Rising rates to affect Thai Banks' Profits? | Bangkok Post: business

BY INVITATION

Thai banks have displayed considerable resilience this year amid the global financial debacle and domestic political upheaval. Their performance has been remarkable notwithstanding rising interest rates and a flattening yield curve. During the first half of the year, banks chalked up a whopping 61 billion baht in net profits _ a 42% increase from the same period last year _ defying most analysts' predictions.

Bank profitability has been robust, with interest income rising at a faster clip than interest expenses. Accelerated loan growth during the first half, prompted by an abrupt upturn in the economy, has helped bolster banks' interest income and non-interest income. The latter has, since the economic cataclysm of 1997, constituted an increasing proportion of the banks' total income.

Despite the fact that banks have made tremendous strides in tweaking their revenue mix to reflect a much larger proportion of fee income, variations in net interest income still remain a key determinant of bank profitability. And with improved asset quality and declining non-performing loans _ the net NPL ratio was close to a historically low level of 2.4% at the end of June 2010 _ Thai banks have been able to set aside much lower provisioning expenses than in the periods following the economic meltdown.