LENDING / PROJECTED Q4 RESULTS : Reserve rules to hurt bank profits

LENDING / PROJECTED Q4 RESULTS : Reserve rules to hurt bank profits.

Most Thai banks are expected to report weaker fourth-quarter profits next week as tough new loan-loss reserve rules bite into higher loan and fee income.

A requirement for larger provisions was also likely to overshadow 2007 results as banks would for the first time have to cover all non-performing loans, analysts said.

The new rules, under International Accounting Standards 39, which require banks to set up a 100% reserve of non-performing loans (NPLs), are being phased in between the fourth quarter of 2006 and the end of 2007.

''It will not surprise anyone if banks report a sharp drop in fourth-quarter earnings due mainly to huge provisions. This will also put pressure on profits in 2007,'' said Worawat Saisuphatphol of KGI (Thailand) Securities.

Fourth-quarter earnings at second-ranked Krung Thai Bank and fifth-largest lender TMB Bank were likely to be hardest hit as they had to set aside big provisions to reach the standard, analysts said.

Market leader Bangkok Bank, Kasikornbank and Siam Commercial Bank should see less of an impact as they have enough provisions to cover additional requirements.

Brokers have cut their 2007 earnings forecasts for the Thai banking sector in the wake of the new provisioning rules, the sudden imposition last month of capital controls, and unresolved New Year's Eve attacks that killed three people in Bangkok.

''It's not looking very good this year. There are concerns, not only about bigger provisioning burdens, but the overall economic picture looks weak as well,'' said Poramet Tongbua of Tisco Securities.

Bank profit growth was expected to slow to 4.5% this year from 5% in 2006, according to a Reuters poll of 11 analysts.

''We may see a little loan growth in the first half, but I think worries should affect only the short term. If nothing worsens ... business can grow further later this year,'' Mr Worawat said.

The sector's loan growth was expected to rise by 7-8% this year from 6-7% last year, analysts said. Loans grew 7% in 2005.

On Tuesday, TMB said it would cut its 2007 loan growth target to 6-7% from 9% due to poorer economic growth prospects.

Most banks posted lower earnings in the first three quarters of last year, a trend likely to continue into the last quarter. All banks should report fourth-quarter results by Jan 19.

Bangkok Bank, valued at $5.4 billion, may report better fourth-quarter profits due to higher lending and fee incomes, analyst estimates show, but KTB is expected to post a sharp fall due to larger provisions and a lack of investment gains.

Third-ranked Siam Commercial, the top mortgage lender, was expected to post lower profit despite stronger loan growth and fee incomes, as it was seen setting aside full provisions to meet the new rules in the December quarter, analysts said.

Kasikornbank, the fourth-largest lender, should beat last year's profits on strong loan growth, and had ample loan-loss reserves to limit the impact of the new provision rules, they said.

TMB and sixth-ranked Bank of Ayudhya are forecast to be loss-making in the fourth quarter due to big provisions, while BAY has also resumed paying income tax.

Thai bank shares have dropped 5.5% so far in 2007, in line with the main Stock Exchange of Thailand index, after falling 4.3% last year. REUTERS

Bangkok Post
Sunday January 14, 2007