No. 11/2018. Performance of the Thai Banking System in 2017

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1 No. 11/218 Performance of the Thai Banking System in 217 Ms. Daranee Saeju, Senior Director, Financial Institutions Strategy Department, Bank of Thailand, reported on the Thai banking system s performance in 217 that bank loans and their asset quality have improved in line with economic recovery. Operating profit increased, while net profit declined due to an accumulation of loan loss provision to cushion for loan quality deterioration as well as to prepare for the new accounting standard (IFRS 9). The Thai banking system remained resilient with high level of loan loss provision, capital fund, and liquidity to facilitate further credit expansion. Details are as follows. Bank loan expanded from 2.% last year to 4.4%, with growth acceleration towards the end of the year in both corporate loan and consumer loan, from SME and auto loan portfolios, respectively. This resulted in an increase from 4.4% to 4.7% of overall private sector s financing through bank loans and debt securities combined. Corporate loan (67% of total loans) grew at 3.6% year-on-year, driven by SME loan growth (excluding financial business) which expanded at 5.7%, particularly from businesses in commerce and manufacturing sectors, as well as real estate business consistent with real estate market recovery in the middle to high-end segments. Meanwhile, large corporates (excluding financial business) yielded zero growth, due to some loan repayments and increased reliance on alternative sources of financing through equity and debt securities. Nonetheless, some large corporates did utilize more loans, such as energy and transportation, computer and electronic product manufacturing, and accommodation, in line with strong growth in exports and tourism. Consumer loan (33% of total loans) grew at 6.1% year-on-year, driven by an acceleration of auto loan growth which expanded at 8.4%, consistent with improved car sales after the fiveyear lock-in period of the first-car buyer scheme ended. Personal loan expanded at 5.7%, while housing loan and credit card loan growth slightly declined to 5.5% and 3.4%, respectively.

2 A slowdown in credit card loan growth was partly due to sales of one commercial bank s retail portfolio. On the loan quality front, the ratio of gross non-performing loans (NPLs) to total loan increased from 2.83% in 216 to 2.91%. Gross NPLs outstanding stood at 429 billion baht, rose by 43.4 billion baht. It had increased at continuously lower growth rates since last year. Moreover, the decline in NPLs of SME loans, coupled with loan management of consumer loan portfolio during the year-end, helped stabilise the overall NPLs. Special mention loans (SMs: loans overdue above 1 month but not more than 3 months) to total loan ratio dropped from 2.63% last year to 2.55%, with SM outstanding of 375 billion baht. Nonetheless, banks accumulated higher loan loss provision to cushion for loan quality deterioration and prepare for IFRS 9. This brought about 72.7 billion baht increase in the banking system s total provision from last year to 62 billion baht, and the ratio of actual to regulatory loan loss provision stood high at 171.9%. In 217 the banking system recorded increased operating profit, mainly attributed to banks liability management to rationalize funding cost. However, net profit of billion baht declined from the same period last year because of increased provisioning expense. Despite stabilising NPL, the continued accumulation of provision was partly to prepare for the implementation of the new accounting standard (IFRS 9) in 219. Consequently, return on asset (ROA) decreased to 1.5% from 1.13% last year, while the ratio of net interest income to average interest-earning assets (Net Interest Margin: NIM) remained steady at 2.76%. Capital fund of the banking system remained high at 2,451 billion baht. The rise in capital was attributed to both appropriation of earnings and capital increase, resulting in an enhancement in capital adequacy ratio (BIS ratio) and common equity Tier-1 ratio (CET1 ratio) to 18.2% and 15.6%, respectively. Bank of Thailand February 12, 218 Contact: Financial Performance and Loan Analysis Team Tel: +66 () FP&LATeam@bot.or.th

3 Performance of the Thai Banking System in 217

4 Overall Performance of the Thai Banking System in 217 Bank loan growth increased. Loan expanded at 4.4%yoy, with growth acceleration towards the end of the year in both corporate loan and consumer loan, driven by SME and auto loan portfolios. The overall NPL ratio has stabilized. NPL ratio increased from 2.83% last year to 2.91%, but the increase had been at continuously lower rates since last year. Banks operating profit increased, while net profit declined. Operating profit increased mainly from banks liability management to rationalize funding costs Net profit declined from further provisioning expense to cushion for loan quality issue as well as prepare for the new accounting standard (IFRS 9) Loan loss provision and capital fund remained high. Ratio of actual to regulatory loan loss provision stood high at 171.9%. BIS ratio and Common Equity Tier 1 ratio were at 18.2% and 15.6%, respectively. 2/12

5 Banks loan growth increased, resulting in an upturn of overall private sector s financing GDP and Loan Growth %yoy Q1 Q2 Q3 Q Real GDP Total Loan Bond* Total Loan and Bond* *Debt securities issued by private sector (excluding financial business). Source: Bank of Thailand and ThaiBMA 3/12

Bank loan expanded, with growth acceleration towards the end of the year in both corporate loan and consumer loan, mainly from SME and auto loan portfolios.

Loans to large corporate recorded zero growth due to more reliance on financing through equity and debt securities, together with loan repayments.

Consumer loans expanded due to an acceleration of auto loans, while other consumer loan types grew moderately. %yoy 25 2 15.7 1514.3 13.9 13.2 11.

6 Bank loan expanded, with growth acceleration towards the end of the year in both corporate loan and consumer loan, mainly from SME and auto loan portfolios. Bank loans accelerated during the end of the year. Loans to large corporate recorded zero growth due to more reliance on financing through equity and debt securities, together with loan repayments. Loans to SME increased, mainly from businesses in manufacturing, real estate and commerce sectors. Consumer loans expanded due to an acceleration of auto loans, while other consumer loan types grew moderately. %yoy Commercial Bank Loan Growth Q4 Q3 Q4 Large Consumer Total SME Corporate Q1 Q2 Q3 Q Total Loan Corporate Loan Large Corporate Loan (excluding Financial Business) SME Loan (excluding financial business) Consumer Loan % Total Loan : Large corporate loan (excluding financial business) 24.1% SME loan (excluding financial business) 33.8% Consumer Loan 33.% 4/12

7 Corporate loan growth increased in financial business, real estate, manufacturing, and commerce sectors. Corporate Loan Growth Structure of Corporate Loans as of December 217 (% to total loans) 5/12

8 Consumer loan expanded mainly from auto loans. Consumer Loan Growth Structure of Consumer Loans as of December 217 (% to total loans) 6/12

9 Loan quality : Overall NPL has stabilized, attributed to improvement in NPL of SME loans since the fourth quarter of 217. %NPL %NPL to Total Loan %NPL SME Loan Non-Performaing Loans (NPLs) Q4 Q3 Q4 SME Total Consumer Large %NPL to Large Corporate Loan %NPL Consumer Loan %SM %SM to Total Loan %SM SME Loan Special Mention (SM) Q4 Q3 Q4 Consumer Total SME Large %SM Large Corporate Loan %SM Consumer Loan 7/12

10 Corporate loan quality deteriorated, particularly from a large corporate in mining sector, together with manufacturing and commerce sectors. 8 4 Non-Performing Loans (NPLs) %NPL Q1 Q4 Q3 Q4 Commerce Manufacturing Real Estate+Construction Services Public Utilities Mining %SM Special Mention (SM) Q1 Q4 Q3 Q4 Manufacturing Services Commerce Real Estate+Construction Public Utilities Mining Manufacturing Commerce Public Utilities Services Real Estate+Construction Mining Manufacturing Commerce Public Utilities Services Real Estate+Construction Mining 8/12

11 Consumer loan quality: NPL dropped in almost all portfolios, except housing loans. %NPL Non-Performing Loans (NPLs) Q4 Q3 Q4 Credit Card Housing Personal Auto Housing Auto Personal Credit Card %SM Special Mention (SM) Q4 Q3 Q4 Auto Credit Card Personal Housing Housing Auto Personal Credit Card 9/12

12 Loan loss provision and capital fund remained high. Loan loss provision Capital fund % Billion Baht % Basel III Q4 Q3 Q4 CAR CET Tier Loan loss provision expense (RHS) Actual/Regulatory loan loss provision ratio (LHS) /12

13 Banks operating profit increased thanks to banks liability management, whereas net profit declined from provisioning expense. As a result, ROA and ROE decreased. Profitability Return on Asset, Return on Equity and Net Interest Margin 11/12

14 The Thai banking system has sufficient liquidity to facilitate continued credit expansion. Loan to Deposit Ratio Liquidity Coverage Ratio (LCR) Billion Baht % 14, 1 13, , 11, 9 Billion Baht % 5, , 16 3, 12 2, 8 1, 85 1, 4 9, 8 Mar Jun Sep Dec Mar Jun Sep Dec Deposit Loan L/D Ratio [RHS] High-quality Liquid Assets (HQLA) Liquidity Coverage Ratio (LCR) [RHS] 12/12

No. 29/2018 Performance of the Thai Banking System in the first Quarter of 2018

No. 29/2018 Performance of the Thai Banking System in the first Quarter of 2018 No. 29/218 Performance of the Thai Banking System in the first Quarter of 218 Ms. Daranee Saeju, Senior Director, Financial Institutions Strategy Department, Bank of Thailand, reported on the Thai banking