The year 2018 has been another year for Thai banks to always be vigilant of various issues. While their fee incomes have contracted due to the reduction of digital funds transfer fees, loan growth has been helpful in offsetting this negative factor. With the support of retail loan growth in the last quarter of 2018, total loan growth is expected to end the year with a higher rate than KResearch's estimate of 6.0 percent.
Nevertheless, many challenges are waiting in 2019 that will affect commercial banks' profitability. An important issue is an expectedly slower economy that may limit total loan growth within a range of 4.0-6.0 percent, and thus will require close monitoring on loan quality, especially when domestic interest rates will likely increase in 2019, given favorable economic conditions. KResearch expects that the NPL ratio may inch up to 2.98 percent at the end of 2019, against the forecast 2.91 percent for the 2018 yearend. Among all loans, banks will have to be on guard against SME and home loans in particular.
As for interest rate hikes of commercial banks, they may remain in a “wait-and-see" position toward appropriate timing in order to avoid any adverse impacts on their customers and the overall economic system. This position is due to total liquidity in the commercial bank system that stands as high as THB3.8 trillion and their financial cost management ability. In the first half of 2019, some rates may be raised, such as those for special fixed deposit accounts, home and auto loans with long terms, while other general rates for deposits and loans could be increased during the second half of the year, or after the general election.
Although commercial banks' interest rate hikes will result in an increase in net interest margin (NIM) to more than the 3.2-percent rate in 2018, commercial banks will still have to face various challenges in 2019. Notable issues include their ability to uphold their profitability from the 2018 performance and intensified competition that the coming of the digital era has brought forth. Such competition involves digital models of commercial banks and other players, including FinTech, TechFin and e-commerce operators.