Banks shift from wholesale loans

Local banks are set to concentrate on delivering loans to small and medium-sized enterprises and consumers as demand for wholesale loans might not expand as much as before because of the global economic uncertainty.

The implementation of the Third Basel Accord, or Basel III, this year will require banks to maintain higher capital adequacy ratios than under the previous accord. If banks provide huge loans to wholesale customers, their capital will be diluted.

Meanwhile, the trend towards lower interest rates is encouraging large corporations to raise funds themselves rather than relying on banks.

According to Kasikorn Research Centre, outstanding loans this year are expected to grow by about 10-13 per cent to between Bt9.5 trillion and Bt10 trillion, but growth will not be as high as the 13.5 per cent seen in 2012.

The robust growth last year was supported by corporate loans to restore businesses after the 2011 floods and consumer lending, especially auto loans for the first-car scheme in the second half.

CORPORATE LENDING TO EXPAND

Corporate loans, including SME loans, are expected to expand by 9 per cent this year, down from 9.5 per cent. The growth will continue to be driven by SMEs.

Retail loans are expected to grow by 18 per cent, compared with 24 per cent in 2012.

Wholesale customers were for several years the main contributors to loan growth in the banking sector, but the global economic slowdown and the gloomy export situation may sap demand in this segment.

Corporations that have exposure overseas will be more cautious on investment, which will have an impact on the demand for loans. However, mergers and acquisitions are continuing.

The true picture on demand for lending to corporations, however, should be clearer in the second half of 2013 after companies cash in on government projects, including water-management schemes worth Bt350 billion, which are to be launched in the first half.

Several banks believe corporates will still need their financial support. But the capital market will become an important source of funds.

FOCUS ON CAPITAL MARKETS

Larger companies can raise funds from capital markets instead of banks because the cost at present is low. Banks will need aggressively to chase loans and fees from SMEs and retailers to sustain profits.

Most banks have shifted their focus to consumer loans and SMEs to drive interest income.

SME and retail loans represent 70 per cent of total lending, and these sectors also contribute high margins compared with wholesale loans.

Demand for consumer loans will grow significantly from the increased purchasing power due to the increases in the minimum wage and salaries for new graduates, which both became effective nationwide yesterday.

Auto loans will grow slowly after the first-car tax-incentive scheme wound up on December 31. Therefore, consumer lending such as credit cards, personal loans and housing loans will be the focus of banks in 2013.

According to KResearch, the structure of lending in the commercial banking industry this year |will change in line with the new |focus.

The proportion of retail lending will increase to 34 per cent from 32.3 per cent in 2012, SME loans will stay at around 37 per cent compared with 37.2 per cent last year, and wholesale loans will drop to 28 per cent from 30.5 per cent.