SET-listed banks are expected to deliver flat quarter-on-quarter net profits for the second quarter, with larger impairment charges for higher bad loans paring their bottom line, according to Phillip Securities.
Some banks that extended loans to a cash-strapped coal mining company are required to put aside counter-cyclical reserves this quarter, Phillip said in a research note.
"We expect the banking sector's second-quarter net profits to be flat from the first quarter, despite the prospect of continued growth in interest income," Phillip said. "However, banks' second-quarter net profits are expected to improve from the same period last year, mainly because of lower loan-loss provisions."
Coal miner Energy Earth Plc on Wednesday informed the Stock Exchange of Thailand that it defaulted on 6.55 billion baht -- 5.5 billion baht in bonds, 887 million in trust receipts and packing credit, and 160 million baht in bills of exchange. The company said it expects to default on an additional 406 million baht worth of debt this month.
Krungthai Bank and Kasikornbank (KBank) reportedly lent to Energy Earth.
The combined loans of the 10 listed banks covered by Phillip rose 0.4% month-on-month in May and 0.8% year-to-date. Seven recorded loan growth last month, with the exception of LH Financial Group Plc, Bangkok Bank (BBL) and Tisco Financial Group.
Loan growth is likely to accelerate for the rest of this year, but risk for an uptick in non-performing loans remains in the latter half.
KGI Securities said KBank had the biggest loan growth in the banking sector at 1.6% from April to May, up 2.3% year-on-year, while Siam Commercial Bank (SCB) loans grew 0.7% month-on-month in May and 1.1% for the year to date.
BBL's loans fell by 0.4% month-on-month and 1.1% year-to-date. Most banks signalled that small and medium-sized enterprise and housing loans would decline.
KBank and SCB increased their deposit base, while BBL's deposit base fell. Tisco Bank's deposits rose by 3.7% from April and 2.3% year-to-date, while its loan growth shrank last month.
With plentiful liquidity, banks were active in the interbank and bond markets in May, especially BBL and KBank.