A healthy bank has healthy customers

The head of ttb wants to shift the focus from loans to financial advisory, in part to help clients grow wealth.

TMBThanachart Bank Plc (ttb) plans to focus on creating sustainable growth and building customers’ well-being, chief executive Piti Tanthakasem told the Bangkok Post in an exclusive interview. He said the bank is adjusting operations in preparation for long-term sustainable growth.

The bank is a merger between TMB Bank and Thanachart Bank, which finished integration last year.

Mr Piti said “customer centricity” is the bank’s key strategy, while improving clients’ well-being is a key objective.

Reducing customers’ debt burden is one way to improve their well-being, he said, as the country is drowning in household debt, which has affected the Thai economy.

Thailand’s household debt is around 90% of GDP.

The bank’s research arm ttb analytics forecasts the country’s household debt ratio to increase to 93% at the end of this year, attributed to the prolonged impact of the pandemic.

Mr Piti, who is a member of the prime minister’s economic advisory team, said household debt has risen for several years, but the problem was compounded by the pandemic, which affected individuals and small and medium-sized enterprise (SME) borrowers.

He said building up people’s income and wealth should help reduce the debt burden and curb household debt.

Financial institutions are lenders, meaning they play a part in rising household debt, said Mr Piti. The bank needs to change its focus to offering financial advisory service rather than loans, he said.

CUSTOMER FOCUS

Mr Piti said the bank does not need to offer all financial products to a customer to grow its business, but should concentrate on financial advisory.

The bank’s definition of well-being covers four financial areas: spending, saving, investment and protection.

He said the bank’s emphasis going forward would be providing personalised financial service to clients rather than product concentration. The bank may offer a customer other financial products to help manage personal finance or initiate wealth creation for the long term, said Mr Piti.

One example of the change in strategy is individual loan approvals, he said. The bank will consider whether the loan can build up the customer’s wealth in addition to considering their debt repayment capacity in the loan analysis.

“For ttb, sustainable growth should consider both the customer and the bank,” said Mr Piti.

“This is mutual growth, rather than one-sided loan growth for the bank. The latter is not sustainable over the long term.”

According to the National Economic and Social Development Council, Thai household debt was at 14.1 trillion baht or 90.5% of the country’s GDP in the first quarter this year.

He said around 50% of the country’s total household debt is unsecured personal loans, coming from non-banks, specialised financial institutions and cooperatives. The interest rates of unsecured loans are higher than secured loan products.

Household debt in developed countries largely comes from secured loans, especially mortgages and car loans, said Mr Piti.

DIGITAL GROWTH

He said technological development is another core strategy to simplify business sustainability. In addition to the bank’s tech upgrades, ttb has been helping customers, especially retailers and SMEs, create wealth and grow sustainably via the digital platform.

Banking is increasingly migrating to the digital platform, which can build up the prosperity and sustainability of both banks and customers, said Mr Piti. With digital technology, banks can help customers such as SMEs earn new income.

Retail customers should be equipped with digital capabilities and personalised financial service, he said.

“If we do not change business operations now and continue doing the same things, we may accumulate higher risk,” said Mr Piti.

“We decided to shift to more sustainable practices.”

Previously, TMB initiated innovative deposit features and money transfer fees. These took around 10 years for the industry to adapt, he said.

In the digital era, ttb expects the sustainable growth concept to take less than a decade to be adopted, said Mr Piti.

Given digital disruption, traditional banking businesses face narrower margins, while banks’ earnings have dwindled because of the impact of Covid-19.

The bank expects sustainable growth to improve profitability over the longer term, with digital technology helping to save on operating costs, he said.

Operational and risk costs are the key expenses of banking businesses, said Mr Piti.

Digital platform service will reduce operating expenses and support lean organisations, while data analytics should improve credit risk analysis, control asset quality and reduce risk cost, he said.

The traditional banking service cost-to-income ratio of TMB was 48-49%. For the second quarter this year, the financial ratio of ttb was 46.4%.

With integration and digital transformation, ttb’s cost-to-income ratio is expected to further decline to 42-43% in the future, said Mr Piti.

The two banks merged branches and employees, upgrading staff skills to match the digital age, he said. The consolidation helped ttb to save on operating cost.

The risk cost of TMB was in the range of 1.71.9%, while Thanachart Bank was 1% with a focus on auto loans. The risk cost of ttb should be around 1.5%, said Mr Piti.

LOAN ANALYSIS METHOD

He said though Thailand’s new daily infections have been declining, the country’s economy and the banking industry still face several uncertainties. The tourism sector in particular will take more time to recover.

The income structure of SMEs is projected to decline for the next few years, said Mr Piti. Given this outlook, the bank needs to adjust both its existing debt restructuring programme and new loan analysis of SMEs, in line with the change, he said.

Banks are expected to support SME customers searching for new income sources and strengthening operations via digital technology.

The Thai Bankers’ Association developed a smart financial platform to help SMEs gain new income in the digital era. The platform can also help banks including ttb to better analyse business feasibility and clients’ new income structures, said Mr Piti.

“Helping SMEs to restructure debt for the longer term is a key challenge for the banking industry, including ttb. Long-term debt restructuring should continue in the fourth quarter this year until next year,” he said.

CREDIT RATING HIKE

Last month, Fitch Ratings upgraded ttb’s international long-term rating by one notch to BBB from BBB- and raised the national long-term rating to ‘AA+(tha)’ from ‘AA-(tha).’ The outlook is assigned as ‘stable.’

For key rating drivers, Fitch Ratings said the bank successfully completed its integration as planned and as a result its systemic importance to the country’s economic and financial system has increased.

Furthermore, ttb has been identified as a domestic systematically important bank, as announced by the Bank of Thailand in August.

Since the announcement of the merger plan, the bank continued to receive credit rating upgrades, starting from Moody’s Investor Service in 2019, S&P Global Ratings in 2020 and the latest from Fitch Rating on Sept 16, 2021.

The upgrades from these three leading agencies, especially when the global economy has been pressured by the pandemic, reflects a positive view of the bank’s post-merger potential and financial strengths, including capital adequacy, liquidity position and asset quality, said Mr Piti.

These ratings also indicate the bank’s readiness to withstand a prolonged pandemic impact to both customers and investors, he said.

The bank needs to change its focus to offering financial advisory service rather than loans. PITI TANTHAKASEM CHIEF EXECUTIVE, TTB