Thai banks struggle to boost loan growth despite GDP hike

No thanks to loans growing by 0.5x nominal GDP in 2017.

Compared to previous Thai banks’ loan growth of about 1.5-2.0x nominal GDP, loans in 2017 only grew by 0.5x nominal GDP, Maybank Kim Eng reports. The weak loan growth is the main reason why banks may not fully benefit from the accelerating GDP growth.

Here’s more from Maybank Kim Eng:

We have been reiterating that higher competition from the bond market has led to lackluster bank loan growth. Even though we expect somewhat an improvement in corporate loan growth due to the construction of various infrastructure investments in the pipeline, corporate loans may not grow as fast as it should have. We project aggregated loans will accelerate to 6.7% in 2018 vs. 4.9% in 2017.

Without help from rate hike (we expect no policy rate change this year), net interest income may remain weak. Higher competition and stringent regulations will curb banks’ yields too, in addition to the change in loan mix towards low-yield corporate loans. Cutting funding cost appears to be the only way to expand NIM. But deposit rates are very low (zero in some deposit products) and CASA is already high in many banks, thus cutting funding cost also looks challenging. Hence, net interest income should grow only moderately for most banks. Banks need non-organic growth to expand profitability. In this regard, we like TISCO (new business from SCBT) and BBL (bancassurance partnership with AIA).