Tisco Bank will continue its prudent policy by setting aside higher provisions for loan losses in this year's first quarter amid an increase in late payments triggered by the slack economy and ballooning household debt.
Suthas: Provisions for loan losses higher
President Suthas Ruangmanamongkol said the bank's two key parameters for forecasting required loan-loss reserves — probability default and loss given default — have increased significantly in the wake of the stuttering economy, indicating prudential provision policy needs to continue from last year's final quarter.
Probability default provides an estimate of the likelihood that a client will be unable to meet debt obligations, while loss given default is the percentage of loss over total exposure when a debtor defaults.
In last year's fourth quarter, Tisco put aside loan-loss reserves of 1.6 billion baht. For all of 2013, it set aside provisions of 5.77 billion baht, representing 168% of the central bank’s minimum loan-loss reserve requirement.
Amid growing economic risks and rising bad loans, all local banks are expected to put aside higher countercyclical provisions this year.
With uncomplicated car loans accounting for 70% of Tisco's outstanding loans, the bank can estimate loan-loss provisions more easily than its larger peers. Based on long-term statistics of customers’ debt payments, Tisco can project repayments over the next 12-18 months.
"We expect loan-loss reserves and non-performing loans (NPLs) will peak by the second quarter. With the hefty amount of loan-loss provisions set aside from last year in light of the economic uncertainty, the bank now has a pretty strong buffer," Mr Suthas said.
The bank’s NPLs totalled 280 million baht, representing 1.46% of loans outstanding as of February. Tisco is likely to cut its 2014 loan growth target from 10%.