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Business

Big Thai banks back to profit in 2016

GDP seen up in 2017 but slow export growth, digital disruption pose challenges

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The Thai economy is seen growing up to 4% this year, which could help banks’ earnings.   © Reuters

BANGKOK -- Major Thai banks fought back to post a combined net profit growth in 2016 thanks to a marginally better economy, but their outlook remain conservative, with some citing challenges such as slow export recovery and digital disruption.

According to stock exchange filings, the combined net profit of the country's top four lenders -- namely Bangkok Bank,Krung Thai Bank, Siam Commercial Bank and Kasikornbank -- was 151.87 billion baht ($4.31 billion) in 2016, up 2% year-on-year. This was a welcome change from 2015 when net profit fell for the first time in seven years.

Nonperforming loan levels improved, marking a 17% rise on the year, compared with 33% the year before, which led to a smaller increase in impairment losses on loans and debt securities.

Government infrastructure projects including major railways and road constructions helped lift the economy. The nation's gross domestic product is expected to have recovered slightly to an estimated 3% growth from 2.8% the previous year.

This year, infrastructure projects will still be the main growth driver while recovering agriculture prices will likely push up farmers' income. The government and analysts project GDP to expand at a greater pace, with some forecasting a growth of as much as 4%.

Although this would be a significant recovery from the 0.8% growth in 2014, when the current military government staged a coup, bankers are not getting over-excited.

"The economy would be better than last year but it won't be much better," Arthid Nanthawithaya, president of third largest lender Siam Commercial Bank, told reporters. "We would just be entering the recovery phase," he said, adding that the bank was targeting loan growth of 4-6% this year, compared with last year's 5.8% growth.

Arthid said that adding to global uncertainties that could hinder the recovery of exports, digital disruption was another challenge for banks. He said that Siam Commercial has earmarked 40 billion baht for technology investment over three years, the largest scale of investment in the bank's history.

Thailand will launch a new national e-payment solution called "Prompt Pay" on Jan. 27 which enables users to transfer money online by only using their mobile phone number. Transaction fees would be lower than conventional internet banking.

For banks, this would mean lower fee income, as well as tougher competition, as consumers would be able to open only one account with their mobile number.

Arthid plans to invest heavily in the system to provide "security and stability" that would hopefully help woo clients to open accounts at Siam Commercial Bank.

Payong Srivanich, the new chief executive of second largest lender Krung Thai Bank also presented a cautious view for the current year. "Nonperforming loans will remain on the rise until the second quarter of the year due to the trend of the economy," he said. The state-owned bank had posted the highest NPL ratio among major banks in 2016 due to a larger exposure to small and mid-size firms companies at a time when lending was falling.

On the positive side, an analyst at Maybank Kim Eng suggested that the Bank of Thailand could move to raise interest rates this year in line with possible hikes from the U.S. Federal Reserve. "This would allow banks to charge higher interest rates to its clients," the analyst said.

The BOT has kept interest rates steady at 1.5% since April 2015. In addition, the low-yield environment last year turned many companies to the bond market but this year, they could return to banks for funding, the analyst said.

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