Mr. Tharith Panpiemras, Senior Director, Banking Supervision and Risk Assessment Department, Bank of Thailand, reported on the Thai banking system’s performance in the first quarter of 2020 that the Thai banking system remained resilient with high levels of capital fund and loan loss provision to cushion credit demand and economic volatility amid the impact of the COVID-19 outbreak. Banking system’s profitability declined due to higher provisioning expenses compared to the same period last year. Bank loan growth improved from an increase in large corporate loan. Meanwhile, bank loan quality was adversely affected by economic contraction. Details are as follows:
Capital Fund of the Thai banking system was at 2,836 billion baht, equivalent to capital adequacy ratio (BIS ratio) of 18.7%. Loan loss provision remained high at 719.2 billion baht with NPL coverage ratio of 143.3%. Liquidity coverage ratio (LCR) registered at 185.7%.
The banking system recorded net profit of 52.9 billion baht after excluding extraordinary dividend between commercial banks which were in the process of consolidation. This was a decline of 7.3% due to higher provisioning expenses from the same period last year. Meanwhile, banks’ core earnings remained stable. Overall, the return on asset (ROA) declined from 1.14% last quarter to 1.03%. The ratio of net interest income to average interest-earning assets (Net Interest Margin: NIM) increased as a result of a change in interest income recognition following the implementation of TFRS 9 since January 2020, coupled with a reduction of FIDF (Financial Institution Development Fund) contribution, which banks would pass on cost savings to ease the loan interest burden of businesses and households in the period ahead. Excluding the effect from a reduction of FIDF contribution and TFRS 9, NIM remained stable.
Banks’ overall loan growth increased to 4.1% year-on-year with more detail as follows:
Corporate loans (64.8% of total loans) expanded at 3.3% year-on-year, consistent with large corporates’ loan demand in several businesses. This was partly due to some large corporates switched their source of funding from corporate bond issuance to bank financing as the financial market became more volatile. As a result, large corporate loan (excluding financial business) accelerated to 5.3%, while SME loan (excluding financial business) slightly contracted by 0.2%.
Consumer loans (35.2% of total loans) grew at 5.6% year-on-year, with slower growth from last quarter across all portfolios. Mortgage lending and auto loan growth declined due to lower number of house and domestic car sales, while credit card loan growth declined significantly as a result of contraction in economic activities. However, personal loan still expanded at a high level.
Banks’ loan quality deteriorated from last quarter as a result of adverse economic impact, together with the new accounting regulations (TFRS 9) on loan classification and provisioning. The gross non-performing loan (NPL or stage 3) outstanding was at 496.8 billion baht or 3.05% of total loans, edging up from 2.98% in the last quarter. The ratio of loans with significant increase in credit risk (SICR or stage 2) to total loans stood at 7.70%.
Bank of Thailand
May 18, 2020
For further information, please contact: Banking Risk Assessment Division
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