Taiwan-based CTBC Bank (CTBC), a major shareholder of Land and Houses Bank (LH Bank), sees high growth potential of Thai small and medium-sized enterprises (SMEs) in the long term, though the SME segment is still facing hardships amid the pandemic, LH Bank president Chompoonoot Pathomporn said in an exclusive interview with the Bangkok Post.
Raising shareholding
CTBC, Taiwan's largest privately held bank, has been seeking to increase shareholding in LH Bank. The Taiwanese bank is intending to acquire additional shares from key shareholders of LH Bank, Piangjai Harnpanij and Pairoj Paisarnsrisomsuk, totalling 10.99% of total shares with voting rights and total paid-up share totalling 4.2 billion baht.
Once the deal is successful, CTBC will have a total shareholding of 46.60%, up from the existing 35.62%. The transaction is subject to approval from regulatory authorities in Taiwan and the Bank of Thailand (BoT), according to LH Bank's recent notification to the Stock Exchange of Thailand.
Ms Chompoonoot said Thailand is a strategic market for CTBC in Asean. The Taiwanese bank also has a presence in Indonesia and the Philippines. The foreign major shareholder sees greater business opportunities in the Thai market, especially the SME segment.
Given the progress of SME development in Taiwan and CTBC for more than 10 years, CTBC sees Thai SMEs still have room to further develop, particularly new generation SME business owners.
The number of younger entrepreneurs and startups in Thailand has been increasing in line with more young people who want to be business owners rather than employees of large corporates.
"New generation entrepreneurs and startups are doing business based on knowledge and technology. With the knowledge-based economy of Taiwan, CTBC has been helping the bank with technology development to support local SMEs grow sustainably in the long run," she said.
SME standards
The business size of both Taiwanese and Thai SMEs is similar. Under strong regulations and long-term development, Taiwanese SMEs have high discipline and standards in business operations covering finance, accounting and tax. Thai SMEs need to develop and standardise business operations in such areas growing in the long term.
Given the Covid-19 impact, especially on local SMEs, some of the bank's SME customers can adjust operations and generate income positively. The bank has been analysing the survivors and found that accountancy is a key factor.
"We have a case study of a client who is a restaurant owner. The customer pays interest on income and expense accounts and cut operating costs amid the pandemic. At the same time, the customer has been moving to the delivery and digital platform. With the adjustment, the client can keep positive income and survive," she said.
Ms Chompoonoot said the bank has studied surviving SME cases in depth as a guidance for other SME customers, besides offering them financial assistance through debt restructuring. For the second half of this year, the bank will focus on helping customers overcome the difficult situation in both financial and non-financial areas.
Apart from debt restructuring, LH Bank has supported additional liquidity to SME clients through the BoT's soft loan scheme. As well, some customers have been demanding a soft loan for business recovery in the fourth quarter of the year.
LH Bank has offered a three-month debt holiday covering both principal and interest for SME customers suffering from the government's measures to contain new infections. The debt moratorium from July 19 to Aug 15 is in line with the BoT's measure opening financial institutions to suspend debt payment for SMEs for at least two months.
Growing trade finance
Given CTBC's expertise in trade finance, LH Bank has gradually expanded the business for the past few years with know-how from the major shareholder. For 2020, the bank showed positive growth of the customer base in this business segment at 30% from the previous year.
The bank expects to maintain the double-digit growth rate this year against the backdrop of rebounding exports in accordance with global economic recovery.
Moreover, Ms Chompoonoot said the bank needs to improve in several areas to facilitate trade finance business expansion, especially technology and digital development.
Trade financial business requires a lot of operational and documentary processes, so these need to be shortened through digital technology offering customers more convenience and efficiency.
"Despite the pandemic, we've been going forward on the existing development and investment plan in preparation for business operation after the outbreak ends and in the longer term," she said.
First-half earnings
Amid the Covid-19 outbreak, the bank still pays attention to helping customers rather than business expansion. However, the bank is satisfied with results for the first half of this year. Despite booking a drop in net profit, the bank showed positive growth in some financial targets and business segments.
LH Financial Group (LHFG), the holding company of LH Bank, announced net profit for the first half at 1.03 billion baht, down 21.93% from the same period of last year, due to the decrease in gains on investment and dividend income and the increase in other operating expenses.
The group recorded net interest income growth of 3.9% in the first half this year, on a year-on-year basis, while net fees and service income increased 25.8%.
As of June, LH Bank booked total loan growth of 5.8% from the end of last year, mainly from conglomerate and corporate loan growth at 12.3% and retail loan growth of 7.3%. But commercial and SME loans dropped 2.6%.
Ms Chompoonoot said the Taiwanese customer base in Thailand is a key segment to facilitate corporate loan growth and the business has continued to grow.
Service quality, forging relationships with foreign customers and responding to their requirements are the key reasons for expanding business in the Thai market.
"The Taiwanese seem cost-conscious investors, while other banks offer them lower interest rates than LH Bank. We've continued to build up the customer base with service quality, understanding and building relationships with them. Pricing is a secondary factor," she said.
Focusing on home loans
Because Land and Houses (LH) Group, a local large real estate developer, is a major shareholder in LH Bank, mortgage loans are another core business of the bank. Even though LH Bank suspended housing loan expansion for the past few years to restructure internal processes, the bank has expanded business for the past few years and shown positive growth.
As of June, the bank booked housing loan growth of 7.7% from the end of last year. The growth rate largely stemmed from upper-income homebuyers who still have high purchasing power despite the pandemic.
For housing loan product, the bank has concentrated on residential projects priced at least 5 million baht.
Meanwhile, homebuyers who buy property priced around 20 million baht are the key segment contributing mortgage loan growth in the first half this year. Besides the strong purchasing power of this customer segment, promotional campaigns are a key factor attracting upper-income homebuyers.
Digital channel
Digital banking is another key area that the bank plans to grow. LH Bank has been upgrading investment features on its mobile banking app and the new version is scheduled to launch at the beginning of next year.
Investment features development would respond to the requirements of the bank's deposit and investment customer base. The bank plans to offer a full range of financial advisory services on the digital platform, generating better fee-based income from the business area.
The bank also aims to maintain brick-and-mortar branches at the existing number of 108 and adapt traditional outlets to advisory centres rather than offering transaction banking services. Meanwhile, banking transactions will be migrated to the digital platform in line with the changing lifestyles of consumers in the digital era.