InfoQuest (May 18, 2020) -- Mr. Tharith Panpiemras, senior director of Banking Supervision and Risk Assessment Department of Bank of Thailand (BOT), disclosed the operation status of Thailand's commercial banking system in the first quarter 2020.
Throughout the quarter, loans by commercial banks grew 4.1 percent from the same period last year. Specifically, commercial loans (accounting for 64.8 percent of the total) rose 3.3 percent due to increased demand of large enterprises in multiple industries for loans. By type, loans from large enterprises (excluding financial ones) jumped 5.3 percent as some of them changed to loans instead of bonds to raise funds as the financial market becomes volatile; loans from SMEs (excluding financial ones) slid 0.2 percent.
Like commercial loans, consumer loans (accounting for 35.2 percent of the total) also saw a rise of 5.6 percent. Compared with the last quarter, all types of consumer loans declined, including housing loans and car loans, which matches with falling housing and car sales. As the economy keeps shrinking, the credit card loans in Thailand have experienced a sharp deceleration, while the personal loans have continued a relatively high growth rate.
Widespread economic implications and changes in classification standards in the new TFRS 9 have combined to result in the worsening loan quality in the commercial banking system in the first quarter 2020 compared with late 2019. On data front, the non-performing loans (NPL or stage 3) aggregated 496.8 billion baht, accounting for 3.05 percent of the total, higher than 2.98 percent of the previous quarter; the loans with a significant increase in credit risk (SICR or stage 2) accounted for 7.70 percent of the total.
With special items deducted from the dividend income paid between commercial banks in the merger process, the net profit of the commercial banking system in the first quarter was 52.9 billion baht, down 7.3 percent from the same period last year, mainly due to a rise in the reserve fund over the same period. Main business income of banks remained stable, but the average return on assets (ROA) fell to 1.03 percent from 1.14 percent in the previous quarter.
Net Interest Margin (NIM), the ratio of a bank's net interest income to a bank's average interest-earning assets, saw a rise. It's mainly because the new TFRS 9 brings a change to how to identify interest income, and financial institutions from which BOT collects lower contributions to the Financial Institution Development Fund (FIDF) will bring actual benefits to the business community and the public through reducing interest rates for all kinds of loans in the next phase. If the effects of lowering FIDF contribution ratio and the new accounting standard aren't taken into consideration, NIM is still close to the level of the previous quarter.
The capital fund of the commercial banking system was 2.836 trillion baht, the BIS capital ratio was 18.7 percent, the reserve fund was 719.2 billion baht, the NPL coverage ratio was 143.3 percent, and the Liquidity Coverage Ratio (LCR) to address cash outflows that may occur at a time of crisis was 185.7 percent.
Mr. Tharith said that the overall stability of the commercial banking system and the high ratio of capital and reserve funds enable Thailand to cope with loan demand and economic fluctuation as the domestic economy is hit by COVID-19. Due to a rise in the reserve fund compared with the same period last year, the commercial banking system has underperformed in the first quarter; the loans have increased, especially those from large enterprises; and the loan quality has been affected by the economic downturn.
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