In the third quarter of 2020, the Thai economy has slightly improved from the previous quarter after the government gradually relaxed measures to prevent the spread of coronavirus disease (Covid-19). The level of Thai exports and imports passed the lowest point after businesses around the world reopened. At the same time, manufacturing production, private consumption and private investment, as well as domestic tourism continue to improve after people gradually returned to their normal lives. The government has also accelerated spending and issued additional measures to stimulate the economy this year, leading to increases in public spending and investment, and becoming one of the key driving forces of economic recovery. Nonetheless the second outbreak of Covid-19 in many countries continues to be the main risk factor for Thailand in the future.
The government and the Bank of Thailand (BOT) have continuously launched a series of measures to mitigate the negative economic impacts from the pandemic on individuals and businesses in various sectors. While some measures will gradually come to an end, the BOT has continued to discuss the situation with financial institutions to systematically and appropriately support various debtor segments facing financial difficulties. In this regard, the Bank continues to maintain its prudent approach towards credit underwriting and risk management, while closely monitor the customer segments situation until the Covid-19 is resolved. The Bank is also committed to be a ?puen koo kit? (trusted partner) to get through this crisis and move forward together.
Bangkok Bank and its subsidiaries reported a net profit of Baht 14,783 million for the nine months of 2020
In the nine months of 2020, Bangkok Bank and its subsidiaries reported a net profit of Baht 14,783 million including the net profit of PT Bank Permata Tbk (Permata) since the date of its acquisition on May 20, 2020. The Bank?s net profit decreased from the same period last year primarily due to additional reserves set aside for expected credit losses in line with prudent management. The reserves are to provide a cushion against uncertainty from the economic contraction resulting from the impacts of the Covid-19 pandemic.
Net interest income rose by 7.2 percent resulting from the addition of Permata?s net interest income. The net interest margin stood at 2.28 percent. Non-interest income decreased mainly due to lower net fees and service income and revenue from investments. Operating expenses increased by 17.6 percent from the same period last year due to the consolidation of Permata?s operating expenses and the provision expenses related to Indonesia branches integration. The cost to income ratio was 52.0 percent.
Amid global economic contraction, Bangkok Bank continues its prudent approach toward business management while maintaining a sound financial position, liquidity and capital reserves to support financial sustainability and be prepared to move forward to the ?New Normal?
At the end of September 2020, the Bank?s loans amounted to Baht 2,367,296 million, an increase of 0.6 percent from the end of June 2020, due to an increase in loans to businesses and consumer loans. The ratio of non-performing loans to total loans was 4.1 percent while the ratio of loan loss reserves to non-performing loans was at a strong level of 178.0 percent. The Bank continues to maintain close control of credit underwriting and risk management and has set aside an appropriate level of provisions against expected credit loss.
In terms of capital and liquidity, as of September 30, 2020, the Bank?s deposits amounted to Baht 2,821,883 million, a decrease of 1.1 percent from the end of June 2020. The loan to deposit ratio was 83.9 percent, reflecting an adequate liquidity position to cushion against economic uncertainties. Furthermore, the Bank issued USD 750 million in additional Tier 1 Subordinated Notes under Basel III regulations on September 23, 2020, to strengthen the Bank?s capital structure. At the end of September 2020, the total capital adequacy ratio, Tier 1 capital adequacy ratio and Common Equity Tier 1 capital adequacy ratio of the Bank and its subsidiaries were 17.6 percent, 15.1 percent, and 14.2 percent respectively, comfortably above the BOT?s minimum capital requirements.
The acquisition and additional investments of Bangkok Bank
Bangkok Bank conducted a mandatory tender offer (MTO) for the remaining shares in Permata in accordance with the applicable laws and regulations of Indonesia, which was completed on October 7, 2020. The Bank owns 98.71 percent of the total issued and paid-up shares in Permata. On September 17, 2020, Bangkok Bank purchased additional ordinary shares in BSL Leasing Company Limited (the Company), increasing shareholding proportion from 35.9 percent to 90.0 percent, which has made the Company a subsidiary company of the Bank.
Implementation of new financial reporting standards (group of financial instruments)
The Bank and its subsidiaries adopted the TFRS 9 from January 1, 2020 onwards, without restating previous financial statements. The principal changes can be summarized into classification and measurement of financial assets and liabilities, calculation of impairment using the concept of expected credit loss, hedge accounting, and the change in recognition of interest income from loans using the effective interest rate (EIR) method.