Bank shares take hit as Q2 results revealed

[webfact]

Bank shares take hit as Q2 results revealed

By The Nation

 

 

The value of bank shares dropped today as financial institutions began releasing second-quarter results that were worse than expected.

 

As of July 20, the share value of Thailand’s top five banks with market capitalisation over Bt100 billion – namely Kasikorn Bank (KBank), Siam Commercial Bank (SCB), Bangkok Bank (BBL), Bank of Ayudhya (BAY) and Krungthai Bank (KTB) – fell by 3.60 per cent, 3.37 per cent, 2.74 per cent, 1.85 per cent, and 0.95 per cent, respectively.

 

The first two banks to release second-quarter results were Tisco Financial Group (Tisco) and KBank.

 

Tisco's second-quarter net profit was Bt1.33 billion, down 26 per cent year on year. The figure was 15 per cent lower than market expectation due to a net interest margin (NIM) that dropped to 4.32 per cent from 4.6 per cent in the previous quarter after the bank cut interest to help debtors.

 

Tisco's non-performing loans (NPLs) rose from 2.56 per cent in Q1 to 3.28 per cent due to the economic slowdown. The bank revealed that only 10 per cent of debtors opted to postpone their debt repayments.

 

Meanwhile, KBank's second-quarter net profit was Bt2.17 billion, down 78 per cent from the same period last year of Bt9.92 billion, while net profit in the first half of this year was Bt9.55 billion, down 52 per cent from last year’s Bt19.9 billion. The bank's NPLs at the end of June this year rose to 3.92 per cent from 3.65 per cent at the end of 2019.

 

An analyst at Kasikorn Research Centre (KResearch) said that with debt repayments hit by the economic slowdown, the proportion of NPLs to total loans is expected to increase from 3.05 per cent in the first quarter to 3.4 per cent in the second quarter.

 

"Meanwhile, credit costs to total loans will rise to 1.65-1.9 per cent from 1.46 per cent in the previous quarter due to increasing credit risks," the analyst said. "Every 0.1-per-cent rise credit cost will reduce banks' net profit by about Bt3.3 billion to Bt4 billion."

 

The analyst said that banks will plan their business strategy based on an economy hit hard this year, and it may take years for issues like debt quality to return to normal.

 

"Although the economy is likely to improve next year, NPLs are also likely to increase in the next one or two years, causing several banks to set up more allowance for doubtful accounts," the analyst said.

 

"We expect banks’ second-quarter net profit to drop by 42-52.2 per cent to Bt26.8 billion-Bt32.5 billion due to the decline in NIM [net interest margin] which we expect will drop to 2.2-2.5 per cent from 3 per cent in the first quarter.

 

Nuttachart Mekmasin, a research analyst at Trinity Securities, said the decline in bank profits showed that the Bank of Thailand (BOT)’s measure to postpone debt repayments cannot reduce NPLs because the quality of debtors who did not participate in the project has dropped sharply, adding that this factor would cause banks to pay low dividends.

 

"The consensus is that the banks will pay the same dividends as last year," he said. "However, investors may be disappointed because under the pressure of the current situation banks may not be able to match last year’s dividends, while disappointment among investors may cause the price of bank shares to drop."

 

He said the share prices would, however, not drop sharply because they were lower than the book value, adding that bank share prices are expected to fluctuate in a narrow range.

 

"We advise investors to avoid investing in this group because the dividend is likely to drop over 3 per cent," he added.

 

An analyst at Asia Plus Securities expected the NPLs to increase from 2.4 per cent at the end of 2019 to 4.7 per cent at year-end 2020, adding that the increase may spark negative sentiment for bank shares in the short term.

 

"Therefore, we advise investors to delay investment in bank shares until they announce the second-quarter performance," the analyst said. "Also, we advise following announcements on banks’ NPLs, loan classification, credit losses, and the number of debtors participating in the loan payment holiday measure."

 

Source: https://www.nationthailand.com/business/30391635

 

-- © Copyright The Nation Thailand 2020-07-21

 

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[Pedrogaz]

NPLs will be far higher than KBank's estimate......how about 15% or 20% instead of 3.4% I can see a lot of cars being repossessed, houses too and commercial properties.

[Oldie]

This is just the beginning I am afraid. NPL might reach unsustainable levels. 

[Oldie]

12 minutes ago, Pedrogaz said:

NPLs will be far higher than KBank's estimate......how about 15% or 20% instead of 3.4% I can see a lot of cars being repossessed, houses too and commercial properties.

Repossessed by whom? 

[Brunolem]

These big private banks are not the ones that generally finance consumer credits to purchase cars and motorbikes.

 

And poor people don't borrow from these banks.

 

These activities are for the most part left to state banks, that will be the ones hit by multiple defaults.

 

It is generally the car and bike dealers who take care of the repos...then it's up to them to deal with the banks afterwards...

[Oldie]

5 minutes ago, Brunolem said:

These big private banks are not the ones that generally finance consumer credits to purchase cars and motorbikes.

 

And poor people don't borrow from these banks.

 

These activities are for the most part left to state banks, that will be the ones hit by multiple defaults.

 

It is generally the car and bike dealers who take care of the repos...then it's up to them to deal with the banks afterwards...

You really think that the dealers are responsible for the credit if someone buys for instance a car on credit? 

[Cake Monster]

44 minutes ago, Oldie said:

This is just the beginning I am afraid. NPL might reach unsustainable levels. 

The main problem with NPl is the value to Debt Ratio on the banks books.

If they for instance have lent out X value of Loans and the actual value of the Collateral on those loans has fallen to an X minus value, then there is a real problem looming.

As this nightmare of Covid19 plays out over the next few Months, a clearer picture will evolve over just how much the banks in Thailand ( and elsewhere ) are into this for, and I cannot envisage a Rosy picture

being painted.

[Brunolem]

1 hour ago, Oldie said:

You really think that the dealers are responsible for the credit if someone buys for instance a car on credit? 

Representing Toyota or Honda, dealers weigh much more than Somchai in his village, who can't pay for his 30K motorbike credit.

 

What would the banks do with all these repos anyway?

 

There have been quite a few unpaid bikes in my village, and this has always been taken care of by the dealers, not the banks.

[Isaan sailor]

OK, so how can one take advantage of these NPLs?  In the courts?  Do wholesalers get into NPLs?

[Oldie]

17 minutes ago, Brunolem said:

Representing Toyota or Honda, dealers weigh much more than Somchai in his village, who can't pay for his 30K motorbike credit.

 

What would the banks do with all these repos anyway?

 

There have been quite a few unpaid bikes in my village, and this has always been taken care of by the dealers, not the banks.

So if I understand you correctly the dealers are the owners and give it to their customers on what basis? Leasing or as gift? 

[hotchilli]

7 minutes ago, Oldie said:

So if I understand you correctly the dealers are the owners and give it to their customers on what basis? Leasing or as gift? 

Not sure how it works, but if a dealer sells you a bike, maybe they somehow retain the right to reposes the bike if the buyer defaults. If the dealer takes back possession do they then own the debt?

[Oldie]

Just now, hotchilli said:

Not sure how it works, but if a dealer sells you a bike, maybe they somehow retain the right to reposes the bike if the buyer defaults. If the dealer takes back possession do they then own the debt?

Normally if the dealer sells you something he sells you something and the rest is up to you and a bank. But if the dealer gives it to you on credit then he acts like a bank. If you don't pay then it is his problem. There is no bank envolved. 

[eisfeld]

Usually it's not the dealer who provides the financing. It's specialized financing companies (some backed by a bank like for example Krungsri Auto). The dealer in these cases is not the one who owns the bike nor will they take care of the repo. The repo'd bikes end up on second hand markets like auctions. Same with repo'd houses by banks.

 

 

[hotchilli]

1 minute ago, Oldie said:

Normally if the dealer sells you something he sells you something and the rest is up to you and a bank. But if the dealer gives it to you on credit then he acts like a bank. If you don't pay then it is his problem. There is no bank envolved. 

That was my thinking, and many dealers offer credit terms for people to buy the bikes who wouldn't normally get a bank loan.

I think they're going to be hit hard this year, 

[Brunolem]

46 minutes ago, eisfeld said:

Usually it's not the dealer who provides the financing. It's specialized financing companies (some backed by a bank like for example Krungsri Auto). The dealer in these cases is not the one who owns the bike nor will they take care of the repo. The repo'd bikes end up on second hand markets like auctions. Same with repo'd houses by banks.

 

 

I have never seen a bank directly involved in a credit for a bike.

 

Dealers probably get their financing from one or a few banks, at national level, but it is them who grant the credit to their customers, and make the repo if necessary.

 

It is different with cars, probably because of the amounts involved.

 

With car credit, the buyer is directly in contact with the bank, which is in charge of the payments, and also the defaults.

[bert bloggs]

A friend of ours works for Nissan  she has just had to lay off 40 of here staff at ho ,because sales are so bad ,nobody has the money to buy ,and i guess those who bought ,just cant pay for them , i can never understand why people spend so much on cars ,one of my wifes running club was earning 45k a month ,car payment 25k ,just laid off ,crazy.

[eisfeld]

2 hours ago, Brunolem said:

I have never seen a bank directly involved in a credit for a bike.

 

Dealers probably get their financing from one or a few banks, at national level, but it is them who grant the credit to their customers, and make the repo if necessary.

 

It is different with cars, probably because of the amounts involved.

 

With car credit, the buyer is directly in contact with the bank, which is in charge of the payments, and also the defaults.

It's rare that a bank directly is involved in financing of bikes but I think it's equally rare that it's the dealer doing it. Maybe the small scooter ones are different, I'm not too familiar with them. The most common way is through specialized financing companies. There are three kinds: 1. Independent 2. Related to a bank 3. Related to the manufacturer (e.g. BMW have a special financing company in many countries).

 

Dealers don't exist on a national level. It's a franchise system and there are many franchisees.

[Baerboxer]

20 hours ago, Brunolem said:

These big private banks are not the ones that generally finance consumer credits to purchase cars and motorbikes.

 

And poor people don't borrow from these banks.

 

These activities are for the most part left to state banks, that will be the ones hit by multiple defaults.

 

It is generally the car and bike dealers who take care of the repos...then it's up to them to deal with the banks afterwards...

 

BoA/Krungsri have a department specifically concentrate on credit loans to buy cars. They always have a large stand at Motor shows in Thailand. KBank are usually there too. Tisco, mentioned in the OP are into auto finance in a big way.

 

From what has happened, sadly, to some neighbours in our Mobaan, where loans were defaulted on, it takes quite a long legal process to permit repossession and eviction. 

[stupidfarang]

21 hours ago, Oldie said:

Repossessed by whom? 

Repossession agents, I know one Thai man who has a very profitable job repossessing cars, not an easy job that is why there are 3 in a team for each job. Just like anywhere in the world there is money in repossessions