Bank refocuses on ROE after slashing NPLs

Move for sustainable profitability under 'Make the Difference' programme

After reducing its remaining legacy non-performing loans (NPLs) nearly to the level of the overall banking industry, TMB Bank is now focusing on return on equity (ROE) and sustainable profitability through its "Make the Difference" programme.

"We were able to set extra provisions of Bt5.28 billion from selling Bt5.67 billion worth of NPLs in 2012 to make sure the coverage ratio and NPL ratio would not be problems for profitability," chief executive officer Boontuck Wungcharoen said.

TMB reduced the NPL ratio to 4.1 per cent at the end of last year from 5.44 per cent from on September 30.

Under its rolling five-year plan, TMB managed to shave NPLs by 16 per cent in the past five years, with 5 per cent coming in 2011 and 3.75 per cent in 2012. This helped raise its reserve ratio to 67 per cent and coverage ratio to 113 per cent.

The bank targets ROE surging to 14 per cent from 2.9 per cent last year.

"Financial results in 2012 showed that TMB is on the right path," Boontuck said.

TMB saw rises of 20 per cent in interest income, 25 per cent in fee income, 9.7 per cent in deposits and 17 per cent in loans, which beat the lending target of 15 per cent.

Its net interest margin improved to 2.7 per cent from 2.4 per cent thanks to the low cost of funds from savings products and high-yield assets such as loans to small and medium-sized enterprises.

This year should be even better because the bank has no need to set extra provisions, so its direction will change to promoting products and services to tap all customer segments, Boontuck said.

"Make the Difference" has been TMB's key product strategy for the past four years. By offering a variety of features, especially transaction banking, its pre-provisioning operating profit soared past Bt10 billion last year - the highest since the bank was founded.

To differentiate its products and services, TMB will add what it calls "brand experience attributes" to customers. These attributes consist of understanding customers in each segment, creating a quality deposit base, excelling in transactional banking, managing capital and liquidity utilisation, and controlling costs.

In 2013, TMB plans to outperform its peers with loan growth of 10-15 per cent versus the expected 10 per cent of the banking industry and deposit growth of 10-12 per cent against 5 per cent.

TMB expects to expand its retail loans by 25 per cent this year by increasing the proportion of active customers and increasing cross-selling and up-selling.

Retail loans account for 23 per cent of its portfolio, SMEs 27 per cent and wholesale the rest. This will steadily change, as the bank wants SMEs and supply chains to be the key players.

By 2017, the loan portfolio will be 20 per cent retail, 30-40 per cent SME and 40 per cent wholesale.

SME and supply-chain loans last year jumped 40 per cent, higher than the target of 35 per cent, and are expected to leap 35-40 per cent this year, Boontuck said.

However, Standard & Poor's Ratings Services noted that the sharp decline in NPLs might not reflect a sustained improvement in asset quality of TMB Bank.

"We attribute the steep drop in NPLs in the last quarter of 2012 to a one-time sale of such loans ... We expect the bank's capitalisation levels to remain at moderate levels despite lower profits last year.

"TMB's pre-provision performance has strengthened because of increased margins ... TMB intends to accelerate loan growth this year, which we believe could increase the risk of NPLs. The bank aims to focus on small and mid-size enterprises, which we view as a high-risk segment. Sustained improvement in TMB's risk-management practices and execution of its business strategy would underpin the rating," the agency said.

Piti Tantakasem, chief wholesale banking officer, said that after years of decline in lending importance, wholesale banking was ready to return to dramatic growth. The key driver is connectivity between supply-chain players and medium-sized to large businesses.

Wholesale credits this year are expected to advance by 10 per cent from Bt300 billion.

Within five years, wholesale loans are targeted to double to 15 per cent from 8 per cent of TMB's outstanding loans. Fee income from foreign exchange and trade finance services will rise to Bt3.9 billion from Bt800 million last year. Deposits will surge to Bt210 billion from Bt91.64 billion.