Siam City Bank has cut its target for loan growth this year from 14 per cent to 11 per cent due to the uncertain economic environment, which has discouraged corporate and individual borrowers from spending.

The middle-sized bank now expects to grow its loan portfolio by only Bt30 billion instead of Bt35 billion after the first quarter saw a disappointing increase of only Bt3 billion.

Despite the harsh climate, the bank expects the lower target to be attainable as businesses are expected to gradually put their investment plans into action in the remaining nine months of the year.

"Even though the political picture remains murky, some large companies have expanded their investment. They think that doing some investing would be better than stopping altogether, otherwise heavy stimulus will be needed to revive business growth," Siam City Bank president and chief executive Chaiwat Utaiwan said yesterday.

Some corporate customers have taken out loans for new investment, such as for the industrial community project. That shows a positive trend after lending in the banking system slowed down since last year. The buying spree of foreign investors in the Stock Exchange of Thailand is another factor to restore customer confidence, he said.

According to Kasikorn Research Centre, as of April, commercial bank loans were up by Bt13 billion, or 0.26 per cent, from the end of last year. Year on year, net loans expanded only 3.78 per cent, against 5.07 per cent in March.

"New lending will continue slowing down in the second quarter. Though the pace could be accelerated in the second half [due to rate cuts], the growth rate would be as low as the economic growth rate," the research house said. It sees loans increasing by 4 per cent to 5.5 per cent, down from 6.69 per cent last year.

On Tuesday, the Fiscal Policy Office downgraded its 2007 economic growth target to 3.8 per cent to 4.3 per cent, due mainly to political volatility and high oil prices. In February, its projection was 4 per cent to 4.5 per cent, compared with the 5-per-cent expansion achieved last year.

Reflecting the sluggishness in business activities was the lower amount of funds mobilised by listed companies. According to the Stock Exchange of Thailand's Research and Information Division, fund-raising of listed companies in the first quarter sank 40 per cent year on year to Bt10 billion. About Bt9.9 billion in new capital came from the secondary market in the quarter, while Bt5.1 billion and Bt4 billion respectively were proceeds from exercising warrants and rights to subscribe to capital-increase shares.

So far this year, four companies have debuted on the SET and the Market for Alternative Investment.

Unique Engineering and Construction, with market capitalisation of Bt1.13 billion, and Property Rasa Development, with capitalisation of Bt520 million, listed on the SET, while Ubis (Asia) and Multibax appeared on the second-tier bourse.

The SET statement said listed companies invested in fixed assets worth more than Bt84 billion in the first quarter, an increase of 0.5 per cent on the same quarter last year.

The slight rise could be ascribed to companies listed in the resource and industrial sectors, while investment slowed in other sectors.

The efficiency of listed companies, excluding those in the financial sector and non-performing group, deteriorated marginally, as expenses increased by 11.2 per cent while sales rose only 9.3 per cent.

Return on equity declined 3.9 per cent from the same period last year, and return on capital employed fell 2.6 per cent.

However, listed companies' financial risk remained low, with their debt-to-equity ratio at 1.1 times and their interest-coverage ratio in good shape at 6.8 times.

Siam City Bank's non-performing loans were pushed up to 5.08 per cent of total loans in the first quarter due to slow lending growth, but bad loans should come back down to 5 per cent by the end of the year.

This year the bank and its five financial subsidiaries will focus on marketing strategy to boost fee income amid the fading lending business. The bank wants to raise fee income to 20 per cent of total revenues by the end of this year.

It plans to provide its first-ever full range of securities services at its Phuket branch next month, which would be offered by Siam City Securities, a wholly owned subsidiary of the bank.

Somruedi Banchongduang

The Nation