Thai banks' net profits expected to grow 27% in Q4 2019

But earnings are down 6% over the same period due to higher operating expenses.

Thailand’s banking sector’s Q4 2019 earnings are expected to have grown a healthy 27% YoY up to 29% YoY on the back of a strong increase in non-interest income (n-II), lower provisions and higher investment games, according to separate reports by UOB Kay Hian and Maybank Kim Eng. But earnings are forecasted to have fallen 6% YoY on weak top-line growth and higher operating expenses.

Fee incomes are expected to have rebounded 3.5% YoY and 3% QoQ after digital banking fees were waived last year, according to UOB Kay Hian analyst Thananchai Jittanoon. Non-II is also forecasted to have grown 19% YoY in Q4 2019.

Likewise, Maybank Kim Eng analyst Jesada Techahusdin forecasts better fee income from mutual funds and bancassurance as people normally buy these products for tax incentive purposes.

On the other hand, Techahusdin expects bad debts to continue to rise from a relapse by SMEs. As a result, he believes banks would set credit cost and make aggressive write-offs to control non-performing loan (NPL)levels.

Similarly, UOB’s Jittanoon noted that NPLs steadily climbed to 3.01% of total loans in Q3 2019. NPL formations have worsened as the rate of formations rose further to 0.46% in the third quarter compared to only 0.38% in Q2 2019. This should have led to a further increase in NPLs in Q4 2019, said Jittanoon.

Downward pressure on banks’ net interest margins (NIM) are also likely to be recorded in Q4, added Jittanon. The loan-to-deposit ratio (LDR) of banks stands at a relatively high level of 97%, so there is limited room for banks to leverage balance sheets to manage NIMs. As a result, banks’ NIMs are forecasted to have narrowed slightly by 5-10bp to an average of 3.2% during the quarter.

Amongst local banks, Jittanon reports Siam Commercial Bank and Kasikornbank as the most likely to post a strong earnings growth of about 40% YoY driven by higher non-II and falling operating expenses. Maybank’s Techahusdin also included Bangkok Bank to the list of potential strong earners due to a low base effect in Q4.

“In sum, we expect big banks to realise investment gains to offset a lower NIM and higher opex,” added Techahusdin.