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15 Jul 2022

Financial Institutions

Thai commercial banks, 2H22: Supervision of fragile debtors needed as interest rates are set to increase (Current Issue No.3331)


We at KResearch assess that core business income of commercial banks in Thailand remained weak during 2Q22. Particularly, their non-interest income was pressured by murky economic conditions, while volatility in the capital market also hurt their investment portfolios. However, net interest income and net interest margin (NIM) increased slightly in line with loan growth. Meanwhile, commercial banks have steadily and proactively supervised their asset quality through accelerated efforts in addressing asset quality problems, including sale of NPLs, bad debt write-off and debt restructuring for their borrowers. As a result, the NPL ratio in the banking system during 2Q22 remained almost on par with that reported for 1Q22. In spite of this, close attention must be paid to deteriorating signs seen in the quality of SME and retail loan portfolios such as home loans, credit card loans and unsecured personal loans.    
Given this, net profit of commercial banks reached approximately THB46.1 billion during 2Q22, a 19.6 percent decline YoY, against the high base of 2Q21 for which a special profit item from a commercial bank’s investment and selling of its subsidiary’s shares was recorded.
Looking into remainder of 2022, it is expected that favorable economic signs will help support loan drawdowns, thus easing pressure on other parts of commercial banks’ core business income somewhat. For this reason, we have revised our 2022 loan growth forecast for Thai commercial banks to 5.0 percent or within a range of 4.0-5.5 percent. However, interest spread among commercial banks may not fully reflect the benefit of a policy rate hike because liquidity within the commercial banking system remains high and problems seen in many debtor segments during the current transition period have not received positive effects from the recovery in economic activity either. Therefore, commercial banks may raise interest rates for several products during the initial phase. Regarding the overall core business income of commercial banks in 2H22, due to the restricted growth seen in fee income, it may take a while for some commercial banks to enjoy earnings from new businesses; it is expected that pre-provisioning and tax operating profits of commercial banks in Thailand will reach THB401-403 billion in 2022, which would not return to the average figure reported during the 3-year period before COVID-19 although it is almost on par with that level.    

Financial Institutions