Banking industry coverage ratios experience slowdown as lenders boost loan-loss reserves
THE COVERAGE ratio of the banking industry at the end of June declined sharply from the close of last year, following the need for higher loan-loss reserves for bad debt as the economic slowdown affected repayments by clients, and by small and medium-size
Coverage ratio is a measure of a business’s ability to meet its financial obligations.
The additional level of provisioning in the second quarter reflected the weaker debt-repayment ability of customers, which consequently dampened the profitability of the banking industry compared to the same period last year.
According to their reports to the Stock Exchange of Thailand, six out of nine banks witnessed a decline in coverage ratios between December 31 and June 30, due mainly to an increase in non-|performing loans (NPLs) |and a contraction in lending growth.
Siam Commercial Bank, Kasikornbank (KBank), TMB Bank, Tisco Financial Group, Kiatnakin Bank and CIMB Thai Bank have seen a slowdown in their coverage ratios.
The nine banks reported a combined net profit of Bt72.89 billion, up just 1.6 per cent from Bt71.73 billion in the same period last year.
As of 4.30pm yesterday, two major banks – Bangkok Bank and Krung Thai Bank – had not reported their first-half performance to the bourse.
Even though Siam Commercial Bank again posted the highest net profit, at Bt26.37 billion for the first half, its earnings were down 5.3 per cent year on year and its coverage ratio fell to 134.8 per cent compared to 138.1 per cent at the end of last year.
The bank set aside Bt5.13 billion in impairment and loan-loss provisioning for the second quarter, up from Bt3.6 billion in the prior three months, resulting in overall provisioning of Bt8.73 billion for the first half.
KBank’s coverage ratio in the first half fell to 138.13 per cent from 141.38 per cent, due to its setting aside a loan-loss reserve of Bt6 billion for the second quarter, up 51 per cent from the previous three months.
Chairman and chief executive officer Banthoon Lamsam said the banking industry had witnessed higher provisioning and a slowdown in profit growth over the period.
When the banks’ clients weakened, their clients were affected as well, as reflected in an increase in NPLs, he said, adding that the banks therefore had to set aside a higher loan-loss provision to deal with the situation.
The banks have a role to play in helping customers get through the current challenging situation, and this is especially true for SMEs, which have relatively low bargaining power, he explained.
When SME clients are in a position to recover, the banks will strengthen as well, said the head of KBank, which is the country’s biggest lender in the SME sector.
KBank adjusts
KBank has adjusted its business plan by lowering its 2015 loan-growth target to 6 per cent from 7-9 per cent, while the provisioning trend during the second half will be dependent on the circumstances of the domestic economy, he added.
Krungsri (Bank of Ayudhya) has decided to lower its full-year loan-growth target to 4-6 per cent from 7-9 per cent, even though its first-half net profit increased by 29.1 per cent to Bt8.8 billion and its coverage ratio was stable.
CIMB Thai Bank, meanwhile, underperformed in relation to its peers, as its net profit for the first half plunged by 44.32 per cent to Bt348.16 million.
On the other hand, Land and Houses Bank outperformed the industry in terms of percentage profit growth, posting 40.6 per cent.
