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No. 11/2018

Performance of the Thai Banking System in 2017

Ms. Daranee Saeju, Senior Director, Financial Institutions Strategy Department, Bank of Thailand, reported on the Thai banking system’s performance in 2017 that bank loans and their asset quality have improved in line with economic recovery. Operating profit increased, while net profit declined due to an accumulation of loan loss provision to cushion for loan quality deterioration as well as to prepare for the new accounting standard (IFRS 9). The Thai banking system remained resilient with high level of loan loss provision, capital fund, and liquidity to facilitate further credit expansion. Details are as follows.

Bank loan expanded from 2.0% last year to 4.4%, with growth acceleration towards the end of the year in both corporate loan and consumer loan, from SME and auto loan portfolios, respectively. This resulted in an increase from 4.4% to 4.7% of overall private sector’s financing through bank loans and debt securities combined.

Corporate loan (67% of total loans) grew at 3.6% year-on-year, driven by SME loan growth (excluding financial business) which expanded at 5.7%, particularly from businesses in commerce and manufacturing sectors, as well as real estate business consistent with real estate market recovery in the middle to high-end segments. Meanwhile, large corporates (excluding financial business) yielded zero growth, due to some loan repayments and increased reliance on alternative sources of financing through equity and debt securities . Nonetheless, some large corporates did utilize more loans, such as energy and transportation, computer and electronic product manufacturing, and accommodation, in line with strong growth in exports and tourism.

Consumer loan (33% of total loans) grew at 6.1% year-on-year, driven by an acceleration of auto loan growth which expanded at 8.4%, consistent with improved car sales after the five-year lock-in period of the first-car buyer scheme ended. Personal loan expanded at 5.7%, while housing loan and credit card loan growth slightly declined to 5.5% and 3.4%, respectively.

http://www.bot.or.th/Thai/PressAndSpeeches/Press/News2555/n2755e.pdf

A slowdown in credit card loan growth was partly due to sales of one commercial bank’s retail portfolio.

On the loan quality front, the ratio of gross non-performing loans (NPLs) to total loan increased from 2.83% in 2016 to 2.91%. Gross NPLs outstanding stood at 429 billion baht, rose by 43.4 billion baht. It had increased at continuously lower growth rates since last year. Moreover, the decline in NPLs of SME loans, coupled with loan management of consumer loan portfolio during the year-end, helped stabilise the overall NPLs. Special mention loans (SMs: loans overdue above 1 month but not more than 3 months) to total loan ratio dropped from 2.63% last year to 2.55%, with SM outstanding of 375 billion baht. Nonetheless, banks accumulated higher loan loss provision to cushion for loan quality deterioration and prepare for IFRS 9. This brought about 72.7 billion baht increase in the banking system’s total provision from last year to 602 billion baht, and the ratio of actual to regulatory loan loss provision stood high at 171.9%.

In 2017 the banking system recorded increased operating profit, mainly attributed to banks’ liability management to rationalize funding cost. However, net profit of 187.3 billion baht declined from the same period last year because of increased provisioning expense. Despite stabilising NPL, the continued accumulation of provision was partly to prepare for the implementation of the new accounting standard (IFRS 9) in 2019. Consequently, return on asset (ROA) decreased to 1.05% from 1.13% last year, while the ratio of net interest income to average interest-earning assets (Net Interest Margin: NIM) remained steady at 2.76%.

Capital fund of the banking system remained high at 2,451 billion baht. The rise in capital was attributed to both appropriation of earnings and capital increase, resulting in an enhancement in capital adequacy ratio (BIS ratio) and common equity Tier-1 ratio (CET1 ratio) to 18.2% and 15.6%, respectively.

Bank of Thailand February 12, 2018

Contact: Financial Performance and Loan Analysis Team Tel: +66 (0) 2283 5980

e-mail: FP&[email protected]

Performance of the Thai Banking System in 2017

Bank loan growth increased. Loan expanded at 4.4%yoy, with growth acceleration

towards the end of the year in both corporate loan and consumer loan, driven by SME and auto loan portfolios.

The overall NPL ratio has stabilized. NPL ratio increased from 2.83% last year to 2.91%,

but the increase had been at continuously lower rates since last year.

Banks’ operating profit increased, while net profit declined. Operating profit increased mainly from banks’ liability management

to rationalize funding costs

Net profit declined from further provisioning expense to cushion for loan quality issue as well as prepare for the new accounting standard (IFRS 9)

Loan loss provision and capital fund remained high. Ratio of actual to regulatory loan loss provision stood

high at 171.9%. BIS ratio and Common Equity Tier 1 ratio were at 18.2%

and 15.6%, respectively.

Overall Performance of the Thai Banking System in 2017

2/12

13.9

3.34.4

11.3

6.0

13.7

4.5 4.7

0

5

10

15

20

25

30

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015 2016 2017

Real GDP Total Loan Bond* Total Loan and Bond*

%yoy

2.0

4.4

20.9

GDP and Loan Growth

*Debt securities issued by private sector (excluding financial business).Source: Bank of Thailand and ThaiBMA

3/12

Banks’ loan growth increased, resulting in an upturn of overall private sector’s financing

% Total Loan : Large corporate loan (excluding financial business) 24.1% SME loan (excluding financial business) 33.8% Consumer Loan 33.0%

Commercial Bank Loan Growth

Loans to large corporate recorded zero growth due to more reliance on financing through equity and debt securities, together with loan repayments.

Loans to SME increased, mainly from businesses in manufacturing, real estate and commerce sectors.

Consumer loans expanded due to an acceleration of auto loans, while other consumer loan types grew moderately.

Bank loans accelerated during the end of the year.

13.913.210.3

14.315.7

-5

0

5

10

15

20

25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015 2016 2017Total LoanCorporate LoanLarge Corporate Loan (excluding Financial Business)SME Loan (excluding financial business)Consumer Loan

%yoy2016 2017Q4 Q3 Q4

Large -1.0 4.2 0.0Consumer 4.9 5.6 6.1Total 2.0 3.3 4.4SME 1.8 2.4 5.7Corporate 0.6 2.2 3.6

Bank loan expanded, with growth acceleration towards the end of the year in both corporate loan and consumer loan, mainly from SME and auto loan portfolios.

4/12

Structure of Corporate Loans as of December 2017 (% to total loans)Corporate Loan Growth

Corporate loan growth increased in financial business, real estate,manufacturing, and commerce sectors.

5/12

Structure of Consumer Loans as of December 2017 (% to total loans)Consumer Loan Growth

Consumer loan expanded mainly from auto loans.

6/12

2.17

1.28

3.45

2.03

0

1

2

3

4

5

6

7

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014 2015 2016 2017

%NPL to Total Loan %NPL to Large Corporate Loan%NPL SME Loan %NPL Consumer Loan

%NPL

2.131.56

2.28

2.92

0

1

2

3

4

5

6


2013 2014 2015 2016 2017

%SM to Total Loan %SM Large Corporate Loan%SM SME Loan %SM Consumer Loan

%SM2016 2017Q4 Q3 Q4

SME 4.35 4.63 4.37Total 2.83 2.97 2.91Consumer 2.71 2.74 2.68Large 1.47 1.69 1.75

2016 2017Q4 Q3 Q4

Consumer 3.19 3.26 3.21Total 2.63 2.72 2.55SME 2.47 2.96 2.77Large 2.34 2.11 1.85

Special Mention (SM)Non-Performaing Loans (NPLs)

Loan quality : Overall NPL has stabilized, attributed to improvement in NPL of SME loans since the fourth quarter of 2017.

7/12

0

2

4

6

8

10


2013 2014 2015 2016 2017Manufacturing Commerce Public Utilities

Services Real Estate+Construction Mining

%SM

0

4

8

12

16

20


2013 2014 2015 2016 2017

Manufacturing Commerce Public UtilitiesServices Real Estate+Construction Mining

%NPL 2013 2016 2017Q1 Q4 Q3 Q4

Commerce 2.36 5.23 5.54 5.58Manufacturing 4.33 4.44 5.36 5.17Real Estate+Construction 5.19 4.61 4.51 4.45Services 3.85 3.65 3.26 3.36Public Utilities 0.96 0.69 0.74 0.75Mining 0.67 0.82 16.39 13.91

2013 2016 2017Q1 Q4 Q3 Q4

Manufacturing 3.73 4.55 4.36 3.84Services 3.02 3.91 3.84 3.68Commerce 1.39 2.42 3.29 3.10Real Estate+Construction 2.86 3.02 3.05 2.81Public Utilities 3.53 1.97 2.31 2.24Mining 0.22 0.62 4.05 3.29

Special Mention (SM)Non-Performing Loans (NPLs)

Corporate loan quality deteriorated, particularly from a large corporate in mining sector,together with manufacturing and commerce sectors.

8/12

2.34

1.521.96

2.46

0

2

4

6

8


2013 2014 2015 2016 2017

Housing Auto Personal Credit Card

%NPL

1.35

6.22

1.871.94

0

2

4

6

8

10

12


2013 2014 2015 2016 2017

Housing Auto Personal Credit Card

%SM2016 2017Q4 Q3 Q4

Credit Card 3.74 2.84 2.61Housing 2.93 3.26 3.23Personal 2.87 2.68 2.53Auto 1.79 1.63 1.60

2016 2017Q4 Q3 Q4

Auto 7.43 7.36 7.15Credit Card 2.15 2.26 1.93Personal 2.35 2.37 2.36Housing 1.77 1.90 1.91

Special Mention (SM)Non-Performing Loans (NPLs)

Consumer loan quality: NPL dropped in almost all portfolios, except housing loans.

9/12

Capital fundLoan loss provision

Loan loss provision and capital fund remained high.

15.8

12.0

3.6

0

5

10

15

20

25

30


2013 2014 2015 2016 2017

%

Basel III

2016 2017Q4 Q3 Q4

CAR 18.0 18.5 18.2CET1 15.1 15.8 15.6Tier-2 3.0 2.7 2.6

16

29

19 22 19 21 21

22 24 32

49

34 38 38 37

32 35

44 44 47158.9

159.6 166.2 171.9

0

10

20

30

40

50

60

70

100

120

140

160

180


2013 2014 2015 2016 2017

Thousands

Loan loss provision expense (RHS)Actual/Regulatory loan loss provision ratio (LHS)

Billion Baht%

10/12

11/12

Return on Asset, Return on Equity and Net Interest MarginProfitability

Banks’ operating profit increased thanks to banks’ liability management, whereas net profit declined from provisioning expense. As a result, ROA and ROE decreased.

Liquidity Coverage Ratio (LCR) Loan to Deposit Ratio

96.5 96.9 96.7 96.3

80

85

90

95

100

9,000

10,000

11,000

12,000

13,000

14,000


2013 2014 2015 2016 2017

Deposit Loan L/D Ratio [RHS]

Billion Baht %

167.1 175.2 169.0 180.0

0

40

80

120

160

200

0

1,000

2,000

3,000

4,000

5,000

Mar Jun Sep Dec Mar Jun Sep Dec

2016 2017

High-quality Liquid Assets (HQLA) Liquidity Coverage Ratio (LCR) [RHS]

Billion Baht %

The Thai banking system has sufficient liquidity to facilitate continued credit expansion.

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