Thailand banks’ profits underperform in Q4

Thai banks are expected to see THB130b in new bad loans in Q1, UOBKH warns. 

Thai banks’ profits missed analyst estimates amidst a decline in investment gains and fee income, according to a report by UOB Kay Hian.

Banks under the brokerage firm’s coverage reported a combined net profit of THB42.7b in the last three months of 2023. Whilst this was 29% higher than in Q4 2022, it is 15% lower than in the third quarter, says UOB Kay Hian analyst Tanaporn Visaruthaphong and assistant analyst Thanawat Thangchadakorn.

This is also 5.3% and 9.6% lower than what the firm expected from Thai banks, the analysts said. 

Non-interest income was to blame, softening by 7% year-on-year and 3% quarter-on-quarter, as a result of a reduction in net gain on financial instruments measured at fair value through profit or loss (FVTPL), and an unfavorable capital market that pressured fee income. 

On a more positive note, net interest income grew 13% in Q4 2023 compared to a year ago, mainly thanks to net interest margin expanding 20 basis points (bp).

Banks’ asset quality continues to deteriorate amidst uneven economic recovery and an expected rise in bad loans. 

UOB Kay Hian expects a non-performing loan (NPLK) inflow of THB130b in Q1, with KBank likely to be the most hit due to their 30% exposure to small and medium enterprises (SMEs). 

Credit costs will also likely remain high in 2024.

“Almost all the banks under our coverage exceeded their 2023 credit cost targets,” Visaruthaphong and Thangchadakorn wrote, noting that three banks have set their 2024 credit cost targets slightly lower than the actual credit cost in 2023.

Credit costs and asset quality should improve in the second half of 2024 due to the unveiling of government spending in Thailand's national budget in May, stronger exports, acceleration of in tourist arrivals, and overall economic recovery.