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17 Oct 2022

Financial Institutions

Gradual post-lockdown economic recovery expected to support commercial banks’ income from core businesses in 3Q22…but close attention must be paid to economic uncertainty going forward (Current Issue No.3350)


        KResearch views that the gradual recovery of economic activity after the easing of lockdown measures will drive income growth of commercial banks’ core businesses in 3Q22. It is expected that the gradual recovery of domestic spending will lead to higher demand for loans, especially business loans. Regarding retail loans, personal loans and credit cards continue to see double-digit growth, higher than other types of retail financing. As evidenced, loans of domestically registered commercial banks in 3Q22 are projected to grow at approximately 5.3-5.5 percent YoY. Net interest margin (NIM) may increase to a range of 2.72-2.75 percent – thanks to steady loan growth, especially high-yield loan portfolio, and the fact that commercial banks still focus on managing deposit costs effectively. Meanwhile, fee income may rise to a range of 4.5-7.0 percent YoY.
        However, the fragile economy makes it more complex for commercial banks in managing non-performing loans (NPLs) under the debt restructuring program. The situation indicates that the asset quality problem remains a challenge that requires proactive actions from commercial banks. Additionally, economic activity has yet to fully recover, thus resulting in deterioration of asset quality in home loan, hire purchase loan and unsecured personal loan portfolios. KResearch projects that NPLs ratio of the banking system in 3Q22 may increase to 2.90-2.97 percent of total loans. As a result, the level of expected credit loss should be stable or slightly decreased from the previous quarter.

        Looking ahead, KResearch expects that the uncertain economic situation may cause commercial banks’ income from core businesses to recover within only a limited range. Meanwhile, the subsequent interest rate hikes in the banking sector will depend on the trend of the policy rate, business environment, and preparation to accommodate the adjustment of contributions to Financial Institutions Development Fund (FIDF) in early 2023.

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