First-half operating results for two SET-listed financial institutions reveal lower net profit and higher bad-loan ratios.
Bad-loan ratios up as economy falters
First-half operating results for two SET-listed financial institutions saw lower net profit and higher bad-loan ratios, in line with most commercial banks’ disappointing results as the pandemic took a bite out of their fortunes.
Siam Commercial Bank (SCB) and its subsidiaries reported consolidated net profit for the second quarter of 8.36 billion baht, down 24% yearon-year, mainly from higher loanloss provisions.
For the first half of 2020, net profit stood at 17.61 billion baht, down 13% year-on-year, while pre-provision operating profit grew by 15% year-on-year.
In the first half, net interest income fell by 1.4% year-on-year to 49.55 billion baht, largely due to lower interest income from investments after the divestment of SCB Life. The decline was partly offset by improved funding costs and reduced fee contribution to the Financial Institution Development Fund (FIDF).
Non-interest income increased by 19.7% year-on-year to 24.36 billion baht. The rise was largely due to strong recurring income from bancassurance and wealth management, mostly from mutual fund and brokerage businesses, especially in the first quarter, coupled with net gains on trading and foreign exchange transactions and other operating income.
Given the uncertainty surrounding the Covid-19 crisis and weak economic outlook, SCB set aside an impairment reserve for loans and debt securities in the second quarter of 9.73 billion baht.
At the end of June, gross non-performing loans (NPLs) amounted to 79.6 billion baht and the ratio fell to 3.05% from 3.17% at the end of March, largely from the bank’s proactive management of its NPL portfolio, including bad-debt sales and write-offs.
The pre-emptive assistance of the Bank of Thailand’s relief measures for borrowers also supported SCB’s lower bad-loan ratio. With these central bank measures in place, gross NPLs and new NPLs at the end of the second quarter may not fully reflect the current economic conditions, SCB said.
Krungthai Bank (KTB) and its subsidiaries announced a net profit of 3.82 billion baht for the second quarter, down 53.1% year-on-year. First-half net profit was 10.29 billion baht, down 33.5% year-on-year.
Pre-provision profit in the first half of the year was 37.06 billion baht, an increase of 11% year-on-year. The increase was mainly derived from stable net interest income, given effective cost of funds management and benefits from the central bank’s announcement of lower contributions to the FIDF, together with strong loan growth.
KTB’s expected credit losses under new TFRS 9 standards amounted to 14.71 billion baht in the second quarter, while expense for impairment loss of loans amounted to 5.56 billion baht.
The coverage adequacy ratio stood at 126.5% in June, while gross NPL ratio stood at 4.35% compared with 4.36% in March.
Ronadol Numnonda, deputy governor for financial institution stability at the Bank of Thailand, said the decline in banks’ operating results in the first half was in line with the economic situation.
Banks’ lower interest income is also in accordance with the debt relief measures to ease the financial burden of borrowers during the pandemic, Mr Ronadol said.
Despite how NPLs have edged up, the banking sector has a strong buffer with a solid capital base at 18.7% to cope with economic uncertainty, he said.