Signs displayed at the Krungthai Bank head office on Sukhumvit Road. Bad debts are expected to rise after businesses are battered by the coronavirus outbreak. Pornprom Satrabhaya
Bank stocks have emerged as the worst performing sector in the Thai stock market, with the overall share price falling 35% year-to-date as asset quality and earnings are expected to deteriorate against a backdrop of more in greater prospects of bad loans.
Concerns over asset quality and regulatory risks led to a negative outlook for banks as NPLs are expected to increase in the second quarter due to the economic slowdown. The Covid-19 crisis has resulted in a sharp drop in business income.
Concerns are growing about the risks of a reduction in the ceiling rate on consumer loans covering credit cards, personal loans, leasing and securities lending, which are directly regulated by the Bank of Thailand.
Lowering the loan rate ceiling for consumers is seen as an alternative measure to help borrowers affected by the Covid-19 outbreak, as some of the relief measures ended in June.
Besides a direct impact on the banking sector, non-banking companies will undoubtedly experience a similar, if not more serious, impact.
The maximum credit card interest rate will drop from 18% to 16% per year, while personal loan rates will be reduced to 24-25% from 28%, effective August 1.
The new rates for revolving loans and installment loans will be 25%, and auto title loans will have a maximum rate of 24%.
Banks and non-banks are required to widely apply the new rate to their customers from August to December.
CONCERNS ABOUT THE QUALITY OF ASSETS
Although banks can get a lending boost from companies, they are unable to refinance debentures, KGI Securities Thailand analyst said, speaking on condition of anonymity due to lack of media license of the Securities and Exchange Commission (SEC).
Negative factors, such as deteriorating asset quality and regulatory risks, persist. Banks are required to undergo internal stress tests due to critical economic conditions and are required to freeze interim dividend payments, the analyst said.
The number of borrowers receiving assistance from banks and specialized financial institutions shows a combined debt of 6.8 trillion baht, or 36% of total outstanding loans, according to data from the Bank of Thailand.
Given that the government has allocated a budget of 650 billion baht of concessional loans to small and medium-sized enterprises (SMEs), this means that most borrowers affected by the Covid-19 epidemic still cannot access the new funding, the analyst said.
“If these concessional loans are reduced, it will alleviate asset concerns for the banks’ SME lending segment,” the analyst said.
The renewed decline in lending rates will put pressure on non-bank yields. The impact on each non-bank will vary depending on the proportion of clients applying to the low rate program.
“The market is concerned about regulatory risks. It will definitely change the growth outlook for non-banks as a whole,” the analyst said.
Krungthai Card Plc (KTC) charges a lending rate lower than the cap rate; about 25% for personal loans and 15% for credit cards.
For every 10% of KTC customers applying for the low rate program, the company must reduce the loan rate by 3%, which will reduce its turnover by 250 million baht, a loss of 4% of its profits. , said the analyst.
The impact on Muangthai Capital Plc (MTC) is similar, with its profits declining by 3% for every 10% of its clients applying to the program.
However, the impact on Srisawad Corporation Plc (SAWAD) will be greater as its current lending rate is much higher than that of its peers.
The downward pressure on loan yields would be about 1.5 times that of MTC for SAWAD.
Despite growing pessimism, loan growth of large commercial banks is still better than that of small banks as business loans and government investment projects continue to grow, a Yuanta Securities analyst said, speaking under on condition of anonymity due to the lack of a media license from the SEC. .
The big banks have also benefited from the slowdown in loan repayments, as some debtors embark on a debt suspension project or a debt restructuring program, which keeps the debt in the same status, said the analyst.
In addition to the increase in business loans and government investment, commission income is also expected to pick up due to increased economic activity.
On the other hand, medium to small-sized banks, which mainly hold a considerable share of hire-purchase loans, are still affected by the decline in domestic vehicle sales, the analyst said.
The overall performance for the second quarter is expected to contract from the same period last year, but will start to improve from the previous quarter despite the pressure of declining revenues from lower fees, in particular for the cost of selling bancassurance products, the analyst said.
Due to the impact of the freeze in April-May, the return on assets is expected to shift from cutting interest rates to lowering the key interest rate, which has been cut 4 times since the second half of 2019, the analyst said.
Banking sector profit is expected at 155.06 billion baht, down 5% year-on-year, according to Yuanta Securities Thailand.
“The value of bank stocks remains at a low price, below the five-year average, while Thai banks still have a capital adequacy ratio of 19.2% in April,” the analyst said.