net interest margin is under pressure from interest rate cuts, and provisions are poised to rise.’

Major banks’ NPLs declined last year mainly due to restructuring, NPL sales and write-offs, but consensus predicts they will rise this year due to the synchronised deterioration in the Thai and global economy, analysts said.

The county’s leading banks published strong net results and profitability for 2008, with Bangkok Bank 20.3 billion baht (S$877 million), ROA 1.2 per cent; Siam Commercial Bank (SCB) 21.3 billion baht, ROA 1.8 per cent; Kasikorn Bank15.3 billion baht, ROA 1.3 per cent.

TMB Bank reported a net loss of 4 billion baht in Q408, but published a 0.5 billion baht profit for the year. BankThai was the only bank to report a loss for 2008, at 1.9 billion baht.

SCB published a record annual net profit for 2008, up 23.4 per cent from 2007, by focusing on risk/return improvement and stronger underwriting criteria. But like most banks it is taking a cautious position on business in 2009.

‘In the year ahead, we anticipate further challenges and our business thrust will be anchored on a prudent and cautious stance,’ said Vichit Suraphongchai, chairman, SCB executive committee.

Most ratings agencies revised down their outlook on Thai banks to negative from stable, at the end of last year, following their revision of Thailand’s sovereign ratings.

Published January 26, 2009
© The Business Times

Tags: business · news · The Business Times (Singapore)

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