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Booming Thai banks wary of credit bubble

A bank employee counts Thai baht notes at Kasikornbank in Bangkok October 12, 2010. REUTERS/Sukree Sukplang
A bank employee counts Thai baht notes at Kasikornbank in Bangkok October 12, 2010. REUTERS/Sukree Sukplang

By Khettiya Jittapong

BANGKOK (Reuters) - Thailand's booming banks are warily watching for signs of a credit bubble, even as they rake up record profits on robust loan growth on the back of a strong economy.

Bangkok Bank , Thailand's largest lender by assets, said on Friday it had raised its loan loss reserve coverage to 203.3 percent of non performing loans (NPLs) in the first quarter, more than double the central bank's minimum requirement.

The Bank of Thailand has cautioned banks on rising household debt in Southeast Asia's second biggest economy, and expressed concern that cheap home loans could cause a steep rise in prices similar to that seen in Singapore and Hong Kong.

The country's leading private lenders say there are not worried about a property bubble, but concede there is a possible excess supply of condominiums along Bangkok's mass transit routes.

The country's third-largest lender by assets, Siam Commercial Bank (SCB) , said it had "prudently set aside higher provisions in the quarter as a counter-cyclical buffer against future uncertainties".

"It's our policy that when we have strong earnings, we will set aside more general reserves to help cushion risk in the future," Arthit Nanthawithaya, senior executive vice president for SCB's corporate banking, told Reuters, without elaborating.

Minutes from the April meeting of the Bank of Thailand reflected concerns about the risks to financial stability centered on household credit growth and "incipient signs of speculation" in the property market.

The government's tax rebate for first-time car buyers has led to a boom in consumer lending for cars, while low mortgage rates have spurred demand in housing projects especially in the provinces.

Although current provision levels meet the central bank's requirement, the market has speculated the central bank may impose tightening measures to curb lending to home buyers.

Some possible measures includes raising loan-to-collateral-value ratio for home buyers and increasing down payments for car buyers.

RISE IN LOAN PROVISISONS

Some major banks have adopted the central bank's macro prudential policies, including increasing counter-cyclical provisions. That has raised market concerns that such measures could limit profit growth in the next few years.

"The sector is facing pressure to limit their profit growth," said Thanachart Securities analyst Sarachada Sornsong, who recently cut earning forecasts for the sector by 3-4 percent for 2013-2015 to reflect higher credit costs and provisions.

Kasikornbank , Thailand's fourth-largest lender by assets, said it is tightening its credit lines -- lending less to small property developers, and focusing more on large-sized operators and good track record clients.

"We should take a closer look at housing loans. The number of housing units has increased sharply, while purchasing demand should not rise at the same rate," said Patchara Samalapa, executive vice president in charge of SME clients.

Bangkok Bank's senior executive vice president, Charnsak Fuangfu, said he saw no signs of a housing market bubble yet. The bank, however, has little exposure to retail clients and most of its customers are large companies.

Thai banks have performed strongly for the past four years, with the sector index rising more than 100 percent. This week, they again reported strong quarterly earnings driven by increased loan demand, from both personal borrowers and corporations, income from higher fees and a lower corporate tax rate.

Bangkok Bank and Kasikornbank both beat expectations on Friday, reporting increases in quarterly net profit of 7.8 percent and 12.4 percent respectively.

Krung Thai Bank , Thailand's second-largest lender by assets, is expected to report a 40 percent rise in quarterly net profit on Monday, while the country's fifth-largest lender, Bank of Ayudhya , posted an 18 percent rise.

The government's infrastructure investments will be a catalyst for loan growth in the next few years, say analysts, and the sector will also get a boost from a lower corporate tax rate of 20 percent this year, down from 23 percent in 2012.

(Additional reporting by Manunphattr Dhanananphorn; Editing by Jeremy Laurence)

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