KResearch assesses that the pandemic-stricken economic environment continued to undermine commercial banks' profitability in 3Q20, with both interest income and fee income on a declining trend that corresponds to the continuous slump in economic activity across many sectors. Moreover, the interest income of the entire system of Thai commercial banks was further impacted by the downward trend in lending rates, which have been falling since late 2019. KResearch projects that the net profit of the Thai banking system in 3Q20 will fall to an estimated level of THB 30.8 billion, or a drop of 66.5 percent YoY in comparison to a net profit of THB 91.6 billion in 3Q19 wherein one particular bank recorded extraordinary profit through the sale of an insurance company's shares that the bank had held. Nonetheless, this net profit inched up slightly, by around 3.7 percent, compared to the previous quarter due to lower provisioning expenses for 3Q20 among several commercial banks that may somewhat experienced a slowdown after they pursued a proactive provision policy by setting aside exceptionally high provisioning in 2Q20
Regarding the trend in 4Q20, we at KResearch expect that assessment of debt servicing ability for personal and business debtors, especially SMEs, in the period after the debt moratorium came to an end, will remain a challenging issue for commercial banks as a majority of these debtors are financially fragile. Meanwhile, the prolonged weakening of economic indicators may eventually affect their income and debt servicing ability in the future. Therefore, while this debt suspension measure is drawing to a close, each commercial bank in Thailand will continue to give support to both business and retail debtors via other means – concurrent with hastening the debt restructuring process. The criteria for providing financial assistance will be based on cashflow versus debt burden of debtors, classified by severity of impacts from the economic slowdown, and their differing circumstances as well as chances for recovery.
In addition, commercial banks' profitability in 4Q20 faces just as many challenges as in past quarters. While economic activity has gradually resumed after the relaxation of lockdown measures, the recovery remains considerably fragile. The final quarter of 2020 is projected to be a period in which banks carry higher overall expenses than in previous quarters, including provision expenses that will likely remain at a high level, costs in relation to marketing campaigns, expenses on premises and equipments – as well as fee expenses. Ultimately, these factors will likely cause net profit of the Thai commercial bank system to continually fall and become negative in 4Q20 compared to the same period of last year. The forecasted net profit is also gauged to be less than that of 3Q20.