Hurdles ahead for Thai banks as Q1 profit drops 13%: analyst

Loan demand and NIMs are under threat because of the pandemic.

A mixed performance can be expected from Thai banks as sector net profit will likely drop 13% YoY in Q1 2020 due to weaker results by large banks, according to a UOB Kay Hian report.

The sector faces more challenges ahead as the coronavirus hits loan demand and net interest margins. Sector net profit is likely to drop more than 15% YoY this year, but may rebound 4-5% in 2021.

The profit dip came on the back of net interest margin compression and lower non-interest income. The rate cuts in February, March and April could put more pressure on NIM amidst lower economic activities that would erode loan demand and heighten non-performing loan risks despite stimulus and relief measures, said analyst Tanadech Rungsrithananon.

Loan growth will likely plateau at 0.1% QoQ in Q1 2020 from 0.9% in Q4 2019. Aggregate gross NPLs will rise 3.6% QoQ due to SME and retail NPLs, the report noted. On the other hand, average loan loss coverage would slip to 145% in Q1.

Average NIM is expected to slide 2.9% in Q1 from 3.2% in the same quarter in 2019 largely on the back of steeper declines from large banks. The downturn will likely continue in Q2 but will be more stable come H2 2020 due to higher loan demand and reduced impact from rate cuts, the report concluded.

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