Darren Buckley, Country Head, Citibank:Interview

Interview: Darren Buckley

How has the Thai banking sector been affected by the economic slowdown, and what do you expect will be its response in the short term?

DARREN BUCKLEY: The economic and political situation experienced over the past two years has obviously had some effect on the banking sector in Thailand and performance in 2014 was soft. The year began slowly coming off the back of 2013, and continued to deteriorate. Looking at direct impacts on the banking sector, credit card sales were among the first to be hit, as consumers moved to reduce spending. We have also seen a marginal increase at the industry level in delinquencies for the credit card sector, as well as larger increases for unsecured personal loans, while the auto loan segment has experienced some spillover effects from the first-time car buyer programme.

There is currently a lot of talk about the high level of household debt in Thailand, and household debt is indeed high, having now reached BT10.2trn ($307bn), more than double what it was six years ago. However, of that amount probably only 30-40% is in the commercial banking sector, and the increase in delinquencies is manageable for the major banks. The household debt increase is largely due to previous public policy that pushed money to those working in the agricultural sector, among others, and this segment represents a major portion of the increase being experienced. We have also seen a slowdown in the small and medium-sized enterprise (SME) space, as SMEs have less capacity to withstand falling sales and a decline in business activity. But again, there is nothing that is unmanageable given the high level of capital and liquidity that exists within the commercial banking system.

On the corporate side, slowdowns in business activities have also been experienced. Companies who manufacture or deliver services to domestic consumers are being impacted by the slowdown of Thailand’s export market. That being said, although exports to Europe and the US have been weak, there is a shift in export focus to ASEAN and the greater Asia-Pacific region, which is offsetting the aforementioned drop in exports to other regions.

How do you assess the current level of loan demand and loan growth in Thailand, and in what time frame do you expect it to recover?

BUCKLEY: Loan growth levels in Thailand were very high in the years 2012 and 2013, as the nation experienced rates that were largely not sustainable. Over that period of time, year-on-year growth in personal loans was 18-19%, which is very high when compared to Thailand’s GDP growth levels. However, in 2014 that growth rate was significantly lower, standing at 5%. Automotive loans in 2012 experienced around 34% growth, while in 2014 the segment experienced a contraction, with domestic sales of automobiles making the very significant drop of 40-45%.

The general expectation is that it will take a while for loan demand to return to the levels previously experienced. With heightened credit costs, greater debt and still uncertain levels of confidence backing the economy going forward, customers are slow in coming forward, while banks are not yet comfortable about getting back to levels of loan growth that were previously experienced.

However, it is important to note that this is not necessarily a bad thing, as these contractions serve to get loans back on a manageable and sustainable track. On the brighter side of things, for corporate banking the outlook is far more positive. The large companies in Thailand continue to buy, there is no deterioration in credit revenues at the corporate level, and the number of non-performing loans in the banking sector is still very low on the whole.