The momentum of bank earnings in the current quarter is expected to decline from the third quarter because of reduced ability across customer segments to make debt payments, at the same time banks face higher costs from providing flood-relief measures to
Loan growth in the quarter will also be lower than usual because of reduced demand, said an analyst at Finansia Syrus Securities.
Lending in flood-affected provinces, including in industrial estates, is expected to be more than Bt300 billion.
The analyst said the earnings of local banks would continue to decline from third-quarter levels through the end of the year, making earnings performance in this quarter the lowest of 2011. Overall, however, the banks had already exceeded the total earnings of last year in the first nine months of this year. Therefore, the banks have not concentrated much on their fourth-quarter performance.
The good performance in the first three quarters has prompted the banks to focus more on setting general provisions for dealing with doubtful debts instead of on boosting income in the remaining months.
“Interest income in the fourth quarter is forecast to be less than in previous quarters because of the flood crisis. This will result in lower earnings in the quarter,” the analyst said.
Because of an increase in non-performing loans (NPLs) during the flood crisis, banks are setting higher loan-loss provisions. In particular, state-owned Krung Thai Bank (KTB), as government’s lending arm for providing soft loans to flood victims, will follow this practice.
Sasikorn Charoensuwan, an analyst at Phillip Securities, said local banks’ earnings would be lower in the current quarter because banks will set higher loan-loss provisions – the amount they set aside to cover bad loans – than in the previous quarters of the year.
The analyst said banks would report higher expenses in the fourth quarter as they have to budget for restoration of flood-damaged branches and automated teller machines.
However, if the Bank of Thailand relaxes bad debt provisions by flood victims, the NPL rate might not increase much.
The analyst said the severe flooding in a number of large industrial estates had directly affected corporate loans by major banks, especially Bangkok Bank and Siam Commercial Bank. Lower retail consumption is also a concern for banks because tens of thousands have been made jobless.
If the flood crisis is not solved by November, banks’ results in the first quarter of next year will also come under pressure.
In the third quarter of this year, local banks were still showing strong results, totalling Bt36.44 billion, up from net profits of Bt35.77 billion in the second quarter.
Kiatnakin Bank posted the highest quarterly profit growth at 25.39 per cent and TMB Bank reported the lowest, dropping by 37.58 per cent. But if compared year on year, CIMB (Thai) showed the highest earnings growth in the banking sector at 78.21 per cent.
Third-quarter net earnings results of 11 banks showed strong performance, but they are expected to post lower earnings in the fourth quarter because of the flooding.
Banks Profit (Bt) Profit (Bt) change Q3-2010 change
Q3-2011 Q2-2011 (%) (%)
BBL 7.55 bn 7.4 bn +2.02 6.17 bn +22.36
KTB 5.49bn 5.24 bn +4.77 4.99 bn +10.02
SCB 8.35bn 8.13 bn +2.7 6.48 bn +28.85
KBANK 7.76bn 7.31 bn +6.15 5.51 bn +40.83
BAY 3 bn 2.98 bn +0.67 2.33 bn +28.75
TCAP 1.33 bn 1.58 bn -15.82 1.53 bn -0.13
TMB 749m 1.20 bn -37.58 726m +3.16
TISCO 898m 863m +4.05 730m +23.01
KK 874m 697m +25.39 765m +14.24
CIMBT 319m 254.80m +25.19 179m +78.21
LHBank 123m 124m -0.8 113m +8.84
Total 36.44 bn 35.77 bn +1.87 29.51 bn +16.70
Sources: company reports to the Stock Exchange of Thailand