GSB or Government Savings Bank has reported to the Bank of Thailand that borrowers representing ฿180 billion in advances have requested an extension of the debt repayment holiday that expired in September while it moves to raise its bad loans provision to over ฿5 billion as ฿9 billion in loans are have become problematic. Despite this, however, the bank is still bullish about achieving a lending target of ฿210 billion for 2020.

Thailand’s largest home mortgage lender has had talks with the Bank of Thailand after it revealed an uptick in nonperforming loans and the need for an increased provision for bad debt following an end to a debt repayment holiday ordered by the central bank in September. The move comes amid declining profitability in Thai banks as book provisions against non-performing loans and related expenses have risen. This is likely to see a 40% reduction in commercial bank profits for 2020.

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Chatchai Sirilai, the President of the Government Savings Bank which is the kingdom’s biggest mortgage lender for homes. The bank has just announced that it is increasing its provision against bad debt as banks in Thailand see a continued rise in non-performing loans and borrowers seeking relief even after the debt repayment holiday ordered by the central bank expired in September.

There are growing signs that the ongoing contraction within the Thai economy is beginning to filter through to the financial system.

The robust nature of Thailand’s financial sector, bolstered by conservative and prudent government economic management in the runup to last year’s downturn triggered by the US-China trade war and this year’s ongoing Covid 19 catastrophe, has proven to be a bulwark so far for Thailand against the economic fallout of the crisis.

Uptick in non-performing loans continues

The Thai banking system, initially buoyed by a surge of bank deposits following the coronavirus emergency, has however now begun to see the beginning of a stronger uptick in non-performing loans which senior bankers anticipate will see a rising pattern of bad debt over the coming period.

This situation is now being thrown into relief as the bank repayment holiday ordered by the Bank of Thailand expired in September. 

In the meantime, Thailand’s government, over the coming six months, is expected to increase its level of borrowing to 57% of the country’s GDP under a recent proposal, to fund ongoing support to the economy in terms of stimulus measures to boost domestic consumption. This is just below the legally allowed limit which is set at 60% of GDP.

Government Savings Bank to increase its bad debt provision to over ฿5 billion and expects to see a slump in profits as the virus economy bites

On Tuesday, it was reported that the Bank of Thailand has had talks with Chatchai Sirilai, the President of the Government Savings Bank, the country’s biggest home mortgage lender as the bank has acknowledged its need to increase its current bad debt provisions.

The Central Bank, in a statement, said that it would also be talking to other commercial lenders as analysts are predicting that bank profits for the third quarter will see a significant slump due to rising levels of non-performing loans and a tougher interest rate environment.

Significant proportion of borrowers are requesting extended debt repayment holidays

The Government Savings Bank or GSB has reported that borrowers representing ฿180 billion in advances have requested an extension to their debt repayment holiday at this time while only ฿80 billion in outstanding debt is being repaid as normal.

The bank has warned it is concerned for ฿9 billion in outstanding loans where borrowers representing ฿4 billion have only been able to make partial repayments while loans totalling ฿5 billion have been left in a state of inertia.

The bank is projecting that it will have to increase its bad debt provision to north of ฿5 billion at this time from a current provision of ฿3.5 billion.

This is expected to impact the bank’s projected profit for the year which had been set at ฿13.5 billion.

Home loan demand remains strong, some economic sectors not impacted by the downturn – bank chief

Despite this, the bank president sounded a positive note on the economy saying that not all sectors had been so negatively impacted by the Covid 19 virus. 

He pointed in particular to continued strong demand for home loans as more Thai people get on the property ladder.

This, together with government incentives will see GSB achieve a lending target of ฿210 billion this year. The figure as of the 30th September was ฿156 billion.

Crisis not as severe as that of 1997 say bankers

Banks have consistently, this year, pointed to a significant, albeit not alarming, uptick in nonperforming loans but say it is not anything like the adverse environment generated by the 1997 Financial Crisis.

Indeed, two Thai banks, Bangkok Bank and Kasikorn Bank are still understood to be protected from the current downturn and indeed are developing banking opportunities outside Thailand.

Bank profits for 2020 in Thailand projected to be down by between 37% and 45% say analysts

Current analysts such as Tanadech Rungsrithananon, a director with UOB Kay Hian Securities have projected a drop in profits for Thai banks this year of between 37 and 45%.

Mr Tanadech expects that the drop will be as high as 42%.

Rise in non-performing loans as the tourism sector is crippled by the virus emergency and a massive 99% loss of foreign revenue which can never be recouped

The rise in non-performing loans has been attributed by analysts to the growing crisis in Thailand’s hospitality sector impacting hotels and tourism-related concerns due to the closure of Thailand to foreign tourists with a current projected revenue loss of 99% which previously amounted to ฿2 trillion last year.

This revenue is money forever lost to the Thai economy and can never be recouped.

The analysts also predict that underlying problems caused by the international Covid 19 downturn in economic activity will also impinge on the Thai economy further once the current government support programme peters out.

‘We expect bank shares to drop and NPLs to rise further in the fourth quarter of this year once the government’s measures to help people expire,’ Mr Tanadech explained.

Some years for the banking sector to recover

In summary, he predicted net profits for Thailand’s commercial banking sector in 2020 of ฿140 billion, down by 34% and the lowest in 10 years. 

Furthermore, he suggested that it was unlikely the earnings of Thailand’s banks will reach pre-pandemic levels over the next few years.

‘It will take several years for banks’ net profits to rise to ฿200 billion like in previous years, and it actually depends on banks’ methods of controlling NPLs as well,’ the analyst explained.

Slump in bank share prices predicted

A similar picture was presented by Tisco securities analyst, Tanawat Ruenbanterng, who suggested that third-quarter profits for Thai banks would drop by over 38% to ฿31.23 billion from over ฿50 billion the year before.

Not surprisingly, both experts predict a slump in bank share prices as Thailand’s prolonged period of economic uncertainty, which began last year, now looks like it will continue into 2021 with the real financial reckoning of the economic damage inflicted by the Covid 19 emergency still to be seen in the coming two quarters or even beyond.

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