Thai banking system still strong despite lower profits: central bank

Capital funds and provisions were raised to guard against the slump.

The Thai banking system remained resilient in Q2 with high levels of capital fund and loan loss provision to weather through the pandemic-induced economic shock, according to the Bank of Thailand.

However, system profitability declined due to elevated provisioning expenses to protect against a potential negative impact of COVID-19 on loan quality.

Sector capital fund was at $91.8b (THB2.8t), equivalent to a capital adequacy ratio of 19.2%. Loan loss provision reached $23.7b7(THB743.7b) with NPL coverage ratio of 144.1%, whilst liquidity coverage ratio (LCR) registered at 183.4%.

Overall loan growth stood at 5% YoY in Q2 from 4.1% the previous quarter. Corporate loans, which comprise 65.2% of total loans, expanded 5.1% YoY due to loans to the public sector and large corporates. Consumer loans grew at 4.8% YoY, with sluggish growth from the previous quarter in almost all portfolios consistent with economic contraction. However, mortgage lending surged in line with a higher demand for residential properties.

Gross non-performing loans outstanding was at $16.2b (THB509b), equivalent to 3.09% of total loans, a slight increase from 3.04% in Q2.

System profitability went down to $989m (THB31b) from $1.7b (THB53.3b) in the last quarter, driven by an increase in provisioning expenses against loan quality decay together with lower core earnings, resulting in a decline in the ratio of return on asset to 0.57%.

Net interest margin compressed from 2.90% to 2.60% brought about by a decline in interest income from lower loan rates following policy rate cuts and a reduction of FIDF (Financial Institution Development Fund) contribution to ease the loan interest burden for businesses and households.