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Interest income to drive banking profits

Kasikorn Research Center (K-Research) expects total net banking profits to rise to around 190 billion baht for the first nine months of this year, supported by rising interest income in line with policy rate hikes.

The centre forecasts combined net profits for the banking industry of 186-191 billion baht for the first nine months of 2023.

Net interest income (NII), a key source of revenue for the sector, should continue to grow this year in line with loan expansion, said the think tank.

The net interest margin for the industry is expected to continue increasing in the fourth quarter this year, in line with the Bank of Thailand’s policy rate hikes, according to a K-Research report.

The central bank’s Monetary Policy Committee recently raised its policy rate for a seventh consecutive meeting, rising from 0.5% in 2022 to 2.5% at present.

Banks followed the policy rate movement by increasing both deposit and loan rates.

K-Research expects third-quarter NII for the industry to increase slightly to a range of 3.14%-3.18% from the previous quarter. The marginal improvement is the result of higher financial costs for deposit mobilisation, said the research house.

“Loans in the banking industry during the third quarter are expected to grow within a limited range of 0.1%-0.3% year-on-year, in line with the country’s economic activities,” said K-Research.

Loan growth is expected to improve in the fourth quarter this year, supported by the government’s economic stimulus and the ongoing Thai economic recovery, noted the report.

Banks may need to prepare additional liquidity to address loan demand in the fourth quarter this year, given the planned economic stimulus, said K-Research.

For the fourth quarter, the research house expects banks to face more challenges to profitability amid global economic uncertainties and the uneven recovery of the Thai economy.

In addition, banks need to prepare for compliance with the Bank of Thailand’s responsible lending guidelines in 2024, which aim to improve loan quality in the Thai financial system, particularly for new loan offerings.

K-Research expects bank non-performing loans in the third quarter this year to range from 2.63% to 2.67% of the total portfolio.

Even though the industry’s credit costs are expected to decline by 1.25%-1.29% in the third quarter, they remain high compared with normal levels, said the research house.

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