Bank equities see plunge

Bank equities see plunge

Aggregate share price plummets 35%

Signs posted at the Krungthai Bank head office on Sukhumvit Road. Bad loans are expected to rise after businesses were battered by the coronavirus outbreak.  Pornprom Satrabhaya
Signs posted at the Krungthai Bank head office on Sukhumvit Road. Bad loans are expected to rise after businesses were battered by the coronavirus outbreak.  Pornprom Satrabhaya

Banking equities have become the worst performing sector in Thailand's stock market, with the aggregate share price plummeting by 35% year-to-date as asset quality and profit are anticipated to deteriorate amid higher bad loan prospects.

Asset quality concerns and regulatory risks have resulted in a negative outlook for banks as non-performing loans are poised to rise in the second quarter due to the economic slowdown. The Covid-19 crisis has caused corporate income to reduce sharply.

Concerns are amplifying over the risks of a reduction in the ceiling lending rate for consumer loans covering credit cards, personal loans, leasing and title loans, which are directly regulated by the Bank of Thailand.

Reducing the ceiling lending rate for consumers is considered an alternative measure to assist borrowers affected by the Covid-19 outbreak as some of the relief measures came to an end in June.

Besides a direct impact on the banking sector, non-bank companies will undeniably experience a similar, if not more severe, impact.

The maximum interest rate for credit cards will fall to 16% per year from 18%, while the rates for personal loans will be reduced to 24-25% from 28%, effective from Aug 1.

The new rates for revolving loans and instalment loans will be 25%, and auto title loans will carry a maximum rate of 24%.

Banks and non-banks are required to broadly apply the new rate to their customers from August to December.


Although banks are able to gain loan momentum from corporates, they are unable to refinance debentures, according to an analyst at KGI Securities Thailand, speaking on anonymity condition due to absence of a media licence from the Securities and Exchange Commission (SEC).

Negative factors, such as asset quality deterioration and regulatory risks still remain. Banks are required to undergo internal stress tests due to the critical economic conditions and are required to freeze interim dividend payments, said the analyst.

The number of borrowers receiving assistance measures from banks and specialised financial institutions shows a combined debt of 6.8 trillion baht, making up 36% of total outstanding loans, according to the Bank of Thailand data.

Since the government has allocated a budget of 650 billion baht of soft loans to small and medium-sized enterprises (SMEs), this means that most borrowers affected by the Covid-19 outbreak are still unable to access the new funding, said the analyst.

"If these soft loans are drawn down, it will provide relief to asset concerns for banks' SME loan segment," said the analyst.

Renewing lower lending rates will pressure the yields of non-banks. The impact on each non-bank will vary depending on the proportion of customers applying for the low-rate programme.

"The market is concerned about regulatory risks. This will definitely change the growth outlook for non-banks as a whole," said the analyst.

Krungthai Card Plc (KTC) charges a loan rate lower than the ceiling rate; around 25% for personal loans and 15% for credit cards.

For each 10% of KTC customers applying for the low rate programme, the company has to reduce loan rate by 3% and this will reduce its revenue by 250 million baht or a 4% loss in earnings, said the analyst.

The impact on Muangthai Capital Plc (MTC) is similar, with its earnings declining 3% for each 10% of its customers applying for the programme.

However, the impact on Srisawad Corporation Plc (SAWAD) will be greater as its current loan rate is much higher than peers.

Downside to loan yield pressure would be around 1.5 times greater than MTC for SAWAD.


Despite growing pessimism, the loan growth of large commercial banks is still better than small banks as corporate loans and government investment projects continue to grow, said an analyst at Yuanta Securities, speaking on anonymity condition due to the absence of a media licence from the SEC.

Large banks have also benefited from how loan redemption has slowed down because some debtors are entering into the debt repayment suspension project or debt-restructuring programme, causing the debt to remain in the same status, said the analyst.

In addition to increased corporate loan and government investment, fee income is also expected to recover due to higher economic activities.

On the other hand, mid to small-sized banks, which mainly have a considerable proportion of hire purchase loans, are still affected by the decline of domestic vehicle sales, said the analyst.

Overall second-quarter performance is expected to contract from the same period of last year, but will begin to improve from the previous quarter despite the pressure from revenue decline from fee reduction, especially for product sales fees from bancassurance, said the analyst.

Due to the impact of the lockdown in April-May, asset yield is expected to move down from the interest rate reduction to be in line with the lowered policy interest rate, which has been cut 4 times since the second half of 2019, said the analyst.

The banking sector's profit is expected at 155.06 billion baht, down 5% year-on-year, according to Yuanta Securities Thailand.

"Banking stock value remains at a low price, lower than the five-year average, while Thai banks still have a capital adequacy ratio at 19.2% as of April," said the analyst.

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