Although 3Q19 earnings of Thai commercial banks show that the Thai commercial banking system overall has been able to maintain profitability from extraordinary items, cut expenses from setting aside reserves and undertake efficient cost management, KResearch has assessed that the sluggish Thai economy will continue to pressure growth of their core business income, in particular net interest income. We expect that net interest income will increase slightly by approximately 0.7 percent YoY in 3Q19, pressured by decelerated loan growth, declines in MRR and MOR, plus interest expenses after many commercial banks raised interest rates for fixed deposits and some savings deposits during 1H19.
In addition, although fees and service income of commercial banks may grow around 4.6 percent YoY in 3Q19 (against the rebound of 1.1 percent YoY reported for 2Q19), such an increase is due primarily to the low 3Q18 base. Given this, commercial banks have been trying to bolster fee income from other sources to offset the shortfall in income resulting from fee waiver for money transfers through digital channels.
Meanwhile, the anemic Thai economy has forced a number of commercial banks to keep an eye on asset quality problem. KResearch expects that the NPL ratio of the Thai commercial banking system (Thai commercial banks and foreign commercial bank branches) will increase to a range of 2.97-3.02 percent in 3Q19, over the 2.95 percent pace reported for 2Q19. However, since many commercial banks have steadily set aside relatively high reserves, it is expected that the expenses in setting aside reserves may decline to approximately THB32.18 billion during 3Q19.
For 4Q19, KResearch expects that earnings of Thai commercial banks may hinge on the recovery of loan drawdown and fee income, supported by year-end seasonal factors, such as insurance brokerage and credit card fees.