Thai Banking Sector Faces Income Reduction Amid Debt Relief Measures
Government's 'You Fight, We Help' scheme set to decrease interest income for banks while improving asset quality
The recent strategic move by the Thai government to aid indebted households and SMEs through interest suspensions and reduced principal payments is set to have significant financial implications for the banking sector.
This came after the cabinet's approval of the debt relief initiative, which analysts predict will mitigate interest income in the short term while promising enhancements in asset quality over the long run.
Labelled 'You Fight, We Help,' the debt relief programme is designed to suspend interest payments for a period of three years.
The scheme focuses on debts that have been overdue for up to one year and encompasses mortgages up to 5 million baht, car loans up to 800,000 baht, and SME loans up to 5 million baht.
With successful debt servicing by borrowers throughout the designated period, accumulated interest will be waived entirely, offering significant financial relief.
The initiative is accessible through a variety of financial institutions, including state-owned banks, commercial banks, and their non-bank financial subsidiaries.
However, research from Phillip Capital Securities indicates that this could lead to a noticeable dip in interest income for several prominent Thai banks, especially those heavily invested in auto loans and other affected products.
Particularly impacted are Kiatnakin Phatra Financial Group (KKP) and TMBThanachart Bank (ttb), which are expected to encounter the most substantial reductions in interest income due to their lending portfolios.
In the third quarter of 2024, auto, mortgage, and SME loans comprised 77% of KKP’s total outstanding loans and 64% of ttb’s, underscoring their vulnerability to the relief measures.
In contrast, institutions such as Krungthai Bank (KTB) and Bangkok Bank (BBL) appear to be relatively insulated from the adverse impact, with the aforementioned loan types constituting only 29.8% and 31%, respectively, of their loan portfolios.
Despite the immediate financial impact, Yuanta Securities Thailand acknowledges a potential long-term benefit.
The brokerage envisions an improvement in asset quality, heralding reduced provisions for bad debt across the sector.
Kasikornbank, a major player within the Thai banking system heavily involved in mortgage and SME loans, is forecasted to achieve the most significant reduction in expected credit losses, amounting to 3.06 billion baht throughout the debt scheme's duration.
Similarly, BBL, Siam Commercial Bank, and KTB are anticipated to lower their loan-loss reserves by 2.88 billion baht, 2.27 billion baht, and 1.74 billion baht, respectively.
Moreover, institutions with substantial involvement in auto financing, like ttb, Tisco Financial Group, and KKP, are projected to benefit from ECL reductions of 705 million baht, 542 million baht, and 693 million baht, respectively.
This debt relief plan, while aimed at alleviating the financial burden of many Thai borrowers, indeed presents a double-edged sword for the banking industry.
Balancing short-term income reductions with long-term improvements in asset quality marks a significant challenge but also presents a strategic opportunity for these financial institutions to recalibrate and focus on enhancing their portfolios.
This came after the cabinet's approval of the debt relief initiative, which analysts predict will mitigate interest income in the short term while promising enhancements in asset quality over the long run.
Labelled 'You Fight, We Help,' the debt relief programme is designed to suspend interest payments for a period of three years.
The scheme focuses on debts that have been overdue for up to one year and encompasses mortgages up to 5 million baht, car loans up to 800,000 baht, and SME loans up to 5 million baht.
With successful debt servicing by borrowers throughout the designated period, accumulated interest will be waived entirely, offering significant financial relief.
The initiative is accessible through a variety of financial institutions, including state-owned banks, commercial banks, and their non-bank financial subsidiaries.
However, research from Phillip Capital Securities indicates that this could lead to a noticeable dip in interest income for several prominent Thai banks, especially those heavily invested in auto loans and other affected products.
Particularly impacted are Kiatnakin Phatra Financial Group (KKP) and TMBThanachart Bank (ttb), which are expected to encounter the most substantial reductions in interest income due to their lending portfolios.
In the third quarter of 2024, auto, mortgage, and SME loans comprised 77% of KKP’s total outstanding loans and 64% of ttb’s, underscoring their vulnerability to the relief measures.
In contrast, institutions such as Krungthai Bank (KTB) and Bangkok Bank (BBL) appear to be relatively insulated from the adverse impact, with the aforementioned loan types constituting only 29.8% and 31%, respectively, of their loan portfolios.
Despite the immediate financial impact, Yuanta Securities Thailand acknowledges a potential long-term benefit.
The brokerage envisions an improvement in asset quality, heralding reduced provisions for bad debt across the sector.
Kasikornbank, a major player within the Thai banking system heavily involved in mortgage and SME loans, is forecasted to achieve the most significant reduction in expected credit losses, amounting to 3.06 billion baht throughout the debt scheme's duration.
Similarly, BBL, Siam Commercial Bank, and KTB are anticipated to lower their loan-loss reserves by 2.88 billion baht, 2.27 billion baht, and 1.74 billion baht, respectively.
Moreover, institutions with substantial involvement in auto financing, like ttb, Tisco Financial Group, and KKP, are projected to benefit from ECL reductions of 705 million baht, 542 million baht, and 693 million baht, respectively.
This debt relief plan, while aimed at alleviating the financial burden of many Thai borrowers, indeed presents a double-edged sword for the banking industry.
Balancing short-term income reductions with long-term improvements in asset quality marks a significant challenge but also presents a strategic opportunity for these financial institutions to recalibrate and focus on enhancing their portfolios.
