Credit costs surge for Thai banks amidst mounting tech challenges and non-performing loans

Three banks witness unexpected cost increases despite efforts to reduce expenditures

In 2024 and continuing into 2025, Thailand’s major banks faced persistent challenges, including technical issues with mobile apps and a mounting number of bad loans.

Despite their efforts to curtail costs, Siam Commercial Bank X (SCBX), Kasikornbank (KBank), and Krung Thai Bank (KTB) encountered pressures on credit costs throughout 2024.

Analysts from UOB Kay Hian, Tanaporn Visaruthaphong and assistant analyst Thanawat Thangchadakorn, highlighted these challenges faced by the banks.

During 2023, all three banks experienced an uptick in credit costs, contrary to their targets. KBank, for instance, witnessed a rise of 11 basis points (bp) to 219 bp, significantly surpassing its target range of 140 to 160 bp.

Similarly, SCB, the conventional banking unit of SCBX, exceeded its targeted credit costs for 2023, reaching 182 basis points (bp).

Krung Thai Bank (KTB) also faced a similar situation, with credit costs escalating to 199 bp by the end of the fourth quarter. This surge was notable compared to its previous figures, standing at 124 bp in the third quarter and 115 bp in Q4 2022.

SCB Urged to Overhaul Mobile Banking App

Siam Commercial Bank (SCB) faces mounting pressure to address persistent technical difficulties plaguing its mobile banking application, prompting analysts to recommend a comprehensive overhaul of the platform.

According to analysts Visaruthaphong and Thangchadakorn, SCB’s mobile banking app registered the highest number of “failures” in 2023, totaling 26 incidents.

The app’s performance issues are particularly acute at the end and beginning of each month, notably coinciding with payroll dates.

“In our assessment, SCB must allocate resources to revamp its mobile banking application, which may result in increased operational expenses,” noted Visaruthaphong and Thangchadakorn.

They also suggested a scenario wherein the bank undertakes a complete overhaul of its banking system, albeit at potentially higher costs and an elevated cost-to-income ratio.

On a positive front, SCB has reportedly resolved issues within its credit card business, notably those arising during the client migration process to its new system.

Analysts anticipate improved confidence from SCB regarding credit costs associated with its credit card operations in 2024.

“We anticipate a better credit cost performance in the credit card business compared to 2023,” remarked Visaruthaphong and Thangchadakorn, offering a hopeful outlook for SCB’s future endeavors.

KBank Faces Uphill Battle in Achieving Normal Credit Costs Target

Kasikornbank (KBank) of Thailand faces significant hurdles in attaining its goal of normalizing credit costs by 2025, according to analysts.

KBank’s management aims to normalize credit costs within the range of 140 to 160 basis points (bps) by 2025, primarily through continued reduction of loans to small and medium enterprises (SMEs).

However, in the fourth quarter of 2023, KBank experienced weakness in asset quality, with its non-performing loan (NPL) ratio climbing to 3.19%, accompanied by a rise in credit costs to 219 bps.

This uptick was driven by a 6% increase in provision expenses, as highlighted by Visaruthaphong and Thangchadakorn.

“We anticipate that credit costs will remain elevated in 2024, making normalization within the specified timeframe challenging.

We foresee pressures on KBANK’s credit costs and asset quality due to potential deterioration in the SME segment,” noted Visaruthaphong and Thangchadakorn in their latest company report on KBank.

Despite this, the analysts acknowledged KBANK’s ongoing efforts to clean up its portfolio, particularly its cautious approach towards lending unsecured loans unless it has adequately prepared the system and assessed the risk.

“As a result, we anticipate that credit costs in the credit card business will persist at elevated levels, necessitating close monitoring and prudence from KBank in 2024,” they concluded.

Rising Bad Loans Pose Concern for Krung Thai Bank

Analysts Visaruthaphong and Thangchadakorn have raised alarms over the deteriorating asset quality of Krung Thai Bank (THB) following the bank’s significant miss on Q4 profit estimates.

Krung Thai Bank reported a stark 25% contraction in net profits for Q4, in contrast to the anticipated 34% year-on-year increase.

This unexpected decline was attributed to heightened provision expenses, as the bank braces for negative impacts from one of its corporate clients and related entities, anticipating credit deterioration.

The challenges faced by THB extended beyond a single client, with the emergence of new non-performing loans (NPL) increasing to 2% in Q4, up from 0.8% in Q3. Analysts cautioned of potential further write-offs in the future, posing a threat to earnings.

While the overall asset quality of THB remains relatively robust, the surge in provision expenses has sparked concerns regarding asset quality, according to Visaruthaphong and Thangchadakorn.

Additionally, there are apprehensions about the credit deterioration of another corporate client, compounding the bank’s challenges.

The analysts also highlighted local news reports indicating a high probability of bond redemption default among certain entities, particularly in the construction industry.

This sector faces significant strain due to the postponement of the national budget from October 2023 to May 2024, exacerbating its vulnerability.

These developments underscore the mounting pressure on Krung Thai Bank as it navigates through a challenging economic landscape, grappling with rising bad loans and uncertainties in key sectors of the economy.

Greg Swanson
Greg Swanson
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