Tisco Bank maintained high loan-loss reserves in the first quarter of the year, keeping them in place for two consecutive quarters on indications of high risk of loan defaults for at least another six months.
Bank president Suthas Ruangmana-mongkol said the loan-loss reserves in the first quarter would be the highest this year, as it plans normal provisions for the remaining months of 2014.
He said the first-quarter reserves were similar to the loan-loss provisions in the final quarter of last year.
According to the bank’s reported financial results for 2013, Tisco Bank set loan-loss reserves of Bt1.6 billion in the fourth quarter, compared with normal quarterly provisions of Bt800 million.
Tisco has two indicators to analyse borrowers’ behaviours: probability of default (PD) and loss given default (LGD). Suthas said these indicators helped the bank project the behaviour of retail borrowers for the next six months and find measures to defend against rising non-performing loans (NPLs).
The lending period for retail customers is shorter than for enterprise customers and even if the PD for retail customers doubles from the normal situation, the bank can calculate the provisions that should be set.
A higher PD ratio led the bank to tighten its loan approvals for new customers and set a high loan-loss provision for existing borrowers in the past two quarters.
After tightening the lending conditions in the fourth quarter of last year, the quality of new borrowers improved. However, the NPL rate could still increase by midyear from the hire-purchase business.
Even though the bank maintained the high loan-loss provisions, profit in the first quarter is expected to be healthy because of the lower cost of funds thanks to the relaxation of funding competition in the banking industry.
Earlier, Tisco Financial Group chief executive Oranuch Apisaksirikul told The Nation that lending growth at Tisco Bank could be in the single digits, and Suthas acknowledged that auto loans, which make up 70 per cent of its total loan portfolio, faced a high possibility of flat growth.
He said lower retail consumption could be expected for the next few years.
Therefore, the proportion of retail loans might drop below 70 per cent because the bank will focus more on business customers.
However, retail loans will still be Tisco’s major portfolio, he added.