Thai banks hit by sluggish growth

Earnings rose by a marginal 1% in Q3.

The sluggish economy is weighing heavily on Thai banks as lenders report flat growth and asset quality deteriorates, according to UOB Kay Hian.

The eight banks under UOB’s coverage reported flat earnings in Q3, inching up 1% YoY during the quarter. Top-line growth remain muted although bottom line was cushioned by higher non-interest income (non-II), driven higher by improving fee income and higher investment gains.

Nonperforming loans (NPL) formations also rose higher across banks, resulting in the combined NPL balance edging higher 5% QoQ in Q3. “We suspect that most banks have actively done qualitative NPLs reclassifications to rid themselves of legacy NPLs before TFRS 9 provisioning requirement becomes effective early next year,” said Thananchai Jittanoon, UOB analyst.

Loans growth also remained flat in a quarter basis, as yearly growth slowed to 3.6% YoY in Q3 from 4.7% YoY in Q1. Although loan growth is expected to slightly pick-up in Q4 due to seasonal factors, this may not be strong enough to lift the whole year’s growth beyond 4%, noted Jittanoon.

Also read: Thai banks' loan growth may slow to 4.1% by end-2019

“Owing to the poorer than-expected economy and export growth, banks have started to revise down their loan growth targets set for the year,” he added.

The sector’s non-II surged 29% YoY, driven mainly by Siam Commercial Bank’s gains from the sale of its subsidiary SCBLife. Several banks also sold investments and booked higher investments in Q3 to cushion against their sluggish core operating revenue.

Despite the rising NPLs, overall asset quality remains under control as the sector’s NPL coverage ratio remains healthy at 150% which should allow banks to have enough provisions under TFRS 9 requirements, said Jittanoon.

Also, the sector’s fee income, which has steadily declined since Q2 2018, has shown signs of stabilisation starting Q2 and rose 4% YoY in 3Q.