Banks' fee income shrinks

Banks' fee income shrinks

Digital waivers cause first-time contraction

Banks have waived most fees for most transfers of funds performed digitally - and have taken their first-ever loss on such fees as a result. (File photo)
Banks have waived most fees for most transfers of funds performed digitally - and have taken their first-ever loss on such fees as a result. (File photo)

Thai commercial banks witnessed a first-time contraction of 11.2% in fee-based income from fund transfers in the second quarter of the year, due to waived fees on digital banking transactions.

In the second quarter this year, commercial bank revenue from fund transfers was 5.27 billion baht, a contraction of 11.2% compared with the same period last year.

Interest from loans, however, proved supportive for the industry's higher earnings.

"This is the first time the banking sector showed a contraction in fund transfer income," said Daranee Saeju, senior director for the financial institutions strategy department at the Bank of Thailand.

This contraction is due to the fee waivers for digital banking transactions since late March.

However, Ms Daranee said the income from fund transfers represents only 11% of the industry's total fee-based income. The banking sector experienced 8.8% year-on-year growth in fee-based income in the first quarter. Total fee-based income grew 1.5% year-on-year in the second quarter.

The industry's total fee-based income also comprises card and cheque business (37%), bancassurance and mutual funds (21%), loans (10%), brokerage and advisory fees (4%) and other services (17%).

In the second quarter, the number of cross-bank digital fund transfers accounted for 224 million or 89.8% of total transactions. Meanwhile, only 2.4 million or 9.5% of financial transactions were conducted via ATM, and 1.7 million or 0.7% via traditional branches.

Ms Daranee said the industry's operating costs for cash management and brick-and-mortar outlets have declined, leading to a better cost-to-income ratio. Although commercial banks have moved to a digital platform to generate income from the customer information base, more time is required for returns to be seen.

Despite this contraction in fund transfer income, commercial banks announced total net profit in the second quarter of 57 billion baht, an increase of 15.9% year-on-year. An increase in interest income from loans, together with lowered provisions for loan losses in line with non-performing loan (NPL) control, have led to higher earnings in the industry.


The total non-performing loan (NPL) ratio in the banking sector was 2.93% in the second quarter, edging up from 2.92% in the previous quarter.

The central bank expects the distressed debt ratio to stay in the range of 2.92-2.95% by the end of the year. Hopefully, the ratio is expected to decline next year, in line with robust economic growth.

In general, a fall in NPL will come six months after an economic recovery.

Ms Daranee also said higher funding costs due to a rise in interest rates could be one of the key risk factors for banks in the second half of this year. A rise in interest rates could have a negative effect on lower-income borrowers who have a high debt burden as well.

A gradual increase in interest rate, however, will not affect the profitability of commercial banks.

In addition, the central bank will continue to monitor the NPLs from small and medium-sized enterprises and mortgage loans.

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