In 2020, the COVID-19 pandemic has not only dealt a blow to economic activity, but pressured operating results of commercial banks in many ways. KResearch expects that net profit of domestic-registered commercial banks may reach THB144 billion, representing the lowest level in nine years since 2012.
Although the Thai economy has passed through the peak of the crisis, the path of its recovery remains extremely uncertain in 2021, in particular during 1H21. Commercial banks, therefore, must be vigilant towards risk stemming from the new wave of COVID-19 since its impact may threaten their core business, including interest and non-interest income, plus their efforts to address asset quality problems in the portfolios.
Under an assumption that the Thai economy grows 2.6 percent in 2021 as projected by KResearch, it is expected that Thai commercial banks may log a net profit of THB148-154 billion in 2021, increasing 3.0-7.0 percent against the low base of the 2020 net profit (caused by the impact of COVID-19), supported by an expected decline in expenses for credit-loss provision after commercial banks have already set aside higher provisions in 2020. Additionally, commercial banks may benefit from the BOT's relaxation of debt classification regulations in the case that financial institutions have accelerated debt restructuring for COVID-19 stricken borrowers and have not set aside provision for the unused credit lines.
As the economic environment is being plagued by uncertainties surrounding COVID-19, the ability for commercial banks to maintain their core profit and asset quality in 2021 will likely be as challenging as in 2020. However, KResearch assesses that financial positions of domestic-registered commercial banks will continue to be robust as evidenced by the fact that the capital to risk-weighted asset ratio is higher than the required criteria and the NPL coverage ratio remains high at 1.4-1.5x.