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

Hi, good afternoon, everyone, and welcome to TTB presentations for second quarter results. I think we just released differential we saw last week. And today, we would like to have more discussion with investors and analysts with our senior executive here with me. On my right-hand side, Khun Piti Tantakasem and CFO, and last but not least, Khun Naris Aruksakunwong. So as usual, we will start with the presentations. After that, we will open for a Q&A. So with that, I over to Khun Piti for opening the sessions.

Yes, instead of boring you with all the details, let me use the financial highlight as an opening page, and we move to the next page. Yes, let's wrap up on this page. This is a guidance that we gave out during the beginning of the year. Let me update with the number here. Loan growth, deposit growth, I suggested at the beginning of the year that is no need for TTB to grow bottom line by trying to put for the loan growth because I believe that this is going to be a challenging year to grow the asset. So we should try to recycle what we have bought on the loan repayment from corporate, from existing loans like home loan or auto loan and recycle liquidity and capital to grow loan that have better risk-adjusted return based on the synergy that we have after the integration. So that's still the objective of this year's strategy. So you can see that we can grow a bit of loan growth in the second quarter comparing to the first quarter. But year-on-year, we still have negative loan growth. But we can -- by using that strategy, we can grow our margin and bottom line. At this point, our net interest margin already beat the target that we expect for the year. And I believe that the trend will continue. I have no plan to adjust the target. The target is the target. But I think this is the area that we should be able to beat the target for this year, which we already beat by the end of second quarter. However, we think that it will be very challenge to grow the loan up to 3%, and we should not push for achieving those goal at the expense of compromising risk return, eating up capital without necessity. The next area would be the fee income on non-NII growth. We see some improvement. But I think throughout the year, it will remain to be very challenged because we are in the process of adjusting our income structure on fee income fully [ liaise ] bancassurance and mutual fund. I think we successfully transformed that, but the speed that we can replace the new revenue engine, mainly credit card business to the players, the big engine from bancassurance and MF, mutual fund, would take a bit of time. But we'll see promising result, which should continue into the third and fourth quarter, whereby the old engine, mutual fund, in particular, should remain a challenge because of the market outlook throughout the globe that is not quite -- still not quite promising. So there's -- on that conservative approach, this is the area that we already achieved and we think that we should be able to beat this without any negative surprise in Q3 and Q4, which is the Stage 3 and risk cost. We are already beat this Stage 3 target without the need to grow the loan, meaning that we can really manage now how problematic asset of the NPL Stage 3 without the need to expand loans and improve the ratio because of a bigger risk, we have managed to reduce the asset itself by write-off sale and manage the improvement. So you can see that our credit cost now already in the low end, and we are pretty sure that the credit cost, we would be able to achieve within the range that we gave you earlier. So with this strategy, we have the bottom line already better than planned. You can see that the year-on-year growth is close to 34%. So we will continue with this strategy throughout the year to deliver a good result to shareholders by not taking excessive risk or too much risk given the market situation that we are facing right now, both locally and globally. Thank you. So may I pass to Khun Somkid, our CFO, to walk you through the details of the first half and second quarter.

Thank you, Piti. Good afternoon, everyone. So as that we start from the loan page, we have the loan go down 0.4% Q-on-Q. This is quite in line with what we have shared in the last call at the beginning of the year that we do not expect any high loan growth during the sensitive period. And in the second quarter, we [ escalate ] excess liquidity really quite meant to the high yield loan under target key focus loan and you may see in the key products that we have focused, including CYC, CYH, personal loan on the credit card, which in the range of 4% to 7% growth Q-on-Q. In the next page, we'll show the deposit, which is more or less in the same pace as loan growth. By end of June, we have the deposit around THB 1.4 trillion. And the mix, 40% CASA are almost unchanged from the last quarter, but we may see the TD has about 3% mix higher than the first quarter. And under that TD is the flagship of the Up and Up we use it to a deeper relationship with existing customers and the customer sees the product proposition. So the shift would gets to that Up and Up and ME Saving. And from the loan and deposit mix, we may go to Page 8, that has the NIM and loan and cost of deposit movement. In the second quarter, we have the NIM of 3.18%, 10 basis points higher from the last quarter and the yield improved about 14 basis points while the cost of deposit grew only 6 basis points Q-on-Q. And in the next page, you can see that on the right-hand side that the blue bar is the change in the interest income, while the orange one is the increase in the deposit cost. The gap between interest income and expense is about THB 600 million in this quarter. And the next page would be on the non-NII. As you may see from the heading that it's still challenging on the fee recovery. Overall, we may have the growth of 9% Q-on-Q, but coming from one-offs, which is dividend income and IP fee, while the transactional or the recurring fee, so as a faster challenging, BA started to grow 3% Q-on-Q and the credit card -- this is the first quarter that we break the credit card fee in detail in the fee page. The credit card also has a 3% Q-on-Q growth, while the mutual fund or trade and FX that has negative market sentiment has the negative growth. And from the income to the next page that we have the C/I, we still keep the C/I ratio at 44% in the range of the target this year. The expense starts to resume from the seasonal and after activity in the middle of the year. And may I pass to Page 13 that has the [ re cost ] . In the second quarter, we have the [ re cost ] to the loan about 125 basis points. In terms of the part at the same range to -- comparing to the first quarter, which is about THB 4.2 billion. And if I pass to Page 16 modified portfolio that slightly dropped to about 11% of the total portfolio and the composition is 7% on the Orange scheme, which is the term extension and grace period, while the Blue scheme has remained at 4%. And in these compositions, mostly it's still coming from the Scheme 2 and the second one is in Scheme 3. And we still continue under stringent credit control, and we may see in the Page 18 that the right one, DPD. If we're looking at the DPD perspective, then we have the Stage 1 of our 93.5, but we implemented or input qualitative factors. And we reduced the Stage 1 to be 88.3, which means that Stage 1 is the real Stage 1 in our portfolio and Stage 2 would be higher than only PL DPD [indiscernible]. Even though we keep reducing the Stage 3 business in Page 19 that right now, the Stage 3 reduced -- on the declining trend, and it ends at 2.63% versus 2.69% in the last quarter, so 6 basis points down Q-on-Q. And that would -- has the benefit on the LLR ratio as well in the next page that we have the LLR ratio improved to be 144%. And this is the five consecutive quarter that we keep improving our LLR. And towards last year, we have the 6% improvement. And the last but not least on the next page is the accrued interest. If you're a big fan of TTB, you would know that we keep very conservative on booking the accrued interest. And in the last quarter, it's quite flat. And the only thing would move the accrued interest at this point onwards would be on the brought off the loan balance or the growth of the rate -- of the contact rate that would make the accrued interest improve. But otherwise, it should keep at the same level as this point in time. I think that's the end of key financial highlights in the second quarter. So may I pass to Khun Naris on the strategy update.

Good afternoon, everyone. So update on the strategy execution. In the past quarter, I think overall, we still maintained the direction that we communicated earlier, essentially focusing on five strategic themes. So these are the revenue synergy realization. I think one of the pending synergy area that we are working on, also focus a lot in terms of digital as the enabler for us to build engagement as well as to drive synergy capturing. Also ecosystem is another pillar that I think more and more we want to make sure that we approach from the customer need point of view and bring in the relevant partly to make sure that we holistically capture the customer need and then of course, the last two efficiency improvement and organization transformation. So if we may go to the next page, just a quick recap on the synergy realization. I think we only have the revenue synergy left pending. And as discussed earlier, I think we are making good progress on it after COVID-19 situation. Maybe the next stage would be a clearer view in term of the key area. As discussed earlier, I think the way that we see the revenue synergy is largely driven by the potential of the customer base that we have. We have a lot of car owner salary men and then homeowner in our portfolio. And I think what we need to do more and more is essentially trying to cross-sell better to this group of customers. So we focus a lot on day what we for[ day product ] . And I think when you look at the information shown on the page, when you look at the right-hand side, personal loan or credit card, I think, is what we have been doing all along. And as you can see here, the new booking or the new card issuing still growing at a very healthy rate. On the left side, I think is what we also focus on keeping a lot of our portfolio, the retail secured lending in auto loan and mortgage. CYC, or Cash Your Car, is what we give as a top-up loan for the customer who show good repayment behavior on the used car or new car. It helped us enhance the yield of the auto lending portfolio with a very manageable risk cost because we have an opportunity to observe the behavior and assess the customer risk profile a bit more than the new car and used car. And as you can see here, I think we are growing the CYC part at a very healthy rate. And we still think that there's some more room for us to grow further. Given the success in CYC, we also propitiated the same strategy for our mortgage portfolio. I think CYH also -- our Cash Your Home, is also based on the similar concept for the home loan customer that show good repayment behavior, then we want to offer CYH as a top-up loan. However, I think this product, we just recently launched. So I think still maybe not in the high-growth state as in CYC. however, I think we focus it would become one of the key driver for us as well in terms of the yield enhancement of the retail lending portfolio. If we go to the next page, I think this is all remain one of the key strategic pillar for TTB I think. This one, just a quick update on the overall activities of the customer on our digital platform that we launched last year. Right now, TTB has about 4.5 million customers on the platform. And if you look at the key activity in locked in financial transaction, especially QR payment, you see very high growth that we achieved. I think just to put things in perspective, on a day-to-day basis, there are about 1.5 million customer unique user locking into our TTB touch. So I think that represent a lot of opportunities for us in terms of driving engagement as well as cross-selling if and when the need and the customer is clear. So I think this would be increasingly become an important platform for us to drive the customer acquisition as well as monetization later on. Maybe I jump to Page 29. So I think on top of the existing TTB touch version that we put in production as we communicate with the investor earlier, we also have a list of initiatives that we line up in the pipeline to make the mobile banking platform even more relevant and engaging to our end consumer. I think -- so far, I think things are more or less on track. And maybe for today, I give a quick highlight in terms of some of the notable release that we think would be quite critical in terms of serving as an enabler for us to shift the business model of the bank. If you go to the next page, My Car, I think this is one of an example what we mean by car owner ecosystem. I think the concept is to make sure that we can engage with the car owner customer group beyond just co-financing for the customer to go by car. Given that I think in the portfolio today, I think we have close to 1 million car loan customers and many more when it comes to just a car owner that we detect the behavior through the usage of transaction of credit cards. I think the concept would be to provide end-to-end solution that would address the need and pain of a car owner. What we have recently launched is the auto insurance, which now I think the customer can go to My Car on TTB Touch, and then we would list the insurance that the customer bought with us. And if the policy is expiring, then the customer can, within a few clicks, renew their policy via the digital platform. On top, I think, as I said about CYC earlier, given that the product proposition and lastly, focus on existing customer, I think the most natural place for us to engage the customer is through the online platform like TTB Touch. So the touch screen on the page show how we currently engage with the customer in terms of offering the opportunity for the customer to just let us know if they need CYC and then we would provide a call back to them. Again, this one is still an MVP. I think parallel to the launch of [ droply ] version, we also developed digital info inversion that hopefully will be launched later this year. In those cases, the customer can then complete and end-to-end journey and get the loan dispersed within a few clicks on the mobile banking platform. And lastly, the tax renewal, also another example that we think is the need and If we can go to the last page, sorry, still on My Car. The last screen on the car tax renewal is another example as well that, in Thailand, if you own a car, you need to pay a tax on an annual basis. So we help facilitate the customer by having this service available on our My Car Widget. In the past, customer can do this. We had a paper based form. Now we're living up to the digital platform so that is more convenient to the customer. Also, it has a lower cost to operate from the bank point of view. So win-win situation for both the customer and the bank. So I think that's kind aim in terms of how we want to drive car owner ecosystem from the car owner If we move to the next page, another important initiative for the bank is what we call Roddonjai. This one is used car marketplace platform that we, together with our used car dealer, want to offer the used car marketplace as an alternative way for the customers to buy and sell used car. I think the thinking is -- when we look at our business model for used car, we have many dealers across the nation. And I think many of those two subscale who have a digital platform of their own. I think what we want to do is essentially extend our digital capability to serve our partners better. And again, it's a win-win situation for all party involved. For the partner, the used car dealer point of view they have the tool and the platform to help digitize their operating model and their business model for the customer, the car owner is easier to browse through the car inventory on their mobile phone first. And then if they are interested to buy any car, they can do that through the digital platform or use the platform as a directory for them to go later on fulfill the need via the off-line platform as well. And for the bank, I think, with this platform, then our ability to book used car loan become much better, given that we are the intermediary in terms of connecting the dealer and the customer. Also based on our initial launch, the quality of the customer via the mobile platform like this is much better than the off-line channel that we get the lead from the used car dealer through the off-line interaction. Again, I think what we have today is still an initial state. So far, we have about 1,000 dealers on board, about 10,000 car inventory. And the initial car sale or the car loan finance is in the 1,000. But again, I think we think this one could scale much more than this and could be one of the important engine for us to drive used car loan. On the next page, again, I think this one is another enhancement to the TTB Touch application network. As a portfolio, we have close to 1 million payroll customer. And for payroll in Thailand, doing tax, filing and tax management is one of the basic needs. Normally, you would do it on your Excel or maybe somewhere but again, through web page, you would need to input everything. But if the customer are already a payroll customer to the bank, meaning bank have visibility on their income. And if those customers do the process of their tax deduction products like insurance or mutual funds or even e-donation via TTB. In fact, we know quite a bit already about the customer tax management. So I think the concept would be to offer tax management capability to our customer so that it helps in terms of making their life a bit easier. And at the same time, we can link -- once the customers set up their tax plan, then we can link the [ tax ] on their tax deductible through the in-app journey that customer can fulfill their tax deductible via the mobile banking completely end to end. Lastly, I think another important initiative that we recently launched is on the security setup. I think if you follow the Thai market closely, you would know that I think the first half of this year at the industry level, we were attacked by some of the digital imposter, it becomes quite an important area that the BoT also raised some of the initiatives industry standard to tighten the security landscape. I think -- for us, I think we want to do a little bit more than that. I think what we observed from the situation is, I think, the fundamental gap is really around the customer We want to make sure that the customers are literate in terms of what they should do and what they should not do, how to best set up the mobile banking applications to match their risk appetite because I think some of the area, it may come with a slight convenience that the customer may need to do a little bit more to get that transaction transact via the mobile banking app. So I think the -- what we call security checkup is an opportunity for us to really get this point across to the consumer so that they know whether their application is secure to the level that they want or not. And we allow the customer to customize this to match with But of course, with the minimum standard that BoT already in force in terms of what BoT want to see. So I think that's it in terms of the update on strategy execution. Maybe I'll pass it back to Khun Dararat for the Q&A.

Thank you.