A slow recovery in hire-purchase business and delayed home purchases in the first six months are crucial factors that persuaded Kiatnakin Bank to lower its loan-growth target for this year.
“We have to look at the actual situation. Even though used-car prices have become more stable, the demand for second-hand vehicles has not normalised yet. Meanwhile, small and medium-sized developers are unable to sell their residences as potential buyers are already carrying high amounts of debt, making it hard for banks to approve [mortgages],” said Apinant Klewpatinond, KK president and chairman of commercial banking business.
Given these realities, the bank considers that it should target loan growth this year at 5-6 per cent, down from the previously projected 9.5 per cent, he said.
KK is the country’s second-largest used-car lender and is the main player in lending to small and medium-sized property developers.
Total outstanding loans at KK amount to Bt200 billion, of which Bt130 billion are instalment (hire purchase) loans, of which used-car loans make up the majority.
The bank has improved tools to help pricing match up with the risk of each used-car loan. It has also limited the loan-to-value rate for used-car purchasers and made the loan terms the same as for new-car loans.
Apinant believes the used-car market has bottomed out and should get back to normal by early next year.
Non-performing used-car loans are stable but the rate of bad real-estate loans is gradually rising, so the bank’s overall NPLs were expected to have peaked in the second quarter. In the first quarter, KK reported NPLs at 4.2 per cent, of which 2.3 per cent were auto loans.
This is the first year that KK will classify real-estate loans as special-mention.
The expansion by major Bangkok-based developers into the provinces has affected some small and medium-sized developers, Apinant said.
Still, the rising NPL rate in the real-estate segment does not mean the bank will witness a loss, because collateral for this business is high, unlike autos, where the bank can lose money from repossession.
He said the driver of lending growth this year was corporate loans, a new category for KK. The bank lent Bt6 billion to a corporate in the first half and expects to ante up an additional Bt4 billion in two deals in the second half.
“Outstanding corporate loans this year will reach Bt10 billion,” he said.
The bank’s yield will be slightly reduced from 8 per cent after taking on corporate lending but such loans help diversify risk, he said. He noted that KK was in the high-risk segments, so during an economic slowdown, it was among the first banks to be affected.
To shore up yield, KK has attempted to lower its operating expenses and funding costs. “We have adjusted the method of fund-raising from debenture issuance to current and savings accounts,” he said.
The CASA (current and savings accounts) proportion this year is 30 per cent, up from 11 per cent last year. He said KK would sustain the 30-per-cent proportion as this was suitable for a small bank.
CASA at small banks have a re-pricing risk because when a competitor offers a new time deposit with a high interest rate, some CASA depositors are prepared to move to those products instead. KK has to have a long-term fixed deposit with a high rate to secure these customers, he said.
Fee income from selling insurance products to wealthy customers could be profitable for KK, and the bank is seeking a strategic partner to help develop ordinary life insurance. The partner will be known in the current third quarter and could jointly develop products in the final quarter of the year.