TMBThanachart Bank Public Company Limited (TTB-R.BK) Earnings Call Transcript & Summary

Hello, everyone. Good afternoon, and welcome to TTB presentations for the first quarter result 2023. I am Dararat, Head of Investor Relations. And beside me, we have Khun Piti Tantakasem, our CEO; and CFO Khun Somkid Preechasammakul; and last but not least, Khun Naris Aruksakunwong, Head of Strategy. We will do as usual. So we start with the presentations, Piti, Khun Somkid and Khun Naris will take you through the details and highlight of this quarter. And with that, I will hand over to CEO for opening the session.

First of all, thank you for your time. I would like to start from recap the plan for this year. As you all know, this is the year where there will be transitory risk of a lot of things. We are moving toward rising rate environment. It is the year that Central Bank will start to charge the deposit guarantee and FIDF fee normally. By year-end, it will be the end of forbearance. We are moving toward the global, maybe my recession, to resolve the rate rise. On TTB, we are managing toward the new business transformation to realize the benefit from the synergy. Provided a lot of things happening as you can see from the results on the next page. The results came out very much in line and respond very well to the plan that we put together. First, the loan growth. As we are moving toward higher inflation environment, and we are moving toward the year-end that BoT should lift all the forbearance provided to the bank. So we have to manage loan growth very selectively and very carefully. So the intent for this year is not to heavily grow the loan but to continue to grow loan with quality and to change the loan mix so that we do not need to aggressively grow the loan but can still enjoy the higher yield and also benefit from the rising rate environment. On the deposit, in fact, if we do not need to grow the loan that much, we should not need to grow deposit as well. But because of the rising risk on the global level, as you noticed from the situation of global bank, we believe that it is safe to have more liquidity rather than less. So we still continue to grow deposit to the level that it might be a bit too liquid, but not far too liquid just to be safe on this volatile environment. By doing that prefund being more liquid -- a bit more liquid than we won and change the loan mix, you can see that our net interest margin improved in the range that we expect and should continue to grow based on this strategy. On the non-NII, it remains a challenge. But with the fee ecosystem that we will explain further on the progress. You can see that in the longer term, our business model will be changing towards a more diversified fee income, which can give us more sustainable growth of fee income. By doing that strategy very selective on what we are going to do, we can continue to manage our costs very well. The cost discipline remain the key under this kind of volatile environment. But it does not mean that we will hold back the necessary investment. So at the end, this cost-to-income ratio still remain within the guideline that we expect to see. On the asset quality, based on the strategy that I mentioned, is where we will improve the result of conservatism play -- give back the benefit that we expect. And we already managed asset quality along the line. So we believe that this is on the downtrend of the risk cost because we premanaged everything not to wait until the end of forbearance. As a result, credit costs continue to come down to 127 basis points versus prior level. And with all this strategy putting together, you can see that our profit year-on-year growth continue to grow very strongly without the need to increase risk to our balance sheet. Yes. So may I pass to Khun Somkid, our CFO, to walk you through a more detailed number.

Good afternoon, all. It's my pleasure to be here in the session. I think everyone has seen our numbers from last week's financial statement announcement. So I may not go in too much detail, just a key highlight of H1 and allow you to review it at the Q&A session. Starting from this page showing the loan growth. Our loan growth year-to-date is minus 1.3%. However, it's by design, most of the drop coming from the loan yield segment, which is the commercial one, why -- the high-yield product, which is the strategy products, for example, home equity, cash your car and personal loans still showed growth of 3% to 4% year-to-date. On the auto loan and the home loan, which is one of the big loan in our portfolio is on a flat side. More softer booking does equal to the repayment in this quarter. Next page would show the deposit segment. This is still continuing of the pre-fund strategy, which we have executed since mid of last year. One of the number proven is the movement of the TD from 15% of the portfolio to 17% by the end of last year and 19% in this quarter. However, the CASA still has slightly increased from 40% of the portfolio to 41%. So this -- and the average of the LDR is 97%, improved from last year, which slightly above 100%. And on the next page would show the total assets and key compositions. This is just to have the transparent on what we have in the portfolio, especially on the investment following the key happenings in the Western financial markets apart from the loan of almost THB 1.4 trillion. We have the investment around 10% and most of it in the forms of the HtC&S. We also invest most of it in the government bond, which is 88% after HtC&S. So that would show that our portfolio on the investment is quite low risk. And that 10% portion is almost the same as the peer level. Apart from the portfolio quality, the right one showing the liquidity level, which in this quarter, we reserve a little bit more than the average of 180% last year to be about 199%, almost 2x of the BoT requirement. So this is just to give you the comfort under our balance sheet healthy. And on the NIM movement, since this year, FIDF returned to 46 basis points from last year of 23 basis points. So the key -- that would be the key composition to make our drop from 3.1% to about 3.08% in this quarter. However, comparing to this quarter last year, we improved around 17 basis points, thanks to the rising rate environment that made this new movement. If we dissect the 17 basis point year-on-year movement, earning asset price has contributed around 50 basis points -- 5-0 basis points, while the deposit costs including the FIDF contribute around 40 basis points, and we have the earning asset mix towards the higher yield caution, another 6 basis points. So that will be the composition of where 17 basis points coming from. And the next page would show the key movement over the past 6 quarters. You may see that the blue bar, which is the interest income movement start to increase, especially from third quarter last year where the repo rates start to increase about 50 basis points until now. While the orange bar is the movement of the interest expense, you may see that the right one is [ 1.2, start to ] -- more down the interest income movement, however, about 800 is coming from the FIDF while the real interest expense increase is only 400. So we expect this second quarter to be returned to the blue bar still higher than the orange one. On the next page will be on the non-NII movement. Just to remind, last quarter, we have the external item, which is the gain from the AT1 buyback around THB 463 million. That would make our fee -- total NII dropped 16% Q-on-Q. However, if we exclude such AT1 gains, actually, our non-NII income would be flat, but take into the fee income, it shows 4% year-on-year. One of the things is the BA start to revolve 11% year-on-year. However, the [ mutual ] fund still got the impact from the market sentiment, which has not favored us yet, right? And the next one, I think would show the operating expense, the right graph. The C/I ratio, we reduced to about 43%. However, as you all know that Q1 is by seasonal, it's the lowest spending. So I think that's -- that drop would not make us be comforted to at the end of the year. The strong expense control is still -- has to be done and may I pass to Page 13, which show the last component of the PL, which is the ECL and credit costs. As you may know that our NPL flow has been improved and Stage 3 ratio right now was at around 2.7%, which is the lower bound of the guidelines that we gave to you around -- not more than 2.9%. And that's made a credit cost comes to the lower bound of the guidance of 127 basis points as well. This reduced in terms of baht, 11% year-on-year and also 11% Q-on-Q. In details of the portfolio quality, I would share more in the next section on the asset quality parts. And the conclusions of the net profit on the right graph, which is THB 4.3 billion and ROE improved to 7.9%, 1.8% improving from this time of last year. And the next page show the capital, the strong capital positions, especially since the merger. Right now, the Tier 1 ratio is increasing to about 16.2% and the capital ratio is about 19.9%, one of the highest in the industry. All right. May I move to the next section, which is the asset quality parts. From the total loan portfolios, since the modified portfolios, back in December 2020, we have about 20%. Right now, it's reduced half, only to 11%. And in terms of compositions, the light modified term or equivalent to the Orange scheme by the BoT is 7% by the medium but the deep modified term or the Blue scheme of the BoT is only 4%. And we have observed that the customer has requested for the support from the bank less and lesser and those who ever ask for the support start to be back to normal. So we have the room to be more prudent on this part of the portfolio, proven by the next page, which is the post relief schemes. You may see that there's certain criterias from the Stage 1 and 2. Previously mostly, we put into Stage 1. But right now, we start to do the prudent guidelines and tightening it and start to have to put them into the 1 and 2, while scheme 3, which proposed the principle. We start to put them in Stage 2 and 3 and the rest scheme 5 and 6, mostly we put into the Stage 3. On top of that, on the accrued interest from these groups, we put -- already put 100% of the management overlay to all the modified portfolios. So right now, only those who never ask for the modified portfolios or initial part from the bank, we do not -- we -- that we did not have the management overlay for that portions, okay? And also proven by the next page, that comparing the setting versus the DPD on the blue bar, which is the stage by the DPD, you may see that if counting only did they pass through, the Stage 1 will be around 94%. However, the gray one, which is the real setting in our balance sheet. We downgraded certain parts of the -- group of the customer that we see it's necessary. So we have only the stage 1 of about 88%. The gap of around 5%, 6% is coming from the qualitative downgrade. And the next page will show the composition of the balance sheet that right now, we have Stage 1 up to 90%; Stage 2, around 7%; and Stage 3 around 2.7%. And that would drive Stage 2 ratio down to 2.69%. And the next page shows the LLR ratio, which is moving to about 140%. And the last page is the accrued interest, which we still sit under a very conservative approach. Right now, you may see that the interest -- accrued interest of the first quarter may be slightly higher from last one. Partly is from the accrued interest from the contract rate that is higher from the M-rate hikes [indiscernible] still on a very conservative one. And comparing to the peak period in third quarter 2020, we still lowered that by 11%. Yes. I think that would be my key point on this quarter performance. So may I pass to Khun Naris to tell you on the strategy update.

Thank you, and good afternoon, everyone. So on strategy update, we continue on the execution of the strategic road map that we communicated in investor earlier and have been essentially focusing on 5 themes. The first 1 is the continuation from the merger transaction. We -- as we discussed last time, we continue to focus on revenue synergy realization. Number two and number three is essentially a change in our business model. We want to be more digital focused as well as we want to capture the opportunities from looking at the ecosystem point of view rather than focusing on 1 product or 1 group of customers at that time. And if we successfully manage to execute that, hopefully, we also see significant improvement in terms of efficiency gain and also would imply a change, a significant change in our organization structure, our talent and capacity planning. So moving on to the next page. Just a quick update on our synergy realization. I think -- let's focus on the revenue synergy part. We see improvement from the previous quarter, especially around enhancement of our unsecured lending business. When we look at the new booking of our CYC and CYH product, which I think as we discussed last time, one of the strategic products that we would like to focus on. We see over 40% increase year-on-year on the new booking volume, also the credit card spending as well as the loan drawdown of our flash card and [ CYC ] product also show significant improvement year-on-year. And lastly, as discussed, one of the key revenue enabler of our revenue engine would be on the digital sales, especially around personalization capability. In quarter 1, the personalization account for about 30% of our digital sales. So I think that capability on our mobile banking app to communicate to the customer segment often gradually show promising results. Moving on to the next page. Just a quick recap. I think the underlying thinking that we try to achieve is to shift from I think what you may call a branch-first thinking into more of a digital-first and hopefully in selected areas, digital-only. If you look at the first column, I think this is a continuation since the completion of the merger transaction. We gradually ramp down our physical footprint, I think partly due to the overlap of the 2 footprint before the merger. However, when we look ahead, I think further ramping down of the physical footprint will need to come from the migration of the customer traffic and the transaction volume onto our digital channel. When we look at the medium column, I think -- first, I think the digital penetration has shown promising growth. When we look at the active customer as of quarter 1, we see digital penetration around 78%. Also in terms of the digital service, I think we see healthy growth around document requests, which I think we try to forecast as the first priority in terms of migrating the volume from branch onto the mobile banking platform. On digital sales, I think -- still, I think, our work is in progress, but we see very healthy channel mix around mutual fund as well as the unsecured lending. And lastly, on the right-hand side, I think more and more, we will plan to launch product, digital or lease. I think currently, we have a deposit product that's called ME Save, which offer slightly higher interest rate compared to other products, and this is a digital-only product, meaning the customer need to open the account via our mobile banking app. Also, I think, in light of our ecosystem play, I think we try to offer more one-stop service widget on our mobile banking app that target customer that we want to serve, especially the car owner, homeowner as well as the salaryman. Moving on, I think you've seen the overall ramp-up of our mobile banking before. I think as of now, I think we -- we are reaching the 1-year anniversary next month when we first launched a new platform. As you can see from the bar chart, I think, across all metrics, the new platform show a very promising result and a healthy growth rate that show more and more customers using the platform as well as the level of activities and engagement that we get with the customer. On the next page, I think, similar to what we discussed, I think one of the key upside that we expect to get from the new mobile banking platform would be the migration of the service transaction from branch to the mobile banking. I think as of today, still maybe around 20% of the volume happening via mobile banking. However, given the new capability that we launched, we see very healthy growth in many dimension, as I mentioned previously. Next, also on the digital sales, I think very strong momentum that we observed. For example, around the deposit, you see that Q-on-Q growth on the deposit account opening in quarter 1, we see 55% Q-on-Q growth. And that's largely driven by the ME Save product that I mentioned earlier that we see high adoption of the customer. And hence, it drives the number of account opening from 29,000 in Q4 last year to 45,000 in Q1 this year. Moving on. I think as we discussed last time for 2023, it would be quite a busy year for the bank, given many ongoing initiatives that we plan to launch. Based on our original time line, I think what we plan to launch in Q1 and Q2, essentially the new release of the mobile banking application, the second release, which I'll share with you on the next page in terms of the key functionalities. Also, we have launched the digital platform that would help the customer save, called Roddonjai. I think this is the initial MVP stage that is in the process of ramping up. But again, I will show you a quick update in terms of the progress that we have made. And lastly, we have also released a widget that called My Tax, which essentially help the customer do the tax planning and tax management part together with the release of the second version of mobile banking application. So on the next page, just a quick recap in terms of the capabilities. Again, this is an enhancement to what we have launched last year [indiscernible] so just to highlight some of the new capability with the new version. It comes with the face authentication technology that would help using the face authentication for the important flows that would enhance the security of the application. Again, I think, for some of you may have heard about new BoT regulation. I think that would be even on top of what we have to offer. So there would be another new release coming up in June that would comply with the BoT regulation. On top, we also shipped the capability to open a new account for existing customer, and that could be through the branch network in terms of the authentication if needed or it could also be the third-party kiosk as well to offer the higher convenience to the customer. Another key capability would be around -- relying on the statement for apply loan flow. This would allow the customer in case that they have statement with other bank, then the mobile banking would have the capability to connect directly with other bank and retrieve the statement from other banks so that TTB can underwrite the loan better and faster. Also, the credit card feature, we now offer the ability for the customer to really customize how the credit card be used. Again, this is in line with the tightened security that we want to offer peace of mind to the customer. Given that I think some of the pattern that we have observed is the function that may not be used frequently by the customer. And hence, customers can now look into mobile banking and turn off the usage for overseas, for example. And lastly, customer can now retrieve the tax document directly via their mobile banking app. So that now they don't need to go to branch, to active branch, look how to print out the document for them anymore. Next, just a quick recap on our car ecosystem play. As we discussed last time, car ecosystem would be the top priority for this bank. Originally, we have launched what we call My Car widget, which offer the one-stop service for our car owner that our customer of the bank, trying to address the end-to-end needs. We have seen a significant ramp-up in terms of the number of cars on the platform. As of today, there are about 420,000 cars on the platform already. And we try to add more and more functionalities to the customers so that it offers more convenience and higher ease of use. For example, now the customer can now apply for the CYC loan, cash your car loan via the My Car widget. Also, we have had the insurance buy capability so that the customer can buy new insurance or renew their existing insurance directly via My Car widget. On the right-hand side is a new platform. As I mentioned earlier, called Roddonjai. This 1 essentially is the online marketplace that would allow the end consumer to export the used car auction better. And at the same time, I think for our used car dealer partners, we have partnered with many hundreds of them and essentially offer them the capability to move their inventory from off-line location that they operate to the online marketplace on Roddonjai, essentially a win-win situation for the bank, given that we can serve our retail customers better. We can offer the car loan to the customer better and also a win-win customer for our used car dealer because now they can have their digital capabilities to also compete with the start-up that may try to disrupt them. Moving on to the last part, just a quick update on the salaryman ecosystem. So we have gradually ramped up the acquisition engine on our salaryman ecosystem. As you can see on the left-hand side, the number of payroll company acquisition has gone up about 27% compared to the historical rate. At the same time, in terms of the welfare loan booking, also a significant increase over our historical run rate. Given that now we want to bring in more and more salaryman into our ecosystem. On the right-hand side, we have launched a tax management widget on our mobile banking called My Tax. I think the thinking is if we already process the payroll for the customer, we already know quite a bit in terms of their total income for the year and may even be the withholding tax. And if they buy the tax-deductible products like life insurance or mutual fund from our mobile banking, then in fact, we already know a lot from the tax management point of view for the customer already. So why not try to make it very convenient for the customer by offering something that the customer can simulate their tax plan and can also buy product that help deduct the tax even better. So I think that's the thinking that why we come up with this product is already called live in production. So hopefully, one of the key enabler that would help us address the payroll ecosystem better. So I think that's it in terms of the quick update on strategy execution. I'll pass back to Khun Dararat.

Thank you, Khun Naris.