We at KResearch project that net profit overall of commercial banks registered in Thailand will reach approximately THB51-52 billion in 2Q19, declining from the THB52.59 billion reported for 1Q19. Operating profit in 2Q10 may recover at a slower pace because income growth from core business of commercial banks, including interest income, plus fees and service income, hinges on a clear economic recovery, which is expected to begin during 2H19.
Although, 2Q19 loan growth in the Thai commercial banking system was not pressured by loan repayment like in 1Q19, KResearch expects that 2Q19 loans will continue to grow at a slower pace at approximately 4.7-4.9 percent, against the 5.4 percent growth recorded for 1Q19, in line with limited expansion in economic activities and the high 2Q18 base while housing loan has begun to slowdown following the enforcement of new LTV measures in April 2019.
Non-interest income may not fully recover either. Excluding a special factor, i.e., gains on investments, it is expected that non-interest income may continue to be pressured by limited recoveries in fees and service income, plus net profit from the insurance business. KResearch projects that fees and service income may decline steadily in 2Q19 although the impact of fee exemption for funds transfer has gradually eased over the past quarters.
An unstable economic recovery may affect debt servicing ability of some borrowers and this will likely add fragility to debt quality of commercial banks. As a result, many commercial banks continue to closely manage and monitor debt. We expect the NPL ratio within the commercial banking system (including Thai commercial banks and foreign commercial bank branches) may rise to a range of 2.94-2.96 percent in 2Q19, increasing slightly over 2.94 percent reported for 1Q19. However, because many commercial banks have set excess allowances at high levels, it is expected that their expenses in setting such allowances for bad debt and doubtful accounts (credit costs) may remain static at 1.10-1.17 percent in 2Q19, versus 1.09 percent in 1Q19.