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

Good morning, everyone. I welcome you to our analyst meeting for third quarter. As usual, we are -- we'll present you the detail of performance. And then after that, we will open for Q&A sessions. Today, I would like to Somkid to present all the details. Khun Naris presents the strategy update. And after that, Khun Piti will open for Q&A session. Over to you, Khun.

Thank you. Good morning, everyone. So this is the 9 months performance. And I would say that our 9-month performance is quite -- remains on track. And this yield from the result of our 3-focused strategy, namely, number one is the balance sheet strategy, which we have recycled the liquidities towards the high yield products. Why -- we also have the pre-fund strategy we executed last year. This will result in the net interest margin at 3.21% for the 9 months, 10 basis points higher than the target we gave since the beginning of the year. The second strategy would be on the cost. As we all know, that the landscape of the banking industry has changed through digital investment. So I'll explain -- and the investment has been prioritized and screen-wide -- so quite careful that we can make sure that the cost C/I ratio would stay on track. And if we saw at the C/I ratio of 43% in range with the target we gave early this year. The last one is a prudent risk approach that we -- still have a high stringent risk management and portfolio quality, and that would make all the asset quality ratio, which is the credit cost, 126 basis points, NPL ratio at 2.67% and LLR cushion up to 144%. That's the key ratio in September. However, under -- the past 9 months, does not mean that the next 3 months or towards year-end would focus on the same things. On top of that 3-focused strategy ,there is another 3 that we have to be careful. Number one is the deposit growth and acquisition strategy that we have seen high pressure from the competitions, both commercial bank and SFIs, and that would drive cost after the [ shift ] up , while the deposit growth is hard to maintain. The second one is the -- from the economy recovery path that is not so nice in the next 3 months. The aggressive balance sheet growth may not be the key ROE driver for the TTB. On the contrary, we would remain prudent and strike balance between the asset growth and the risk and return. The last one is the revenue synergy realizations that are on track, but we would build more and more core competencies on the business engines like digital and ecosystem play that we have shared this strategy since the beginning of the year. In entrepreneurial, we want to at the second part. In the next page, we show the key highlights comparing to the target that we shared with you earlier this year. On the loan and deposit growth, we may have slightly dropped, but that's like I mentioned, is to strike balance between the asset growth, balance sheet growth and the risk and return, especially on the deficit that we have seen the high competition lately, and we would not enter into abnormal rates in order to acquire the balance sheet growth to show to you all. That's -- we can maintain the net interest margin at 3.21%. Non-NII, we showed the growth at 1.5%. It's a low single-digit growth that we planned. Like I mentioned, from the strengthened and cost control, we can maintain the C/I at the -- I think we drive down to the low 40s versus the target of mid-40s. Stage 3 and credit costs, like mentioned, we can achieve from the portfolio qualities. And lastly, the net profit that we have showed growth of 31% from last year at THB 13.6 billion. So in detail, I would show you the key message only, not going to pitch by pitch. The first one is the loan that I mentioned be quite flat Q-on-Q. And -- however, in terms -- in detail, the key strategy -- the key focus products has showed growth Q-on-Q, which is CYC showed a growth of 7% Q-on-Q. CYH also 7%. Personal loan 6%, Credit card ,5%, and that would offset with the recycling strategy of the commercial loan to drop by 1.4% Q-on-Q. On the next page, is the detail of the deposits like mentioned that from the [indiscernible] lately, and we also -- we show the strategy to grow TD more to change the mix from 22% in the second quarter towards 26%, and that from the result of Up and Up. That is the TD flagship products, has shown a growth of 14% Q-on-Q. However, we've seen the patterns of the customer that they would achieve the [indiscernible] money like CASA or the non-term like the no-fixed to lock in the deposit that give them the high cost, so we see the hybrid products slightly dropped from 38% to was 36% mix. The CASA also as a result has a drop of 34% towards 32%. And you may worry about LDRs. So I have the detail in this page. LDR high growth to be 102.5%. However, if we include LDR -- include the borrowing to show the real liquidity of the bank it has been 98% and more softer deposits still coming from the retail segment, which has the high diversity, and that would make our LCRs at the high level at 174% higher than 100%. That was certified by the BoT. So that would illustrate our liquidity position that is still -- has a strong position. And now I pass to Page 9. That is summation of the previous 3 pages. The top one, the top line is a loan yield. Has a growth of 14%. This has not taken into account the last 3, 4 rate increases and the last rate increase in the beginning of October. But anyway, we would foresee that in the last quarter of the year, the increase in the -- may not continue as high as at this level, similarly to cost of deposit that we grew only 4% Q-on-Q, even though we have the CASA portion of 32%. However, like I mentioned, the high deposit competition lately may drive this line up in the last quarter. And our NIM in the third quarter of 3.34%, maybe peak-on-peak, in the last quarter this number may be flat or slightly drop. And so that's all about the NIM. And may I pass to page 11, we have the non-NII. I think in the second quarter, we have a few one-off items bought in the net fee, in the IB fee and non-NII in the dividend income. So in the third quarter, it's back to normal. So you may see that we may have a slight drop Q-on-Q. But in terms of the detailed product, especially on the credit card, which is the flagship products, we still show that growth Q-on-Q at 8% and especially the year-on-year at 28%. I think this is the result of the key product -- key credit tax strategy that we have executed over the past year. However, on the mutual fund, on TF & FX, that may get impact from the unfavorable environment, especially on the import and export may show a drop Q-on-Q. And may I pass to Page 14, which shows the ECL. So -- at this quarter, we have the ECL operating cost of around 127 basis points. This is still at the lower end of the guidance, and we think this is conservative enough to cover both loan from the COVID stations and the risks of the exposure of the higher risks loan portfolio, and that's 3 part composed to be the net profit of THB 4.7 billion and equivalent to RoE of 8.4%. The profit in this quarter posted growth of 4% Q-on-Q and 27% year-on-year. And the last part before I go to the detail of the asset quality is the capital Tier 1 ratio, we have 16.3% comparing back to the -- in 2019, we grew about 1.7% from that period, and that's strong after capital base, higher than the BoT requirement and one of the things that we have tried to achieve is to increase the payout ratio from last year that we pay out at 50% today is the dividend payment of the interim part, and we reached up to about 55%. That would illustrate the strong positions and well capitalized that we have executed. And the next part, I will go into detail of the asset qualities. Starting from the compositions of the modified portfolio in Page 17. And of September, we have modified portfolio around 11% of the total loan portfolio. This composition of orange scheme of 7% and a blue scheme of 4%. This caution is quite remained stable Q-on-Q. And however, in terms of the detail of the scheme in the next page, we still keep uplift our staging criteria. Those all modified portfolio only Stage 1 and 2, which have paid a full interest, maybe for principal but shared principal, the staged criteria would be in the 1 or 2 only beyond stage 2, stage 3 onwards, it would be at least Stage 2 criteria and Stage 3, and that would make us ready in case the BoT would not continue the [ forbidden ] actions that they provided to on commercial banks. And may I pass to Page 21, and that would show the evolution of the LLR that we have tried to accumulate to so [ caught strong after reserved in the last ]. In the third quarter, it shows LLR of 144% to support the NPL base off THB 40 billion. And last one in the Page 22, shows the actual interest that we control the movement in the third quarter showed a slightly broad -- and this -- we still continue no risk under Stage 3. Accrued interest which means that we provided full provisions on all statutory accrued interest. And most of the movement in the last quarter is coming from the high rate environment, why the [ EAI ] is being flat or slightly decreased. I think that is -- for the [indiscernible] of the financial number of the third quarter. So I may pass to Naris for the strategy update in the third quarter.

Thank you. So I think for the strategy update, if any, I'll jump to the next page. So I think, overall, overall direction remain unchanged. We focus on 5 strategic initiatives. The first one is a follow-on from the merger transaction. So we continue to focus on the revenues, and we capturing 2 and 3 is essentially trying to modernize the value proposition of the bank, focusing on digital-first and digital-only proposition as well as trying to look at it from the ecosystem play point of view rather than a product-by-product play. 4 and 5, essentially trying to enhance the internal operation of the bank to improve productivity as well as transition the workforce structure to match with the new business model that we want to drive. So if I may go to the next one, I think you should be very familiar with this page already. I think continued positive momentum on revenue synergy, capturing -- right now, I think the total synergy realization on the revenue synergy to date is about THB 2.6 billion. Given this run rate, hopefully, by year-end, we should be able to reach the low end of the revenue synergy target. I think in terms of the driver of the revenue synergy, if I may go to the next page, as we discussed earlier, I think the whole concept of revenue synergy realization is around cross-selling to the customer of both ex-TMB and ex-Thanachart Bank, focusing on what we call day 2 product. And as you can see from Page 26 here, I think the day 2 product, meaning the product that we cross-sell after the acquisition. Product continue to have a very positive momentum. If I may focus on the right-hand side first. I think credit card is something that we focus on a lot for quite some time already. And you can see here that in terms of card issuing, it has also grown quite a bit in numbers. The major driver is cross-selling credit card to car owner or ex-TBANK customer that we previously have card loan with this group of customer. Also, we also drive a true partnership update as we have launched the co-brand product with Global House. And for the other products, again, continued positive momentum on Cash Your Car and Cash Your Home. On Cash Your Car, we already start to have some of the digital engagement, as customers can request our staff to call back for those who are interested in the Cash Your Car product. And hopefully, by first half next year, the spread through digital end-to-end process should be available via TTB Touch. So that within a few clicks, customer can request for the Cash Your Car product and get the loan disbursed to them in a couple of minutes. For Cash Your Home, this one is a newer product compared to Cash Your Car, but then we replicate the same success of Cash Your Car. Meaning, we observed the repayment behavior of the customer first and then offer them the top-up loan, again, a slight pickup in terms of the new booking momentum. Hopefully, next month, we would be able to offer the digital end-to-end capability on Cash Your Home so that the customer, similar to what I explained earlier for Cash Your Car, would be able to request and get the loan disbursed via the digital channel within a very fast turnaround time. And lastly, on the personal loan, against still a very positive moment time, a lot of drawdown activity via TTB Touch. This one, I think in terms of new capabilities, we expect to launch Welfare loan, which is the loan that we offer to payroll customer. After the employer signing MOU with us, that allow us to deduct repayment from the payroll account. So this one, hopefully, would be another boost in terms of our revenue synergy capturing next month. So if I move on to the next page. I guess just to step back a bit, this one is the road map that we shared to the analysts as part of 2023 plan. I think more or less, despite a bit delay here and there, but more or less, the plan has been executed per the original timeline. If I may jump into the progress update for each of the key platforms. For TTB Touch, I think, this year, we observed a lot of growth in terms of activities of the customer. As you can see from the left-hand side, I think in terms of logins, financial transaction, we have seen a very high growth year-on-year across all dimensions. On the right-hand side, I think personalization remain one of the key theme of TTB Touch. That we want to make sure that we serve all the customer as a segment of one. And if you look at the click-through-rate, you will see that we have also more than double the original click-through-rate that we first launched. When we first launched this capability, the click-through-rate is about 2%. In the latest quarter, the click-through-rate is now at about 4.3%. It may seem a bit low from your point of view, and if you are not familiar with this, but just to give you a benchmark, the click-through-rate for the social media platform, the well-known one that everyone used, at least for us, what we observe is only around 1%. So we are talking about 2x to 4x the click-through-rate that we observed on the social media platform. And also just to link to monetization as well. Right now, the digital lending credit card, personal loan that I discussed earlier, about 50% of those sales on TTB Touch initiated via the personalized message. So now we start using the capability, not just for engagement sake, but also for initiating the cross-sell opportunities for the bank as well. Moving on to the next page. I think this one, just a recap on the digital sales. As I mentioned earlier, I think across all that I mentioned, deposit account opening, credit card, fresh card, as well as personal loan, very healthy growth that we observed. And on the right-hand side, I think, increasingly, digital continue to play a very important role as a channel in terms of contributing to the sales of the bank. For example, I think for credit card, flashcard, as of today, I think digital is already a primary channel for the bank to offer this kind of product to the customer. As I discussed earlier, mutual fund today, we -- TTB Touch account for about 90% of the transaction already. Hopefully, CYC, once we have the capability next year, we also expect digital to play a very important role, given that the proposition of CYC largely focus on existing customer of the bank. So we will position TTB Touch as the key platform that would engage with existing customers of the bank. Car tax is a new initiative. I think the volume is still quite small, but 3 months after we launched the capability on My Car on TTB Touch, digital already represent the main channel that we allow the customer of TTB to renew the car tax. And lastly, motor insurance. Again, I think this one is an area that I think we can do a lot better compared to what we observed in terms of the total premium that we generate for motor insurance. And again, I think one of the critical capability that we focus on is to make sure that we boost the digital sale to be much better than today, which is a really low base to start with. On the next page, for ecosystem play, maybe I'll just provide an update on the car ecosystem, 2 key platforms that we focus on this year. The first one is My Car. I think -- as we discussed earlier, I think the thinking would be to serve as a one-stop service for the car owner -- customer, given the car owner is one of the target customer of the bank. So that the customer can do things like top up their Easy Pass, paying car tax or buying car insurance as well as if and when require, they can also take the CYC offer that we offer to the customer, and there would be someone from the bank to call them back and process the rest of the application. Also if they use the car for quite some time, I think at the end of the useful -- life of the car, they can also initiate the sale used car service that we offer them to sell the car via the auction platform as well as to sell the car. We have Roddonjai, which is our used car marketplace that recently launched. As of today, this My Car platform have over 600,000 cars with us. And again, I think the key attention would be to ensure that we have constant or regular engagement with this group of customers given that it's a high value of customer. And again, we think we have all the capability in place to fulfill the unmet need of this group of customers. On the next page, Roddonjai. This one is a new platform that we soft launched earlier this year, and we just did the commercial launch in September. I think the concept would be in itself is clearly a used car marketplace that could be expanded to also include new car as well some time in the future. The thinking would be to -- that we want to extend the digital capability of the bank to also help our partner, i.e. the used car dealers, so that we, together with our partner, transform our business model, our proposition to match with the changing behavior of the consumer. Right now, I think the consumer behavior, they start exploring other options when it comes to buying a used car via online. So hopefully, this one would become a platform that allows all the dealer of the bank, the bank partner with to bring all the inventory, their physical inventory online so that the customer can engage with all the dealer better. And in terms of what is in it for the bank, I think through this platform, then the bank would be able to also offer financing much easier. As you can see from the performance during the soft launch here, that I think during the soft launch, clearly, we already sold about 5,700 cars via this platform. And of this number, more than 4,000 cars was sold with the financing provided by TTB. So hopefully, it shift a bit in terms of the dynamics. Also it helped modernize the business model to be competitive given the changing landscape of the used car marketplace. And also what we observed here is that the quality of the customer coming through the online platform also better than the paper application that we normally receive from the used car dealer. So I think that's kind of how we envision to position Roddonjai. And as I said earlier, it will not stop just used car. I think we plan to add more and more capability to this platform. So that at the end, hopefully, it can also serve both used car and new car as well. Moving on to the next page. Maybe I will not go into detail much here, but I just want to share a quick preview that on top of the car owner ecosystem, we also want to focus on salaryman ecosystem to initiate that we intend for this ecosystem. We plan to launch My Work next month. This one is a HR management system that highly integrate with TTB Touch for the employee, and business, one for the employer so that the HR Department of MidCorp or SMB can use this to manage their workforce much easier. And for the bank, it also serve as something that help boost the engagement and also allow us to learn about the customer, meaning the employee, a little bit more in terms of their tenure with the employer, their vacation pattern, whether they get promoted or not? And hopefully, that trigger in terms of allowing us to engage with this group much better and engage with them at the moment of truth. Aside from My Work, we also have My Tax already launched. This one is a tax management tool. Hopefully, I think the thinking is if we already processed the payroll for the customer, the customer do the -- much of their tax deductible product with us. Hopefully, I think we can assist them a bit more in terms of how to plan their tax. And hopefully, in the end state, also how to submit their tax as well. So these are the 2 ongoing initiative that hopefully, we will be launching full by end of this year. Lastly, I think the capability of the TTB Touch will not just stop with the current version, we also have a few critical feature in the pipeline that hopefully get launched soon. As I said earlier, CYH is something that hopefully help trigger and add the boost in terms of new booking for CYH. We also have Welfare loan. Also for the Welfare customer, we plan to have the purchase of the mutual fund with credit card point as well as the foreign currency conversion via our in-app capabilities. So this is kind of the highlight that we will have in the pipeline. I think that's it in terms of the Q3 strategy update. I pass it back to Khun Dararat.