Banks’ earnings will be worse in the second quarter and some lenders may not turn a profit in 2020, experts predicted, as the coronavirus outbreak continues to slow the economy.
One side effect of the outbreak is the sharp turn towards online and mobile banking, lowering demand for brick and mortar branches.
Thai banks reported an aggregate earning of 36.6 billion baht in the first quarter of 2020, representing a drop of 8 per cent year-on-year but a growth of 5 percent from quarter-to-quarter.
Banks’ earnings in the first quarter beat many expectations with a higher than expected net interest margin (NIM).
All banks have benefitted from the Bank of Thailand (BOT)’s move to lower their required contribution to the Financial Institutions Development Fund (FIDF) from 0.46 per cent down to 0.23 per cent since January 2020.
The adoption of TFRS9, a new accounting standard, also saw a 20-25 basis point increase in loan yield from a higher effective interest rate, mostly on mortgage loans, and interest income from non-performing loans (NPLs).
TMB Bank was the best performer in the first quarter of 2020, benefitting from its takeover of Thanachart Bank.
On the other hand, Kasikornbank (KBank), the country’s largest by total assets, was the worst performer mainly from higher loan impairment charges and a decline in non-interest income.
However, the first quarter earnings did not yet reflect the impact of the outbreak and the nationwide lockdown.
“The outlook in the second quarter will not be as good as the first quarter,” Tanapat Chatsatien, a bank analyst at Trinity Securities told Thai Enquirer.
He said banks’ NIM will become weaker in the second quarter because of the lowered policy interest rate which has yet to affect banks’ earnings in the first quarter.
There were two rate cuts in the first quarter, February and March.
This brought the country’s benchmark leading rate down to 0.75 per cent.
It will “fully” impact banks’ earnings in the second quarter, Tanapat said.
Apart from that, Tanapat said the measures to help lenders that have been affected by the outbreak, such as the loan payment holiday of six months for all SMEs, will also eat into banks’ yield in the second quarter.
“NIM will definitely be weaker for all banks in the second quarter,” he said.
Maybank Kim Eng Securities’s chief financial analyst, Jesada Techahusdin, also expects both net interest income (NII) and NIM to decrease because banks have cut lending rates by 40 basis points since April 10.
He said asset quality should deteriorate but banks might not show a significant increase in NPLs for consumer lending until the fourth quarter.
This is due to BOT’s measures to allow banks to offer debt moratoriums and the removal of the requirement to classify as NPLs for six months.
Tanapat said NPLs will increase in the second quarter as well as most banks’ reserves.
Kbank and Siam Commercial Bank (SCB) especially have more SME customers than others.
KBank’s gross NPLs to total loans was at 3.86 per cent at the end of March, compared to 3.65 per cent at the end of 2019.
Bank shares are one of the top losing sectors on the Stock Exchange of Thailand (SET) in 2020 as the sector has dropped by more than 35 per cent from year-to-date.
This is mainly because 10 out of 11 listed banks saw losses of up to 36 per cent year-to-date.
Jesada said the current book value does not reflect the potential loss from the outbreak right now.
Banthoon Lamsam, former chairman of the board and the current chairman emeritus of KBank, said on Tuesday that Thai banks might not be able to make any profit at all in 2020.
“We are in a state of war [against coronavirus] where losses are something that is acceptable,” he said.
“This is not a normal situation so who could say what is the possible income? We have to make sure that the entire system survives before we can have a future,” he added while referring to banks’ measures to help SMEs.
S&P Global Ratings credit analyst Alexandre Birry said last week that banks across the world will “inevitably” face negative rating momentum through 2020.
This is a result of the effects of the pandemic, oil shock, and market volatility.
S&P now sees global GDP falling by 2.4 per cent in 2020 before rebounding back to a growth of 5.9 per cent in 2021. This could also lead to a rebound in the banking sector.
“Once the dust settles and economies around the world recover, the earnings’ recovery for banks is unlikely to be as sharp as the GDP rebound from this crisis,” Birry added.
SCB’s president, Arak Sutivong, said on Thursday that the acceleration towards virtual banking will see branches close down.
He expected significant change in consumer behavior, so SCB is concentrating on e-technologies, such as ATM and ADM machines, 7-11 and mobile banking.
The total number of bank branches in Thailand decreased from 6,692 in March 2019 to 6,436 in March 2020.
SCB closed down more 113 branches during this time which is twice as many as Krung Thai. They closed down 54 branches, followed by Kasikornbank (40), Bangkok Bank (15) and Krungsri (11)
Thakorn Piyapan, head of Krungsri Consumer Group, said there is still a need for face-to-face interaction with customers as some will still prefer it. However, certain services, such as paying for bills and transferring money, should be done online as customers are already able to do this on their smartphone.