Banking Sector: the Toxic ECL

Perhaps unsurprisingly, the big 5 banks announced the drop in profit in 3Q20 as they have set aside higher expected credit loss (ECL) in this quarter. 

 

As the payment holiday to support customers affected by Covid-19 outbreak ended this month, banks have to set aside higher ECL to cope with the uncertain outlook including non-performing loan (NPL).

 

Despite Thailand having an effective curbing the outbreak of Covid-19, public spending has yet to recover, carrying out an increased trend of debtors who are unable to repay their loans. Therefore, to avoid an unexpected economic situation, each bank has to set up high allowances for ECL.

 

TMB Bank Public Company Limited (TMB) has set aside expected credit loss (ECL) of 6,863 million baht, increased from 4,972 million baht of the previous quarter, reflecting the net profit to drop by 23.3% YoY to 1,619 million baht.

   

The Siam Commercial Bank Public Company Limited (SCB) set aside expected credit loss (ECL) as high as 12,955 million baht, causing the 3Q net profit down to 4,641 million baht, an decrease of 68.6% YoY (if excluding income of SCB Life Assurance Pcl, net profit would drop by 56% YoY).

 

Bangkok Bank Public Company Limited (BBL) has downgraded its ECL to 5,668 million baht in 3Q20, but net profit still sank by 57.4% YoY to 4,017 million baht.

 

Kasikornbank Public Company Limited (KBANK) also decreased its ECL from 20,192 million baht in 2Q20 to 10,815 million baht, affecting net profit to decline by 32.8% YoY to 6,679 million baht.

 

Meanwhile Krung Thai Bank Public Company Limited (KTB) has set up ECL of 12,414 million baht, leading a 3Q20 net profit to drop by 51.9% YoY to 3,057 million baht. 

 

As of result, most banks have been facing a low profit with high allowances for ECL. Overall, a high ECL also reflects high potential to cope with an uncertain future after the payment holiday ends.