No. 63/2021 Performance of the Thai Banking System in the Second Quarter of 2021 Ms. Suwannee Jatsadasak, Senior Director, of , reported on the Thai banking system’s performance in the second quarter of 2021 that the Thai banking system remained resilient with high levels of capital fund, loan loss provision and liquidity to cushion economic impacts from COVID-19 pandemic as well as play an important role in facilitating assistances for borrowers in need and accommodating loan demand. Credit assistance measures, coupled with revisions to rules on loan classification and provisioning helped alleviate the deterioration of bank loan quality. Meanwhile, banking system’s profitability improved from the same period last year due mainly to lower provisioning expenses as set aside high levels of provision in the previous year. Details are as follows: Capital Fund of the Thai banking system was at 3,038.1 billion baht, equivalent to capital adequacy ratio (BIS ratio) of 20.0%. Loan loss provision remained high at 851.5 billion baht with NPL coverage ratio of 152.2%. Liquidity coverage ratio (LCR) registered at 186.7%. In the second quarter of 2021, banks’ overall loan growth was 3.7% year-on-year, slightly lower than 3.8% in the previous quarter. Details on bank loan are as follows: Corporate loan growth decelerated to 2.6% year-on-year due to an increase in large corporates’1 loan usage during the second quarter of last year when financial markets were volatile, causing funding switch from corporate bond issuances to bank loan. Furthermore, there was also an increase in funding from corporate bond issuances in this quarter. SME loans2 improved and registered positive year-on-year growth partly owing to soft loan and rehabilitation credit scheme. Consumer loans expanded at 5.7% year-on-year, increasing from 5.3% year-on-year growth rate in the previous quarter. The expansion was mainly attributed to mortgage loan, which continued to grow, consistent with an increase in demand for low-rise properties. Auto loan growth, on the other hand, slightly declined in line with a reduction in domestic car sales from the previous quarter. At the same time, credit card loan expanded at a lower rate due to a lower level of

1 Corporates with a credit line of more than 500 million baht with a bank as of June 2021. 2 Corporates with a credit line not exceeding 500 million baht with a bank as of June 2021. credit card spending compared to the previous quarter, partly consequent of restrictions on economic activities before the recent lockdown measure. Meanwhile, personal loan grew at a higher rate, in parts from an increase in welfare loans, following an increase in households’ liquidity need. Bank loan quality in the second quarter of 2021 continued to be supported by financial assistance as well as revisions to rules on loan classification. As a result, the gross non-performing loan (NPL or stage 3) outstanding slightly increased to 545.5 billion baht, equivalent to NPL ratio of 3.09%. Meanwhile, the ratio of loans with significant increase in credit risk (SICR or stage 2) to total loans registered at 6.34%, declining from 6.42% in the previous quarter. The banking system recorded net profit of 60.4 billion baht in the second quarter of 2021, increasing from the same quarter last year by 72.1%3. This was mainly attributed to a decline in provisioning expenses as banks had already set aside an elevated level of provision in 2020, together with higher non-interest income arising from dividend income and fee income. Compared to the previous quarter, net profit adjusted for the extraordinary items rose. This was due to an increase in dividend income and net interest income from an increase in interest revenue from loan expansion. Consequently, the ratio of return on asset (ROA) went up to 1.08% (or 0.89%4 after adjusting for the extraordinary item) in this quarter, from 0.81% in the previous quarter. At the same time, the ratio of net interest income to average interest-earning assets (Net Interest Margin: NIM) registered at 2.46%, at par with the previous quarter’s NIM of 2.43%. The merger between TMB Bank and to TMBThanachart Bank (TTB) was completed on July 5, 2021. TTB hence becomes a larger bank, having greater connectedness with the rest of the banking system and provides a greater volume of essential financial services such as loans, deposits, payment transactions as well as servicing a larger number of customers. As a result, this year TTB is identified as one of domestic systemically important banks (D-SIBs) in addition to the existing 5 D-SIBs, namely Bank, Krung Thai Bank, , , and the . All D-SIBs are robust, maintaining capital ratios significantly above the level prescribed by the .

Bank of Thailand August 23, 2021

For further information, please contact: Banking Risk Assessment Division and Prudential Regulation 1 Tel: +66 2283 5980 and +66 2283 5874 (D-SIBs) Email: [email protected]

3 The year-on-year change after adjusting for extraordinary items from gains on investments from the sales of shares in a subsidiary company in Q2/2021 and interest income from loan in relation to partial payment from the auction of mortgaged guarantee assets in Q2/2020. 4 After adjusting for extraordinary items from gains on investments from the sales of shares in a subsidiary company in Q2/2021 Performance of the Thai Banking System in the Second Quarter of 2021 23 August 2021 Overall Performance of the Thai Banking System in the Second Quarter of 2021

 NPL ratio remained stable under credit assistance  The Thai banking system schemes and revisions to rules on loan classification. remained resilient with high levels of capital fund, liquidity and loan loss Bank provision. resilience Loan quality

Loan growth Profitability

 Total loan growth slightly moderated from a slower growth  Banking system’s profitability increased in corporate loan, partly due to an increase in loan usage compared to the same period last year during the second quarter of last year. Meanwhile, SME loan due to lower provisioning expenses and registered positive growth in this quarter. higher non-interest income from dividend  Consumer loan expanded at a higher rate, predominantly and fee income. from mortgage and personal loan.

2 / 13 The Thai banking system’s capital fund, loan loss provision and liquidity remained at high levels.

Capital fund Loan loss provision to NPL Liquidity Coverage Ratio Loan to deposit ratio (BIS ratio) (NPL coverage ratio) (LCR) (L/D ratio)

20.0% 152.2% 186.7% 92.9% BIS ratio remained stable Loan loss provision increased LCR remained stable L/D ratio increased at a high level

 Capital buffer was built up  Banks increased their provisions  All banks continued to  Loan and deposit continued mainly through profit against potential deterioration maintain high levels of LCR to expand. Deposit grew appropriation, while the risk in loan quality, resulting from above the minimum mainly from savings deposit by weighted asset increased COVID-19. requirement of 100%. retail depositors and proportionally. government.

Note: Definition of NPL coverage ratio was revised in accordance to TFRS 9: before Q1/2020 : Loan loss provision (principle only) / NPL outstanding (principle only) after Q1/2020 : Loan loss provision (loan principle + accrued interest + contingent liability) / NPL outstanding (principle + accrued interest). 3 / 13 Bank loan expanded at a slightly slower pace due to funding switch in 20Q2 from bond issuances to bank loans, coupled with an increase in funding from bond issuances this quarter. Meanwhile, the economy registered positive growth from last year’s low base.

2017 2018 2019 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2

%yoy %yoy %yoy 12.4 9.6 7.5 7.7 7.5 7.0 6.0 5.1 6.0 4.2 4.2 4.4 4.1 5.0 4.6 3.8 3.7 4.5 3.8 2.3 2.0 1.2

-2.1 -2.6 -4.2 -6.4

-12.1 Real GDP Bank loan Bond

Note: Growth rate compared to the same period last year 4 / 13 Bank loan expanded at a slightly lower rate due to a slower growth in large corporate loan. SME loan improved and consumer loan continued to expand.

Bank loan growth Loan growth classified by loan portfolios Corporate loan growth classified by size %yoy Trillion baht %yoy Trillion baht %yoy Trillion baht 6 16 15 12 20 6 (32.9%) (22.8%) 5 (64.5%) (35.5%) 5 3.8 12 10 9

6.7 Millions

Millions 10 4 5.7 Millions 4 5.3 3.7 3 8 5 3.0 6 3 3.7 2.6 2 0 -0.8 0.7 2 4 0 3 -1.3 1 -4.0 1 -5 0 0 0 -10 excluding soft loan and rehabilitation loan 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 19 20 21 19 20 21 19 20 21 Corporate outstanding (RHS) Consumer outstanding (RHS) outstanding (≤500 MB) (RHS) outstanding (>500 MB) (RHS) Outstanding (RHS) %YoY Corporate (%YoY) Consumer (%YoY) Credit line ≤500 MB* (%YoY) Credit line >500 MB* (%YoY)

Corporate loan expanded yoy at a lower rate Large corporate loan growth moderated owing to an The growth rate of bank loan slightly increase in loan usage last year as well as an increase due to a high base, while the outstanding declined from the previous quarter, in funding from bond issuances this quarter. SMEs’ loan amount increased from the last quarter. mainly due to corporate loan. positive loan growth was partly attributed to soft loan Consumer loan continued to expand. and rehabilitation credit scheme.

Note: Growth rate compared to the same period last year | *Corporates with a credit line with a bank (excluding financial business) | A number in parentheses indicates share of total loans.5 / 13 Consumer loan expanded, mainly from mortgage and personal loan.

Consumer loan growth Mortgage (17.7%) Auto (8.1%) %yoy %yoy %yoy Trillion baht Trillion baht Trillion baht 30 3 15 12 6 1.2 6.8 6.8 10 15 2 8 5.7 4 0 5 1.2 5.3 Millions 0.6 1 4 2 -15 0 -30 0 -5 1.0 0.0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 19 20 21 19 20 21 Residential transfer value in 19 20 21 Bangkok and vicinity (%YoY) Outstanding (RHS) %YoY Outstanding (RHS) %YoY %YoY

 Mortgage loan continued to grow, consistent with an increase in Credit card (1.7%) Personal (8.0%) demand for low-rise properties. %yoy Trillion baht %yoy Trillion baht  Auto loan growth slightly declined in line with a reduction in 15 0.3 20 5.98.4 1.4 domestic car sales from the previous quarter. 10 6.6 10

5 Millions 0 0.7  Lower credit card loan growth was due to a lower level of credit card 5.0 0 -10 spending, partly consequent of restrictions on economic activities -5 0.0 -20 0.0 before the recent lockdown measure. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2  Personal loan expanded at a higher rate, partly from an increase 19 20 21 19 20 21 Outstanding (RHS) in welfare loans, following an increase in households’ liquidity Outstanding (RHS) %YoY Private consumption index (%YoY) need. %YoY Note: Growth rate compared to the same period last year | A number in parentheses indicates share of total loans. 6 / 13 NPL (or stage 3) amount increased while total loans continued to grow. This resulted in a stable NPL ratio under credit assistance measures and revisions to rules on loan classification.

Stage 3 (NPL) and Stage 2 of total loan Stage 3 classified by loan portfolios Stage 3 of corporate loan classified by size % % % 12 7.69 7.49 6 8 7.14 7.03 6.62 7.14 6.42 6.34 6 8 4 3.17 3.17 2.74 2.79 2.56 2.59 4 2.92 2.92 4 2.94 2.95 3.01 2.98 3.04 3.09 3.14 3.12 3.10 3.09 2 2 2.53 2.52 0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 19 20 21 19 20 21 19 20 21 Stage 3 (NPL) Stage 2* (from Jan 20) Corporate Consumer Credit line ≤500 MB Credit line >500 MB

*According to the new accounting regulations (TFRS9), stage 2 is defined as loans with significant increase in credit risk (SICR), having a wider coverage than SM. 7 / 13 The quality of consumer loan (measured by NPL or stage 3) slightly deteriorated, except for mortgage loan. Mortgage Auto % % 15 15 9.65 10.51 6.65 9.62 9.18 9.51 9.75 6.03 5.66 5.81 7.43 10 5.30 5.45 10 6.90 7.30 7.42 1.67 1.78 1.82 1.89 4.04 4.04 3.88 3.78 5 3.35 3.34 3.49 3.71 3.74 3.66 5 1.71 1.82 1.86 1.86 2.09 1.88 1.58 1.44 1.56 1.61 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 19 20 21 19 20 21 Stage 3 Stage 2* (from Jan 20) Stage 3 Stage 2* (from Jan 20) Credit card Personal % % 15 15 8.54 8.96 7.60 7.43 7.30 6.52 6.53 10 10 6.03 6.03 6.25 5.85 5.60

1.80 1.91 1.94 1.97 2.26 2.31 2.18 2.30 5 3.50 3.04 3.51 5 2.67 2.48 2.65 2.41 3.00 2.42 2.38 2.56 2.42 2.36 2.33 2.61 2.45 2.26 2.38 2.46 2.47 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 19 20 21 19 20 21 Stage 3 Stage 2* (from Jan 20) Stage 3 Stage 2* (from Jan 20)

*According to the new accounting regulations (TFRS9), stage 2 is defined as loans with significant increase in credit risk (SICR), having a wider coverage than SM. 8 / 13 The banking sector recorded higher net profit compared to the second quarter of last year from lower provisioning expenses after the elevated level of provision last year.

Net interest income Operating profit Financial ratios Billion Billion Baht %yoy Baht %yoy -2.0% 9.8% 504 522 500 (3.4%)* 484 398 405

138 NIM 2.43% 2.46% - 131 128 125 124 128 130 111 90 74 96 121

18 19 20 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 18 19 20 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 ROA 0.81% 1.08% 0.89% Provisioning expenses Net profit Billion Billion ROE 5.68% 7.62% 6.26% Baht %yoy Baht %yoy 271 86.5% 230 -30.6% (72.1%)* 207 21Q1 21Q2 21Q2 (excluding 163 146 149 extraordinary 49 72 59 50 42 50 70 44 60 32 27 17 items) 18 19 20 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 18 19 20 20Q1 20Q2 20Q3 20Q4 21Q1 21Q2

Note: Numbers in parentheses represent year-on-year growth rate after adjusting for extraordinary items from the recognition of gains on investments from the sales of shares in a subsidiary company in Q2/2021 and interest income from loan in relation to partial payment from the auction of mortgaged guarantee assets in Q2/2020 9 / 13 Development in financial rehabilitation measures as of August 16, 2021

Number of debtors Average credit line Rehabilitation Loan Approved loan amount under loan scheme 92,316 MB 30,194 debtors 3.1 MB/debtor Well-distributed by size, business sector and region by existing credit lines New debtors New debtors 42.6% 67.5% 68.5% of debtors are small of debtors are in of debtors are from businesses commerce and service provincial areas. (existing credit lines not sectors. exceeding 5 MB)

by debtors by credit line Debtors (%) Debtors (%) Debtors (%) Number of debtors under Debt Restructuring through Approved loan amount the scheme Asset Warehousing* 10,511 MB 65 debtors Financial institutions and debtors have to negotiate the terms and conditions. Many entrepreneurs have shown interests and are in the process of negotiating with financial institutions. Note: Related laws on tax benefits and bad debt disposal for operations under asset warehousing scheme have been effective from July 14, 2021 onwards. 10 / 13 Development in credit assistance from financial institutions

Credit assistance

Bilion Baht Financial institutions’ loan under assistance 10,000 7,195 8,000 6,884 6,897 6,656 6,038 5,669 6,000 5,117 4,656 4,835 3,803 3,869 4,000 3,700 3,178 3,210 3,287 2,000

0

Jul-20

Jan-21

Apr-20 Apr-21

Jun-20 Jun-21

Oct-20

Aug-20

Mar-21

Sep-20 Feb-21

Dec-20

Nov-20

May-20 May-21 Corporate SMEs Retail consumers Total loan under relief measures Number of accounts under assistance (Million accounts) July 2020 June 2021 Total 12.52 5.00 Large corporates 0.03 0.02 SMEs 1.17 0.44 Retail consumers 11.31 4.55

11 / 13 The result of this year’s assessment on Domestic Systemically Important Banks: D-SIBs The merger between TMB Bank and Thanachart Bank to TMBThanachart Bank (TTB) resulted in TTB being identified as one of domestic systemically important banks (D-SIBs) this year.

Indicators for identifying D-SIBs Merger

Interconnectedness with Key providers of payment system Complexity of products Size other financial institutions / Number of depositors D-SIBs from 2017 New D-SIBs in 2021

All D-SIBs are robust, maintaining capital ratios significantly above the level prescribed by the BOT.

12 / 13 Key takeaways

Thai banking system remained resilient with high levels of capital fund, liquidity and loan loss provision to cushion 1 economic impacts from COVID-19 pandemic as well as play an important role in facilitating assistances for borrowers in need.

The loan quality remained stable, partly due to revisions to rules on loan classification and assistance measures. However, there is a sign of increasing vulnerability, especially in consumer 2 loan. Going forward, debtors would likely require continued assistance following the prolonged and widespread impact of COVID-19 outbreak.

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