The cancellation of funds transfer fee via digital channels was the main factor that continued to pressure operating results of Thai commercial banks during 1Q19. It is expected that their fees from other transactions, in particular insurance brokerage, management and advisory fees, may grow at a slower pace and they might not be able to compensate the missing fee revenues because the volume of funds transfers via digital channels is projected to accelerate.
Given this, we at KResearch expect that fee income of Thai commercial banks may shrink within a range of 3.0-5.5 percent YoY in 1Q19, representing the contraction for the third consecutive quarter since 3Q18. Net profits of Thai commercial banks (excluding special items, such as gain from investment) may revert to contraction of about 4.0 percent YoY in 1Q19. Due to seasonal factors, net profits of Thai commercial banks, however, may remain static or increase over to the previous quarter. Marketing expenses might decline in 1Q19. Some commercial banks already set aside a provision for employment expenses in accordance with the new Labor Protection Act during 4Q18.
Amid a repayment season for many types of credit, loans overall may not accelerate substantially and this may cause return net interest margin (NIM) to decline in 1Q19. KResearch expects that NIM may slip to 2.85 percent while loans within the Thai commercial banking system might grow within a band of 5.6-5.7 percent YoY during 1Q19, representing a static growth compared to the 5.7 percent pace reported for 4Q18. However, an additional support prior to the enforcement of the new LTV measure in 2Q19 may cause home loan to surge approximately 9.0-9.5 percent YoY in 1Q19, accelerating over the 7.8 percent growth seen in 4Q18.
Debt quality problem needs to be monitored continuously and close attention must be paid to SME loans, which remain fragile due to the slow recovery in economic activities during the first half of the year. KResearch expects that non-performing loans within the Thai commercial banking system (including domestic registered commercial banks and foreign bank branches) may increase slightly to 2.95 percent in 1Q19, over the 2.93 percent growth recorded in 4Q18.