Banks to set aside higher reserves in Q3
Banks will continue to set high provisions in the third quarter of this year to counter increasing interest rates and the expiry of financial aid measures, experts with Trinity Securities predict.
Krung Thai Bank (KTB) agrees with this assessment and stresses the need to increase provisions cautiously due to the uncertain economic situation, higher volatility, and the elevated level of uncertainty underpinning the global and Thai economic trends. The bank believes that the provisioning trend in the third quarter is likely to be in line with the second quarter.
According to KTB president Payong Srivanich, the overall NPLs provisioning in the second quarter remains at a consistently high level compared to normal conditions. This reflects the bank's caution amid the uncertainties and higher volatility in the Thai economy, as well as the increase in interest rates and the gradual expiration of debt relief measures, which leads to higher debt burdens.
As a result, some debtors may struggle to repay their loans and become NPLs, particularly in vulnerable groups such as SMEs and individuals with personal loans.
Banks' profitability in the third quarter of this year is expected to improve thanks to higher interest income and a better net interest margin. KTB estimates that the Bank of Thailand (BOT) will raise interest rates again at its upcoming meeting in August. However, in the fourth quarter, banks’ profits are expected to decrease with higher expenditure recorded.
The overall provisioning of banks in the third and fourth quarter of this year is expected to remain high, but Trinity Securities is maintaining their profit estimation as previously calculated.
Moreover, the impact of the BOT's debt restructuring measures is likely to be minimal for commercial banks since the proportion of problematic debt with commercial banks is relatively low compared to non-commercial banks.
