Retail offers banks a lifeline
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Retail customers offer a silver lining for banks amid tepid demand in corporate lending and the fragile state of small and medium-sized enterprises (SMEs), says Kasikorn Research Center (KResearch).
Lending to individual customers in 2017 is expected to continue to outshine overall loan growth and the traditional mainstay of Thai lenders — commercial loans — said the research unit of Kasikornbank (KBank) in a report.
KResearch forecasts 5.5% growth in retail loans this year, compared with 3% in commercial loans and 4% in overall lending.
Over the past few years, retail lending also grew at a faster pace than overall and commercial loans. Retail loans rose by 6.2% in 2015 and 4.5% in 2016, well above 2.9% and 1.5%, respectively, for commercial loans those two years and 4.0% and 2.5% for overall lending, according to KResearch data.
Thai banks’ exposure to retail loans is expected to climb to 35% this year from 34.5% last year, with SME loans steady at 39.7%, said the report. The share of large corporate loans or so-called wholesale banking is projected to fall to 25.3% from 25.8%.
As Thailand’s economy has struggled with subpar growth since 2013, it is not a surprise banks have pushed into the retail banking business — mortgages, credit cards and personal loans in particular — as companies’ investment projects have stalled. Companies have also turned to debt instruments to raise capital because of low interest rates.
Retail banking business offers a better profit margin than corporate loans, but carries lower default risks than loans to SMEs struggling with the uneven economic turnaround.
Moreover, retail borrowers, white-collar workers in particular, on average have seen their income continue to grow slowly, while the unemployment rate remains low at less than 1%.
“We expect retail lending will deliver the strongest growth in that segment this year as large corporates move toward the capital market for fund mobilisation, while only a handful of banks, especially large lenders, have expertise in SMEs lending,” said Thanyalak Vacharachaisurapol, deputy managing director of KResearch.
“KResearch forecasts 5.5% growth in retail loans this year, compared with 3% in commercial loans and 4% in overall lending.”
“Even though retail loan growth is expected to increase at a fast clip, overall lending will only record single-digit growth as banks remains cautious amid high household leverage. However, the end of the lock-up period for the first-time car buyer scheme will add to consumer purchasing power this year.”
The lock-up period is five years for most cars bought under the excise tax rebate scheme. KResearch estimates some 320,000 car owners, representing 30% of those in the first-time car buyer scheme, will have their lock-up period end this year, and some may consider replacing their cars.
Auto-hire purchase is expected drive retail lending growth this year, said the report.
KResearch predicts auto loans will expand 3% this year, up from zero last year, while housing loans — accounting for more than half of retail lending — are expected to grow steadily at 7%.
Although banks will likely focus on retail banking business this year, lenders’ focus areas will be diverse, said the report.
Krungthai Bank (KTB) and Siam Commercial Bank plan to pay more attention to the wealth customer segment to offset fee-based income expected to be hit by PromptPay, electronic money transfer under the government’s national e-payment scheme.
KTB, the country’s second-largest lender by total assets, aims to increase assets under management (AUM) for wealthy clients by 25% this year from 600 billion baht. Its provincial customer base is the bank’s strength for expanding both its wealthy client numbers and its AUM.
KBank, the country’s fourth-largest lender by assets, set a total loan growth target of 4-6% and retail loan growth of 5-7%, with mortgages contributing the highest growth among other retail lending.
Bank of Ayudhya (BAY) targets double-digit growth for its retail banking business this year compared with total loan growth of 6-8%. The bank recorded the highest loan growth among its industry peers last year at 11.2%, with retail blazing the trail, increasing 15.9%.
Questions & Answers
Q.Why are banks shifting their focus towards retail banking services?
Why are banks shifting their focus towards retail banking services?
Banks are moving into retail banking, particularly mortgages, credit cards and personal loans, because corporate investment projects have stalled. Retail banking also offers better profit margins and lower default risks compared to loans for SMEs.
Q.Which specific types of retail loans are expected to drive growth this year?
Which specific types of retail loans are expected to drive growth this year?
Auto loans are expected to drive retail lending growth this year, predicted to expand by 3%. Housing loans, which constitute over half of retail lending, are also forecast to grow steadily at 7%.
Q.What is the anticipated impact of the first-time car buyer scheme's lock-up period ending?
What is the anticipated impact of the first-time car buyer scheme's lock-up period ending?
The end of the lock-up period for the first-time car buyer scheme is expected to boost consumer purchasing power. KResearch estimates 320,000 car owners, 30% of the scheme's participants, may consider replacing their vehicles.
Q.How do banks plan to address the expected hit to fee-based income from PromptPay?
How do banks plan to address the expected hit to fee-based income from PromptPay?
Banks like Krungthai Bank and Siam Commercial Bank plan to pay more attention to the wealth customer segment. This strategy aims to offset the anticipated reduction in fee-based income caused by PromptPay, the electronic money transfer scheme.
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