The Thai banking sector experienced rapid growth in the first quarter of 2012 on the back of significant expansion of the economy as a whole, with most banks posting increases in profits and loans.
The country’s banks posted total net profits of BT41.36bn ($1.29bn) in the first quarter of the year – an 8.9% year-on-year (y-o-y) increase. Of these, Land and Houses Bank (LH Bank) posted the largest percentage growth: 54.46% y-o-y in the first quarter of 2012.
Siam Commercial Bank (SCB) posted a y-o-y loss of 20.8% due to a one-time investment gain that stemmed from the acquisition of shares in SCB Life in March 2011. However, SCB’s profit, excluding the acquisition-related gain, was BT10.3bn ($322.19m), a 29.4% y-o-y increase and the highest net profit among the country’s banks.
Kasikornbank also grew significantly, posting a 47.2% increase in net profit for the quarter. Bangkok Bank, CIMB Thai Bank and the Bank of Ayudhya also performed well, posting profit increases of 24.97%, 22.4% and 22.2%, respectively.
The success of Thailand’s banks in the first quarter was largely supported by strong loan growth, which rose 13.9% y-o-y. Though this was lower than the 14.8% y-o-y expansion reported in the first quarter of 2011, it still shows a strong demand for loans – and a strong ability of banks to meet such demand. This growth has continued into the second quarter, with nine commercial banks posting a 15% expansion in April, contributing to a 4% rise for the first four months of the year.
Property loans, which accounted for 29% of total loans, played a large part in supporting this growth, having expanded by 15.7% in the first quarter of 2012. This was an increase on the 15.4% expansion reported in the first three months of 2011.
While demand from large corporations for loans has declined, loan demand by small and medium-sized enterprises (SMEs) increased by 14.8% y-o-y in the first quarter. LH Bank, which expanded its lending portfolio to support more SMEs, was reported to have the largest lending growth in April, at BT60.96bn ($1.89bn), up 3.72% from March. The Bank of Ayudhya, meanwhile, had the second-highest percentage growth, having increased by 2.61% between March and April.
The success of the country’s banks is largely due to wider economic growth, with the Bank of Thailand’s Monetary Policy Committee (MPC) saying in late May that it expects GDP to increase by more than the 6% it had predicted in early May – a number that had already been revised upward from 5.7%.
“The first-quarter growth was better than expected,” said Suchada Kirakul, the deputy governor of the Bank of Thailand. “There is high possibility for the economy to expand by more than 5%.”
Suchada added that increased domestic consumption and investment would be likely drivers of growth in 2012. Indeed, the bank raised its forecasts across the board for private and public consumption and investment growth in 2012: private consumption is set to increase by 5.7% y-o-y, up from the 4.5% predicted in early May; private investment is forecast to grow by 14.3%, revised up from 10.6%; public consumption is set to increase by 4.9%, revised up from 2.2%; and public investment is expected to rise by 17.9%, up from 17.7%.
It is also likely that the MPC will further raise its GDP growth estimate to reflect continued economic success in the second quarter at its meeting on June 13. However, Suchada said that growth in the second half of the year could be jeopardised by potential global effects of the sovereign debt crisis in Europe.
“There is political risk in Europe. We are not certain about the level of its impact, and this becomes a major risk,” she said.
In spite of these risks, however, it seems the banking sector will remain on a growth path for some time to come. Between the expectation of further upward revisions to the GDP growth estimate and the likelihood of further increases in lending to individuals and small businesses, the country’s banks should continue to be successful throughout 2012.