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

All right. So good afternoon, everyone, and welcome you to third quarter results. In this quarter, we introduce new format for today's session based on the valuable feedback from our investors. So we changed the format a bit and moving in this sessions before Thai sessions. And as we believe that this approach, we ensure that all investors will receive all information at the same time and equally treated. With that we, it is still under the development, we need to see the demand in Thai Session in the following day. We will continue to remain set up the Thai Session in the next Monday, but we need to see the demands, whether we need to drop it in the future or not. But please rest assure that we will continue to have these English sessions as dual sessions because we will present in English, but more than welcome to accept both Thai and English questions, and we will try to do our best effort to translate that [ to and fro ] Thank you. And with that, I forward to Khun Piti for the opening.

Thank you, [ Khun Da ]. As [ Khun Da ] mentioned, I think the goal is to make sure that everyone will get information at the same time. So let me do not really call it an English session, let's call it dual language. Hopefully, that we can have it up having one only session, which is dual language. So everyone information at the same time. And please feel free to ask in the language that you're comfortable with and then we have -- we will translate it back and forth so that everyone gets everything. But before we go to the Q3 result, which the number is already in your hand, I would like to change also -- change the format of how we will be presenting this in the future. Looking back to the past 7 years put that way, we have our own journey from TMB alone, dealing with SME problems become TMB and Thanachart reintegration, and the story is about 3-tier synergy value that we must be trying our best to realize that, which -- that becomes history. We already become one bank. And during integration, the story, mostly it's about how we're going to deal with COVID issues, make sure that the bank and customer will survive. Now we should focus more into the current phase of transformation, which I would like not to just present quarter-by-quarter performance, but to share with you the development progress, what has gone right, what is not so right and even what went wrong based on our short-term, medium-term, long-term goal, strategy and result, and those 3 things would be running in parallel, not that we will do medium term, next year. This is the initiative that we are doing, but the impact will start to unfold more and more in the medium than long term. Why we want to do this? Because we believe that the fact is bank got to change. The bigger you are, the slower you can adjust to the rapid change in the operating environment. And the operating environment is that household debt is still on the rise, commercial and SME loan is difficult to grow. Thailand is turning more towards service oriented, not capital intensive. So bank cannot do the same. We cannot be [ bankerzila ], big and cannot move quickly. So on this page, we share with you that what we want to achieve in the short term and the short-term achievement can be measured through the change in financial results. But for the medium term and long term activity, it would be more about strengthening, changing business model. So we are capturing success through things like engagement, cross-selling ratio and a bit of financial result. But more and more financial results would come through the cost reduction ability to cross-sell, retain customer, increase product holding and things like that. I will not bore you with the detail on this one. You can read it afterwards. But this is the format that we will start to change more and more from next year because I think time has changed. The goal and objective to cope with the change in market environment need to be in line with the way we are presenting this with the goal to build a company that can give a sustainable return to the shareholder. Let's move to the next page. Let's zoom in into what's happening in the third quarter. It is not an easy quarter and we know that we are about to go to the declining rate environment. And we have to manage tomorrow today; meaning what you see today is the result of the thinking of managing tomorrow today. We know that household debt is high. NPL of the whole system is on the rise, the need to buy new home, new car is declining because of this market environment, the need for commercial and SME loan is not strong because of the weak market environment. So we have to be very prudent in ensuring, protecting our credit quality of balance sheet and we must grow in a very strategic way so that we can continue to improve yield or maintain yield and not compromise the risk cost. Our liquidity book, we have to make sure that because of the pressure to grow income, we will not use our liquidity to take risk and compensate the rate of growth in loan book by doing some crazy things and it will become a trouble in the future. So we keep our liquidity book on low-risk asset, but we manage duration and yield very actively, which we will show the results later. On line upside, we know that, as mentioned, it is in a declining rate environment. So we adjust our deposit structure to be ready to respond to the interest rate cycle. We make sure that we have high LCR so that we can manage our LDR. And we have to manage the capital and debt so that the cost of fund will be in well-controlled fashion. As a result, you can see that we can manage to stabilize asset yield. We can manage our total funding costs quite well. The NIM becomes stable, even the TD that become [ X Y ] has to be rolled over at higher rate comparing to the previous, let's say, a year or 2 years ago that we locked that TD in on prefund strategy, and it needs to be repriced at higher rate, but we can manage to maintain the NIM. Next page. Yes, fee income would be a big challenge because if we slow down the loan growth and the loan demand also coming down and a big portion of fee income is loaded, which I will describe further. So we have to make sure that we are still very strong in cost discipline and risk control. By doing all this, we can still grow the profit year-on-year, improve ROE through funding management, capital management, yield management so that we will not trade short term for long term or long-term stability for short-term result. On next page, you can see the situation is not favorable to loan growth, as I mentioned. So we see the shrink in loan growth, and we don't want to go against this headwind. So we have to manage deposit down to be in line with loan growth so that we can maintain net interest margin, we can utilize our capital in a good way. By doing that, we have to ensure that our costs are in line with the size of our balance sheet. And once we grow selectively, meaning that our Stage 3 or NPL would not grow that much because if we play conservative, meaning NPL should be in a manageable level. So the provision is pretty much in line with our guidance. And as you see, the profit is 17% year-on-year. Let's deep dive a bit further how we do that on page. Next page, please. Okay. You can see that we move more towards -- first, we focus on our existing customer mostly. We selectively grow the loan by granting, let's say, Cash Your Car, Cash Your Home to existing customer. So the yield of new car is improving. Even home loan business, new home is not that promising, we can manage to improve return and grow loan book on the Cash Your Home, the top up so that we can still maintaining the net interest income while not taking too much of a risk. Similarly, on the deposit side, we manage tomorrow today. In the year before, we see that it is the rising rate environment, so we refund. And we end up seeing 4, 5x of rate rise. So we -- since we are the prefund, we can manage our deposit costs quite well. This year, we see that sooner or later, the rate will come down, which the market says is a surprise, but we don't think it's a surprise. That's why we brought down the duration of our TD. As you can see in this picture, short-term TD become a larger portion. In the next 3, 4 months, close to 1/3 of our TD will be mature, meaning that we can reprice quickly. Yes, the declining rate government bank will suffer but because of this strategy, moving more towards Cash Your Car, which is fixed rate, we are doing the home loan with the teaser with fixed rate. So on the asset side, we will have -- now we have more fixed rate than before. On the deposit side, deposit duration becomes much shorter because we want to be able to reprice the deposit quickly. On the next page, as you can see, the result is that by doing this last year until this year, we can manage to grow yield by 44 basis points, where the cost of deposits go up by 40 basis points. So it's a bit of net gain on that one. That is for the rising rate environment. So we need to take initiative in advance because the trend is on the reverse. And bank's balance sheet is like gigantic so you cannot turn sharp left and sharp right immediately. And this is how we plan throughout the year because we know that this situation is coming. On next page, this one is even more difficult because we're talking about close to THB 200 billion at one time on the liquidity portfolio, mean HTC and HTC&S, which is the hold to [indiscernible] and available for-sale portfolio. First, as I mentioned, we do not want to compensate the return on loan book by taking crazy risk on the investment book. It has to be for liquidity. But when the rate rise, it's very difficult for the bank to adjust the yield quickly enough. And once you adjust to a certain level, the rate will come down again. So this is the biggest challenge for most banks is how you manage your liquidity book because it can drag income, it can drag your capital position through the OCI mark-to-market loss. But from the peak of close to THB 4 billion mark-to-market loss when the yield start or the repo rates start to rise. We cannot only manage our yield up on this portfolio, but we can manage mark-to-market loss down from close to THB 4 billion to nothing today, meaning that our OCI position will improve, which would allow us to see higher Tier 1 ratio and allow us to pay higher dividend at the end because we do not have pressure on OCI mark-to-market loss by adjusting this portfolio throughout the year. Next page, -- in addition to deposit, we have to look at our funding structure borrowing. Do we still need hybrid Tier 1, Tier 2 and long-term fixed rate borrowing where the demand for loan growth is coming down, the demand for long-term lending is coming down being home loan or car loan. So we must manage our ALM and gap risk in sync with the market situation. And this, we can manage our funding cost, borrowing cost down and would come down even further because we already retired our sub debt and we have hybrid Tier 1 that will come to deposit by December, which would allow us with certain flexibility to manage that down. So all in all, you can see that by taking out the strategy on the next page, we can manage to stabilize our earning asset yield, our cost of fund that start to come down even before the rate cut cycle, meaning that when it comes to rate cut cycle, we do not have overhang issues from the past because we can bring it down already. By doing this, hopefully, we can stabilize our net interest income in the declining rate environment. However, the next challenge would be on the fee income on the next page. You can see that flattening the fee income and non-NII would be a big challenge because even we can grow, if we separate the type of fee income into 2 types, loan-related and non-loan related, you can see that the non-loan related, we can manage to grow a bit by bit by changing our business model, which we will -- I will describe in the next page. But the challenging part is the fee that come with the loan. What are those? Let's go to next page. On the top part is loan related. Even for Bancassurance, you can separate into non-loan related and related to loan, things like MRTI or Mortgage Reducing Term Insurance or it is My Car, also [indiscernible] which is the Bancassurance had linked to auto loans or home loans. That come down quite sharply where we can manage to grow Bancassurance like health insurance, [ safety ] insurance, we can manage to grow quarter-on-quarter by adjusting the product portfolio. And things like mutual fund fee, credit card fee or credit finance fee, which is nonloan related, we can manage to grow by changing our business model. We go through pain in the past, both customer and us. In the past, we heavily sell high-risk fund to certain group of customers, and they suffer like the declining of Chinese stock market, the collapse of high-yield bond or Chinese bond fund and things like that, right? We managed to bring back confidence and match the product that suit more to the customer by selling them with the medium to low-risk fund or structure -- structured fund or linked note that match and suit more with the customer base that we have. And we start to see the good growth on the mutual fund and investment fee from selling investment product. Credit card, very similar. We start to grow more and more on credit card business because we have [ car ] ecosystem, we have home ecosystem, we have payroll ecosystem. Those are the good customer base that we can offer them with the credit card that fit to their lifestyle, and we can manage to grow credit card fee quarter-by-quarter. But of course, quarter 3 is the lower season. So sure that on the fourth quarter, you would see the growth on credit card fee. And trade finance and FX is the same. Once we can manage to grow the right segment, our foreign exchange income is growing nicely. And last is the cost side. Yes, we need to continue to invest on the digital area so that we can transform our business model to see more sustainable way of growing income, managing the risk and retain customer through our service and convenience. You can see that we can manage our costs as we always do, and that allow us to manage cost/income ratio to still be around 42% with the goal that long term, it will become even lower 40% and become high 30% in the near term. So all in all, we can manage to basically flat the next stage PPOP, basically flat the PPOP in this quarter by not compromising on the reserve provision or taking excessive risk just to compensate the headwind or the backdrop of the weak economy. So may I pass to CFO to walk you through the asset quality and net profit and capital management section. Thank you.

Afternoon -- so similar to the first part that we have arranged a bit of the contents and trying to relate to the strategy. Starting with the first page that we show the staging by period, and we have added more information to show that how we conservative staging. In terms of Stage 2, we counted DPD Stage 1 in the Stage 2, and that would account for almost 50% of the Stage 2. In terms of the period from the last quarter, may I go to next page. Stage 3 has been rise a bit, about 10 basis points to be 2.7%. But in terms of the, Baht it remain at about THB 40 billion. So the higher percentage is coming from the lower loan balance that we have showed, we have dropped a bit in the last quarter. And overall, we still believe that the NPL ratio is still in line with the target that is less than 2.9%. And the next page, we show the LLR that we still remain in line with the level of about 149%, 3% down from the last quarter. And may I pass to Page 22. the overall ECL is at 144 basis points on loan. And again, the higher in terms of the percentage is coming from the loan balance that has been dropped. And -- but in terms of the Baht, it's about THB 4.7 billion in the third quarter. And we still believe in the conservative risk management approach and continuing to derisk the portfolio and to ensure that our asset quality is still under control. Next page will be on the profit. Just to recap that, we have the 9-month profit of almost THB 16 billion, 17% growing year-on-year and the ROE is still above 9% -- and the right graph is the added information in this period. We show the risk-weighted asset that may drop to about THB 1.1 trillion, but we still be able to generate return from the RWA. In terms of the percent NII to RWA, it improved almost from 4% to be above 5% in this period. So it's proof that even though we consume -- we have less loan, but we still generate NII and consume less capital. And next page will show the movement of the capital in third quarter. Just to remind that the drop in the total CAR ratio from the last period is coming from the retirement of the Tier 2 debt we retired about THB 15 billion in second quarter and to -- from the high capital ratio so that we can increase the dividend payout to be about 60%, improving from 55% in the last quarter and generate the dividend yield from about range of 2% to 4% [ before the merge ] to be about 6% in 2023. And the dividend payout, the interim dividend payout that is about to pay THB 0.065 this growing 30% year-on-year. And this is to be paid out in next Thursday so that you -- I think you all would get it. Yes. And I think that is the key message in the profit and capital management part. So I pass to Khun Naris to update you on the strategy update in this quarter.

Good afternoon, everyone. I think in terms of strategy update, maybe just a bit on Page 29. Just on the right-hand side, recap the key strategic intent. I think this one we have been talking for quite some time. And I think to us, it remain very relevant even during the current economic situation. So we continue to push on what we set out to do for quite some time. In terms of how -- on the next page, we start the journey with digital transformation, focusing on strengthening the capability of our digital platform. I think that has been ongoing for almost 3 years already. And I guess during the last year or so, we know that to be successful in this transformation is more than just transforming the capability of the digital platform. But more around changing the business model, operating as a bank. And that's why we come up with this framework on Page 30 that we use the digital capability and strength that we built as a catalyst that would also change how other parts of the bank function and operate. And that would mean a different way to acquire the customer to generate revenue as well as a different way to operate all the offline channel as well as the internal operation of the bank. And finally, it would also have implication in terms of the overall organization structure, how we acquire and retain the talent of the banks. So that's kind of the holistic transformation program that we set out to do. So let me give you a quick update in terms of each of the key dimensions so that you get a grip in terms of what's happening in the latest quarter. On Page 31, I think overall, as I mentioned earlier, I think we are very -- at a very mature state when it comes to digital migration. As of today, less than 1% of the transaction happening at branch. And you can see that quarter-to-quarter, the digital transaction continue to grow at a very healthy rate, seeing double-digit growth in all the key dimensions. On the next page, I think more and more we rely on digital as a revenue generation platform for the bank, you can see that all the digital sale has been growing very strong in terms of account opening, mutual fund transaction and all the loan booking activities. Just to give you a sense in terms of the magnitude of the digital sales that we are handling in the latest month, we received over 100,000 loan application via our ttb Touch application. So that's the magnitude that we are talking. And you can see from this page that I think the momentum still keep growing quite strongly. And then moving on to the next page. I think what I try to emphasize is digital is just not for the sake of migrating the offline transaction to online transaction, but this also has implication in terms of how we operate as a bank. One of the example that we rolled out recently is called "My Credit" widget, which has the capability of predetermining the preapproved credit limit for our loan customers. This one comes in very handy given that we want to be very selective as a bank when it comes to lending out to our customers, right? That means approval percentage may not be very high. In the past, we only know the result of the credit decision very late in the credit journey of the customer, meaning we have to do all the hard work to collect all the application and customer need to wait quite some time to get the credit decision from the bank. We completely changed the customer journey by bringing the initial credit decision upfront. It means that, for example, if the customer want to apply for new car loan or used car loan or, in fact, any loan from ttb, they can just download an application and do a simple clicks through this scheme, and then they would get the initial credit preapproved limit at the end. This would help the productivity of our sales staff and improve the customer experience a lot more than our old operating model. On the next page, I think another good example is how we engage our existing customers. I think as we discussed before, the strategic intent for the bank would be to deepen the current -- the relationship with the current customers, given that we have a lot of underpenetrated relationship. What we have been doing a lot recently is how we use the personalized messages within ttb Touch application as a way to talk to the customer. You can see an example on this page that in many parts of the application, we bake in the messages that we want to send to the customer through various journey in the apps. And you can see that I think we launched this capability of sending personalized message to the customer last year. But you can see that the year-to-date result compared to last year have increased more than four to fivefold through Impressions, Views and Clicks. So I think we are on the right track in this regard and intend to even do more and more communication with our customers through this platform. Moving on to the ecosystem. Again, I guess, as Khun Piti already mentioned, I think these 4 ecosystem [ lives with ] the target customer of the bank. We think that we already have a very sizable portfolio of this group of customers, and they are high value, high potential that we want to further penetrate when it comes to product holding. Moving on to the next page on car ecosystem, still very healthy growth, both in terms of increasing the cars on our My Car platform via ttb Touch. Right now, we have over 800,000 cars on the platform already. And through this My Car platform, we try to engage the customer either via daily usage like Easy Pass top-up, also high-value transaction like cross-selling motor insurance and also offering CYC top-up to the customers. You can see that I think the order figure and key ratio are still on the upward trend, signaling that there's still a lot of untapped potential that we could leverage. On the other hand, for new-to-bank customer, we have built a platform called Roddonjai, which is a used car marketplace. As of today, our used car booking -- used car loan booking, we received leads from the Roddonjai platform over 32% already. So I think this is something that meaningfully contribute to economics of our used car loan portfolio through this new initiative that we just launched last year. Moving on to the Salaryman ecosystem. I think this one, you can see that payroll acquisition in the third quarter has significantly picked up in momentum versus last year. I think this is still an area that we think we could do a lot more and it would means that we have a healthy way to acquire a group of customers that we think Salaryman is something that we could further penetrate when it comes to market share because this group of customers represent a healthier group of customers that fit with our loan acquisition strategy. On the right-hand side, My Work platform, again, compared to the last 2 quarters, also very healthy growth pickup in momentum when it comes to acquisition. Right now, the customer using premium version already exceed 100 companies, and we still see a healthy growth going forward from this platform. On Home on the next page, as we discussed earlier, My Home reaching almost 600,000 homes on the platform right now, and we use this as a platform to really try to engage with the homeowner via My Home widget on ttb Touch. We focus on 2 key flagship products that we want to focus on. First one being the refinance. Given the economic situation, we think this is quite strategic to us, and you can see that the momentum start to pick up in line with what we discussed in the past. Also, we have co-brand credit card with Global House. You can see also that I think the momentum also remained relatively strong. And lastly, on the Wealth ecosystem, I think as Khun Piti discussed, Wellness investment, Term Fund, Structure Fund, you can see on the bottom right that I think the momentum has grown from the last year 2 to 3x already. Another product that we put up on ttb Touch and see significant growth is the FCB account that earn attractive interest rate, given the dollar interest is much higher than baht interest. And you can see that the momentum also remained quite strong. Moving on to the channel and process part. I think the key focus, as I said earlier, it is not all about growing digital only, but also helping improve the productivity of the offline channel and the back-end operation as well. So we track together with the online migration, also the usage of the offline channel, ideally, we want to see less and less customers relying on the high-cost offline channel. And as shown on this page, you can see that the traffic to branch or the traffic to the call center has dropped almost 9% and 11%, respectively. So in line with our strategy. And finally, just a quick touch in terms of what are the upcoming features. In a couple of weeks, we will launch the last version of the ttb Touch upgrade for this year. Just to share with you some of the key highlights, we will roll out the chat function that we have enhanced with the generative AI engine so that we will rely less on the person on the staff to answer the customer but use the AI engine to redirect the customer to the right part of the applications. Also, we will roll out the cash installment feature for motor insurance. So hopefully, serving as another factor that boost the online sale of motor insurance even more. And for next year, I think 2 very critical functions are lined up. First one being the bank-wide loyalty program that we will roll out to ttb Touch in line with our strategy to deepen the relationship with existing customers. And on top of that, we will rely on the capability that we have invested today for the self-service platform via ttb Touch and leverage that for what we call a staff-assisted tablet so that the staff serving the customer either via direct sale model or our branch staff or our contact center can rely on the same set of capabilities to service and sell to the customer better. So I think that's it for the strategy update for 3 quarter this year. I'll pass back to Khun Da for Q&A.