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17 Jul 2023

Financial Institutions

Commercial banking business, 2Q23: Although NIM increased in line with domestic interest rates, loans continued to grow at slow pace (Current Issue No.3422)

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       Despite the gradual increase in interest rates during 2Q23, loans continued to grow at a slower pace of 0.5-0.8 percent YoY. As a result, interest income and net interest margin (NIM) in the Thai commercial banking system may grow within a narrow range. It has been projected that NIM may increase in a range of 2.96-3.00 percent. Additionally, there was a reduced growth momentum seen in fee and service income amid signs of a fragile recovery in economic activity. Fee and service income is projected to grow at a slow pace of 3.5-5.0 percent YoY during 2Q23 while most commercial banks remained cautious towards their provisions as the NPL to total gross loan ratio may grow within a range of 2.68-2.72 percent in 2Q23.
       Looking ahead, the relevant authorities are reviewing and discussing details of their rules, regulations and measures, which are expected to be gradually announced in due course. If they are implemented, core income of the commercial banking business may be affected. Responsible lending, risk-based pricing and macro-prudential policy are likely to have continuing effects on credit growth, particularly retail and small-business loans, plus interest income of commercial banks, as well. Additionally, growth in fee and service income may be undermined by the fact that the relevant authorities are planning to supervise the fee structure of commercial banks with the aim of ensuring fairness for financial service users. We at KResearch are of the view that all of these measures are new rules that will affect operations of commercial banks going forward. As a result, they may have to put necessary strategies in place and accelerate adjustments to cope with those rules. Concurrently, they may have to brace for immediate challenges stemming from economic uncertainties during 2H23.

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