Thai banks' Q1 earnings down 8% YoY to $1.12b

The sector saw a 20-25bps growth in loan yield.

Thai banks reported aggregate earnings of $1.12b (THB36.6b) in Q1, down 8% YoY but still beating the estimate by 5% due to higher net interest margin (NIM) from the fee reduction by the Financial Institutions Development Fund (FIDF) on all deposits since January, according to a Maybank Kim Eng report.

Following the adoption of the Thai Financial Reporting Standards 9 (TFRS9), banks saw a 20-25bps increase in loan yield from a higher effective interest rate and interest income from non-performing loans (NPLs). However, Q1 earnings did not yet reflect the impact of the coronavirus.

The sector is trending at a “justified” below 10-year average of 0.5x FY2020E Private Equity Price to Book Value (P/BV) given high asset quality risk which may result in capital and book value reduction, said analyst Jesada Techahusdin.

Net interest income (NII) and NIM are likely to come down as banks have slashed lending rates by 40bps since 10 April. Asset quality is expected to erode, but lenders might not show a significant increase in NPLs for consumer lending until Q4 due to the Bank of Thailand’s measures that allow the offering of debt moratoriums and the requirement removal to classify as NPLs for six months, the report said.

“For SME loans, banks can offer grace periods, reduce principal payments, and extend credit to customers affected by the economic downturn. As a result, banks could postpone loan classification downgrades during 2020-2021,” the report added.

Photo courtesy of Pexels.com.