Is the worst finally over for Siam Commercial Bank's asset quality?

NPL declined by USD111m in 1Q16.

1Q16 NPL declined 22bps QoQ (unlike peers which saw NPLs rising) and management commented that the bank’s credit quality should not significantly deteriorate further.

In the bank's analyst meeting, management elaborated that changes in accounting standard in the insurance business distorted 1Q16 operating profit by THB4b, depressing it to THB18.1b. 

Maybank Kim Eng notes that net profit would have been +17% QoQ vs -11% QoQ as reported. Management also highlighted that tightening regulations in the future could be net negative to insurance companies.

Here's more from Maybank Kim Eng:

Despite falling yields of earning assets and weak loan growth, the bank cushioned net interest income by effective funding cost cuts. NII rose by 1% QoQ. Non-interest income was healthy, +11% QoQ excluding the change in accounting standard, thanks to strong growth in gains on investments and dividends. Opex also fell by 9% due to better cost controls.

Unlike big-bank peers which saw NPLs rise c.12% on average, SCB’s NPLs fell by 7% QoQ to THB55.1b, equivalent to 3.0% of total loans. This was due to an upgraded reclassification of a large corporate client from NPLto normal loan.

Furthermore, out of THB3.9b decline in NPL this quarter, THB1.8b was due to write off in bad debts. Management said that NPLs should not rise significantly from this level for the rest of this year. 

However, the bank maintained its provision at a high level(c. 1.09% of credit cost), to boost the coverage ratio. Management targets a coverage ratio above 130% (123% currently).