Bank loans expected to bounce back

Bank loans expected to bounce back

Stimulus from bond yield spikes expected

Mr Somboon expects loans in sectors such as food, rubber, plastic, commerce and utilities will continue to grow this year.
Mr Somboon expects loans in sectors such as food, rubber, plastic, commerce and utilities will continue to grow this year.

Commercial bank loans are expected to pick up this year as rising borrowing costs in bond market and higher private investment ramp up loan demand, after lending growth in 2016 was the slowest in seven years.

The ongoing bond yield spikes added borrowing costs to debt instrument issuers and this will compel them to shift to bank loans this year, Bank of Thailand governor Veerathai Santiprabhob said, adding that the economic recovery will also prompt increasing loan demand for private investment.

"Commercial bank loans are expected grow more than the 2% growth recorded last year as we start to see yield rises from long term bonds," he said.

The tepid growth in commercial bank loans last year was a result of the increase in private sector reliance on bonds as a source of funding to take advantage of the low interest rates, he said.

Need for loans as working capital in businesses related to oil and agricultural products may have decreased last year due to plunging commodity prices.

"The Monetary Policy Committee does not see the slowdown in commercial banks' loans as an obstacle to the economic recovery as we see the economy still shows robust signs of recovery," said Mr Veerathai.

Predee Daochai, president of Kasikornbank (KBank) and also chairman of the Thai Bankers Association, said that the bank expects commercial bank loans to expand by around 4-6% this year.

He said loans for businesses associated with investment, such as construction materials, are expected to grow at a strong pace this year follow state investment in big-ticket infrastructure projects.

Outstanding bank loans expanded 2% at end-2016, slowing from 4.3% growth in the previous year, said Somboon Chitphentom, assistant governor of the financial institutions policy group.

According the central bank's data, the 2% growth in outstanding loans in 2016 was recorded as the lowest since a 1.7% contraction in 2009.

He said that private sector's higher reliance on financing through equity and bond markets coupled with the slow economic recovery contributed to the tepid loan growth.

"The Bank of Thailand noticed that loans in some sectors such as food, rubber, plastic, commerce and utilities grew in the second half of 2016 and we are hoping that the trend will continue this year," said Mr Somboon.

Loans for small and medium-sized enterprises (SMEs) grew 1.8% in 2016, down significantly from 5.6% in the prior year, he said.

Growth in business loans slowed down to 0.6% at the end of 2016 from 3.1% at the end of 2015 and the deceleration was seen across the board, with the exception of commerce and service sectors.

Mr Somboon said growth in consumer loans also fell to 4.9% last year from 7.1% in the preceding year, slowing down in almost all segments except auto loans.

"In the midst of gradual economic recovery, loan growth slowed down and loan quality continued to deteriorate," he said.

Both non-performing loans and special-mentioned loans -- those 30 to 90 days overdue -- increased and SMEs were the main contributor for the deteriorated loan quality.

Commercial banks' gross non-performing loans (NPLs) rose to 2.83% at the end of last year from 2.55% recorded at the end of 2015, slightly down from 2.89% recorded at the end of the third quarter of 2016, according to central bank data.

The outstanding value of distressed loans was 385 billion baht at the end of last year, up from 338 billion at the end of 2015.

Bad SME loans climbed to 4.35% of the loans outstanding at the end of December, up from 3.5% over the same period last year.

Business loans deteriorated in almost all loan segments with the exception of the industrial sector.

Industrial NPLs dropped to 4.44% of total business loans at the end of December from 5.59% at the end of September, mainly due to the debt restructuring of a large steel manufacturer, to which the surge in industrial special mention loans is also attributed.

Bad consumer loans rose from 2.56% to 2.71% at the end of December mainly from the rise of housing NPLs.

Commercial banks' gross special mention loans rose to 2.63% at the end of 2016 from 2.38% recorded at the end of 2015, according to the Bank of Thailand's data.

Even though commercial banks have been saddled with higher bad loans, their financial position remains strong with high reserves and robust profitability.

In 2016, commercial banks' profit rose 3.9% to 199 billion baht, thanks largely to their efficient cost-controls, said Mr Somboon.

Loan-loss provisions set aside by commercial banks in the fourth quarter of 2016 were at 32 billion baht while the coverage ratio rose to 159.6% at the end of 2016, up from 156.3% at the end of 2015.

Commercial banks' capital adequacy ratio averaged at 18% at the end of 2016, up from 17.4% at the end of 2015, according to the central bank's data.

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