Thai bank earnings rise in Q2, but bad loans slated to rise

Rising costs and no more relief from the regulator will cause a rise in the bad loans ratio.

Thailand bank’s earnings are expected to have risen 15% in Q2, but non-performing loans will also be on a rising trend, reports UOB Kay Hian.

In a report, UOB Kay Hian Kwanchai Atiphophai estimates that banks will report a combined net profit of around $1.1b (THB39b) in Q2, on the back of lowr provision expenses. This will be 15% higher than the combined net profit of Q2 2021, but 7% lower than the previous quarter. 

“We believe the banking sector’s average credit cost would decline 33 basis points (bp) year-on-year thanks to better-contained infections of the COVID-19 pandemic and resumption in economic activities,” Atiphophai said in the report. 

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However, Atiphophai warned of that the chance of non-performing loans (NPL) resurging is “very high” in the second half of the year, given the higher-than-expected inflation ate and the absence of further debt relief pressures.

The sector’s non-performing loans (NPL) ratio is expected to inch up to 3.3% in Q2, ultimately rising to 3.4% by end-2022. 

“The rising costs will put pressure on borrowers’ ability to pay, especially those with low income,” Atiphophai wrote. 

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Meanwhile, the Bank of Thailand (BOT) provided the comprehensive debt restructuring (CDR) or the last resort of debt relief measures on 3 September 2021. As of Q2, more than 50% of debut under the relief programme has already been migrated to CDR, making the chance of NPL resurgence in H2 very high, he said.

He also expects fee incomes from asset management and investment gains to be weak, given the bear capital markets and high bond yields globally. This should reportedly bring the sector’s non-interest income (non-II) to fall 8% year-on-year in Q2.