Analysts not sold on zero-fee movement
Analysts are pessimistic about the banking sector’s net profits over the next two years after the recent waiver of fees, but banks themselves remain firm that they can generate income from other sources.
The stock market correction during the week is attributed to a sell-off in the banking sector, as Kasikornbank (KBank) unexpectedly slashed its non-interest income growth target this year to a contraction of 6-8% after the bank jumped on the fee-cutting bandwagon for online transactions, said Usanee Liurat, executive vice-president at Asia Plus Securities.
Other banks are likely to cut their targets similarly, especially after the removal of fees that ignited last week, Ms Usanee said.
An underweight outlook is also attributed to the government having commercial banks lower lending rate spreads to help consumers, she said.
The brewing trade war between the US and China has also dented investor confidence after Beijing’s retaliation against Washington’s plan to impose a 25% tariff on 1,300 Chinese products with 25% tariffs on 106 US goods, including soybeans, cars and orange juice.
“We are underweight on banking plays because other banks are expected to lower their fee income targets like KBank,” Ms Usanee said. “We have revised down KBank’s net profit forecast for this year and next by 10% per year and lowered [KBank’s] fair value to 227 baht from 250 baht.”
Prapas Tonpibulsak, chief executive of Talis Asset Management, said banks will face stiffer competition from the fintech business and limitations from the new international accounting standard that will require higher reserve provisions, which will subsequently dent the net profit of banks.
Banks’ net profit accounts for about 20% of all SET-listed firms’ value, therefore a decline in banks’ net profit will cause total investment returns in the bourse to reduce, Mr Prapas said.
But Siam Commercial Bank (SCB) has allayed fears over the impact of scrapping digital transaction fees on earnings, saying online transaction fees contribute less than 5% of SCB’s fee and service income.
SCB estimates t he revenue f orgone from cancelling online transaction fees at around 1 billion baht, said president and chief executive Arthid Nanthawithaya.
To alleviate the impact, the country’s second-largest bank by assets will seek other income to offset the missing revenue, Mr Arthid said.
Earlier, SCB made waves by scrapping the fees for interbank and cross-clearing zone fund transfers, together with bill payment and top-up transactions on online channels, aimed at drawing more customers and warding off disruption.
The bank’s mobile app, SCB Easy, is the second-largest mobile banking app after KPlus, KBank’s mobile banking application. SCB aims to increase the number of SCB Easy users to 10 million by year-end, up from 6.5 million at present.
Separately, the Stock Exchange of Thailand (SET) rebounded yesterday as concerns over a trade war between the US and China eased after US President Donald Trump struck a milder tone on tit-for-tat import tariffs.
The bourse closed at 1,739.92 points, up 0.9%, in trade worth 61.1 billion baht.
The SET previously slumped by 40.26 points or 2.3% on Wednesday, marking the index’s lowest close in over three months.
Mr Trump played down the trade war concerns in a tweet, saying: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US.”
The looming trade war between the two largest economies is expected to have a marginal impact on Thai exports, as Thailand is among the many supply chains for China, said Soraphol Tulayasathien, director of the bureau of macroeconomic policy under the Fiscal Policy Office.
Chinese products are exported to several other countries, while some products are consumed domestically as well, implying that the impact on Thai exports may not be substantial, Mr Soraphol said.