Thai banks raise bad loans provisions to highest in more than a decade
BANGKOK Oct 17 (Reuters) - Thai lenders including Bangkok Bank Pcl have raised their bad loans provisions to levels not seen in more than a decade as local businesses grapple with a slowdown in Southeast Asia's second-biggest economy.
Bangkok Bank, Thailand's top lender by assets, set aside 6.9 billion baht ($220.66 million) of such provisions in the first nine months, the bank said on Thursday. That was up 45 percent from a year earlier, and was the highest for any January-September period since 2000.
Fourth-ranked Kasikornbank, formerly known as the Thai Farmers Bank, said its January-September provisions rose 52 percent to 8.7 billion baht. That was the highest for that period since at least 2001.
"Bad loans may rise slightly as a result of the economic slowdown and weak consumer spending. Most of the bad debts are from small and medium-sized businesses," Suwan Tansathit, senior executive vice president at Bangkok Bank, said this week.
Thai lenders including Siam Commercial Bank (SCB) and Krung Thai Bank have been challenged on two fronts this year: a broad rise in bad loans across business sectors as the economy loses momentum and thinning loan profitability as banks fight for funds by offering depositors higher rates.
Bangkok Bank said its net interest margin, which measures loan profitability, fell to 2.38 percent in July-September from 2.53 percent in the previous quarter and 2.55 percent a year earlier.
Asset quality worsened as of the end of September, with nonperforming loans (NPLs) rising to 2.4 percent of loans, even as the bank posted a better-than-expected 21 percent gain in net profit.
Kasikornbank's NPLs increased to 2.13 percent of total loans, up from 2.07 percent a year earlier. The bank's net interest margin was at 3.52 percent, down from 3.55 percent.
The Thai banking index, which measures the performance of bank shares in the local stock market, has dropped 13 percent since hitting the year's high in March. Many analysts have cut their earnings forecasts for Thai banks to reflect the weaker economic outlook.
"When the economy is in a downturn, we focus on asset quality. We have been cautious about lending since the first half of this year," Arthid Nanthawithaya, senior executive vice president at SCB, told Reuters.
SCB, which booked substantial fee income from advising CP All for its $6.6 billion acquisition of Siam Makro , will focus on this segment of its business instead of corporate lending, Arthid said.
SCB, Krung Thai Bank, and fifth-ranked Bank of Ayudhya are due to release their quarterly earnings on Friday. They are expected to post net profit gains from 9 to 30 percent.
While analysts have cut their earnings estimates for Thai banks in the last two months, they expect the lenders to outperform their Asian peers with a 14 percent average gain in the next 12 months, according to SmartEstimates.
The sector is expected to benefit from the government's infrastructure projects and the investment upcycle of Thai companies. The economy and domestic consumption are also expected to recover next year, analysts said.
The Thai central bank left its benchmark interest rate unchanged at its latest policy meeting on Wednesday to keep credit conditions easy because of the slow economy and uncertainty over U.S. monetary policy.
That will temporarily stabilise deposit rates, easing the pressure on banks' net interest margins.
But liquidity in the financial markets is expected to tighten in the near term due to intermittent capital outflows linked to expectations of quantitative-easing tapering by the U.S. Federal Reserve.
That will raise the cost of funds for banks, affecting loan profitability.
"What we are concerned next is the chance of tightening liquidity after the QE tapering," said Boontuck Wungcharoen, chief executive at TMB Bank.
Thailand's seventh-largest lender has already cut its loan growth target to 8 percent from 12 percent. ($1 = 31.2700 Thai baht) (Additional reporting by Manunphattr Dhananphorn and Patturaja Murugaboopathy in BANGALORE; Editing by Ryan Woo)