If you look at the big picture,Bad debt“The commercial banking system (banks) and non-banks tend to remain at a “high level” on a continuous basis, which reflects the first half of 2024.”10 Commercial Bank“In Thailand there is”sit aside“High” at 119 billion baht, up nearly 12% after uncertainty over the economic impact remained “fragile”.
The “bad debt reserve” or the debt that sets aside expected credit losses of commercial banks acts as a “safety island” for banks to deal with crises. Unforeseen events effectively support the deterioration of debt quality of debtors. Especially in an economic downturn, it may have the effect of reducing debt payments for all categories of debtors.
Recently, it can be seen that the Bank of Thailand (BoT) has a policy or encourages commercial banks to build up more reserves. If you start to see that a debtor is starting to have problems paying some installments. Although you have not yet become a bad debtor or non-performing loans. Or it is a vulnerable industry and may be affected by various uncertain factors. That commercial banks should be vigilant and “guard their guard” by setting up more reserves especially debtors in the second stage group whose ability to repay their debts has deteriorated.
Therefore, it can be seen that the bad debts in the commercial banking system in large enterprises, the Commerce Bank said that medium-sized enterprises and small and medium-sized enterprises increased in the first quarter of 2024, partly due to the increase in the level of debt provisions and the calculation of debtors to be in the group that is already suffering from bad debts. Even if the debtor is able to repay the debt or operate normally and can repay the debt normally, but with the severe situation abroad or in the country, it has increased and may cause the quality of the debtor to deteriorate.
Bad debt provisions have increased. Or in the event of uncertain future events that will affect the debtor, it is considered a good thing. Because in business times or the debtor already has a problem. Banking may be less affected. This makes the bank strong and able to support crises or impacts that may occur in the future.
Half-year bad debt reserves rise 12%
For the performance of the group of commercial banks in the second quarter and the first half of 2024 of 10 commercial banks, such as Bangkok Bank (BBL), Krung Thai Bank (KTB), Kasikorn Bank (KBANK), SCB X Group (SCB), Bank of Ayudhya (BAY), Thai Military Thanchart Bank (TTB), Kiatnaken Phatra Bank (KKP), Tesco Bank (TISCO), Land and Homes Bank (LHFG), CIMB Bank of Thailand (CIMBT)
Total bad debt reserves for the second quarter stood at 61,900 million baht, up 7.05% from the previous quarter. The bank with the largest increase in reserves in the second quarter of this year was Kiatnaken Phatra Bank, which increased by 190% to 1,769 million baht, followed by Tesco, whose bad debt reserves increased by 46.24% to 408 million baht and its bad debt reserves rose by 21.49% to 10,426 million baht, while Savings and Credit Bank increased
During the half-year cycle, banks as a whole set aside a total of 119,722 million baht for bad debts, up 11.59%. The bank that set aside the most for the half-year was Tesco, whose bad debt reserves increased by 663% to 678 million baht, Krongri’s bad debt reserves rose by 76% or 24,088 million baht, TTB’s debt reserves increased by 22.03% to 10,397 million baht, and Bangkok Bank’s reserves rose by 9.53% to 19,007 million baht.
Most commercial banks with increased reserves set aside most of the reserves from the type of debtors that may deteriorate. From the economic situation that may become more fragile and set higher reserves due to the pressure caused by high levels of household debt. This may lead to a weakening of the debtor's ability to repay his debts, which may decline in the future.
Reserves are rising, reflecting the shift of bad debts into the system.
Bad debt provisions mainly increased. This is consistent with the “bad debt” situation in the banking system that increased in the first half of the year, and bad debts of all ten banks rose to 534.789 million baht, up 4.59% from 511.318 million baht, such as Bangkok Bank. Bad loans rose by 15.34%, Krungsri Bank by 18.69%, and Kiatnakin Phatra Bank by 23%.
Kasikornthai-SCBX monitors debtors' wallets
Mr. Pepit Ancaniti, General Manager of Kasikorn Bank said that in the second half of the year, the banking business continued to face challenges. From the volatile economy and uncertainty, as a result, the bank will focus more on controlling the quality of loans in the second half of the year. Until the first half of the year, the bank will set reserves at a high level. To absorb the uncertainty and in the current economic situation, banks must closely monitor. The bank itself must follow up with the bank's customers. To help support and help more customers return to doing business
Mr. Athit Nanthawithaya, CEO of SCB Bank There is still no significant recovery trend. Therefore, the company attaches importance to conducting business “carefully” and emphasizing financial stability. Maintaining reserves at an appropriate level.
In addition, the company will be more cautious during the remainder of this year. Especially the risks from asset quality that may spread from low-income groups among individual customers to the broader economy. The first priority is to carefully monitor the strength of the balance sheet, reduce risks, and strive for good growth.
The company has taken a cautious approach to its leasehold loan exposure. It anticipated structural changes in the industry ahead of time. Hence, reducing risks and deprioritizing this portfolio. This strategy is paying off.
Aeon has established strict reserves at a high level.
Mr. Nanthawat Chutiwijit, Chief Marketing Officer of AEON Thana Sinsap (Thailand) or AEONTS, revealed the trend of bad debt provisions for non-banking businesses in general in the second quarter of this year and the rest of this year. It depends on the quality management of each company's customer portfolio. Most of them still maintain strict bad debt provisions, and “remain” at a high level, as was the case in the previous quarter.
Due to BoT measures, there is assistance for debtors with chronic debt problems (PD), and the new minimum installment payment for credit cards has been increased from the original 5% to 8%, causing non-banking companies to continue to operate cautiously. Emphasizing the quality of portfolio management, however, it is clear that if BoT adjusts the new minimum installment payment for credit cards. It could actually return to its original level of 5%, which would help ease the bad debt provisions. Meanwhile, household debt remains at a normal high level as before.
For the company, the debt provisioning trend in Q2 of this year is expected to remain “stable” since Q1 of this year following strict portfolio management to control non-performing loans and the majority of the customer base remains in the middle to low income bracket. As a result, the reserve to non-performing loans (Coverage Ratio) remains at a level of at least 100%, similar to the non-performing loans, and is expected to remain stable at the same level as last quarter at 5.4%, which is still holding up well.
KTC sets additional reserves on a prudent basis.
Ms. Pitaya Worapanyasakul, CEO of Krungthai Card or KTC, said that in the consolidated financial statements of the group of companies for the first half of the year, additional reserves were set aside according to the principle of caution. Accepting the fluctuations that may occur in the future, but the company's non-performing loans are 1.97%, credit card non-performing loans are 1.42%, personal non-performing loans are 2.21%, and the total non-performing loans are lower than the industry, so the company still has sufficient reserves. The non-performing loan coverage ratio reaches a strong level of 363.3%
“In the second quarter, the overall performance of KTC and the Group of Companies was stable. From the still uncertain domestic economic situation. Consumers are spending carefully, although the amount of card spending has increased, but it is spent on the necessities of life. At the same time, the personal loan portfolio expanded only slightly. From the problem of household debt at a higher rate along with strict loan approval criteria. As for the quality of the Group’s portfolio, the company is still well managed.
Muang Thai is strict in giving loans.
Mr. Paritat Vittampai, deputy general manager of Muangthai Capital Company (MTC), said the company’s debt collection is efficient. The outlook for the second quarter of this year is expected to be able to achieve the set targets. As a result, the reserve profile remains within the target range with a reserve-to-non-performing loan ratio of no less than 100% and a non-performing loan ratio of no more than 3.20% in the first quarter of last year. The reserve-to-non-performing loan ratio was 120% and the non-performing loan ratio was 3.03%.
The trends in the third and fourth quarters, the company estimates that they are still in line with the targets set by the company. There is a loan portfolio growing at the level of 15-20%, a coverage ratio of not less than 100%, and non-performing loans not exceeding 3.20%, with a focus on managing the granting of secured loans and tightening the granting of unsecured loans.
“Kasikorn Securities notes that non-banking groups are placing high reserves.
Mr. Kornkut Sautkhrotmat, Director of Securities Analysis Department, Kasikorn Securities, said that in non-banking businesses, the trends in debt provisions in the second quarter of 2024 are expected to remain at a high level, not different from the previous quarter, due to 4 main reasons: 1. If interpreted from the group, banks' balance sheets and analysts' opinions at the meeting still see a difficult situation in debt collection and lending 2. The relief measures that have expired since the end of last year. It is likely to have an impact on the decline in debts for vulnerable customers.
3. Higher minimum credit card payments should have a direct impact on the bad loans in the credit card pool. And indirectly with other leasing customers. 4. Losses from seized vehicles may start to increase again. The number of seized vehicles is likely to increase.