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

Good afternoon, and I hope it's not too late to say happy New Year to everyone. And I wish you all the best and have a good year ahead. So for today, khun Piti will join us online for this analyst meeting. And also with me here, we have CFO, Khun Somkid; and Khun Naris, our Chief Strategy and Digital Group with us. So to save time, I would like to pass over to Khun Piti to wrap up year 2024 and then present the target guidance for year 2025 at the end of presentation. Please, over to you, Khun Piti.

I know it's a busy day for everyone since all the numbers start to come out and you need time to digest or let go direct to our presentation with as we promised last time, we will adjust to make it more synchronize with the strategy so that it will be easier for you to follow whether our strategy paid off as we expect or not. Okay. Let's start from recapping 2024. It has been a tough year, and I think we start to see some light at the end of the tunnel. But all in all, just like Darwin's story, right, only the test why in a tough environment, and we see this everywhere from retail segment, SME segment and large corporate. And after BoT start to lift all the measure to help those who get impact from COVID, the real things start to show out as I described and shared to you during the COVID time that we need to prepare for the time just like it happened last year. So in addition to what BoT has done, normalize everything to be back to normal on the loan volume, auto loan sales hit the 10-year low. Housing loan sale hit the 10 years low, and we start to see a big profile default from large corporate SME that can adapt and will survive those who cannot would start to flow into Stage 2 and Stage 3 more and more. That's why we shrink SME portfolio for 5 years and start to strengthen our underwriting quality on all segments. So what we have done is we continue to improve efficiency, asset quality and last but not least, manage our capital well so that we can bring decent result in 2024. So you can see that we can manage to hold NIM by managing both assets to grow on higher yield portfolio that we are familiar with the segment that we focus on the payroll ecosystem, the home and the car ecosystem. With that focus, we can continue to improve our cost/income ratio to be in the low 40s and maintain NPL ratio, both ratio and number-wise and improve coverage ratio a bit. So let's move to the next page on the transformation journey. Again, to recap, the past 7 years has been quite a journey for TMB and transform into TTB. We did the housekeeping, clean up SME. We merged with Thanachart Bank , and we merged the system, merged the customer and start to build pre-ecosystem. That's why you start to see the result as per the strategy that we share with Khun Naris, our Chief Strategy and Digital; and our CFO, Khun Somkid, will walk you through the details. But let me show you some highlight number on the next page. As you can see, the loan become more optimized, we do SME and we increased retail -- and strategy takes time to show the result. That's why we would like to show you from 2019 up until today. And this strategy will continue, the initiative that we will use to support this strategy will continue because we believe that this is the right way to grow under the changing environment. By doing this, you can see that our asset quality continue to improve. Our NPL is well controlled even we have to go through COVID altogether as an industry and as a country. Our profitability continue to improve, our company capital getting stronger, and we can get customers more engaged, as you can see through the digital penetration and digital engagement. On the next page is the result of last year, which we will use as a guidance for this year as well. As I shared my view earlier last year that the loan growth would be difficult, but I do not expect it to be this difficult. Those who can afford to buy a home or car, they hold that decision because they expect that the price would come down. Besides the competition becomes so tough that drive the auto loan sales down to the level of 600,000 units. And continue to decline throughout the year and start to see some recovery during the end year. Home loan, very much the same. People have concerned that the home price may decline. So those who have the money hold on to that decision. SME, large corporate explain the same thing, strong business would like to derisk deleverage where SME struggle. So the loan demand become very weak last year. Small recovery during the end of the year on the auto industry a bit from home. So we have to see that this year, what government initiative would come out to help stimulate the segment that can afford to buy home or car. Otherwise, loan growth will continue to be quite tough for this year. So we need to adjust deposit to be in line with loan growth to manage our NIM and bottom line. And I believe we have done it well. You can see that our net interest margin is in line with what we plan for. But the tough part that linked to the loan growth is the non-NII growth because our business model is pretty much linked to the new loan originated, we sell fee-generated product like credit insurance together with the home loan and other loan. When we tighten up the underwriting policy and the loan demand is weak, the fee will come down. So in order to make sure that shareholders will get decent result, we have to continue our lean and digitize to drive the cost down, which I think we have done it well. As a result, asset quality is still well controlled and credit cost is very much in line with we expect. So we take this opportunity to provide a bit extra provision to move LI as a cushion if anything turned back. On the next page, the medium- to long-term strategic intent must be linked with the numbers. As I mentioned earlier, we are not aiming for balance sheet growth, but we optimize for return so that we can drive ROE towards 10% in the near term. In order to do that, we have to shift the loan mix more towards retail, but it must be -- must not be retail and narrow, but the retail segment that we are familiar with so that we can get the right risk-adjusted return. So the high-yield loan mix of 30% to 35% is the goal. And with that, we should be able to push the multiple product, not single product, which will result in the higher fee and noninterest income to asset. And we want to drive the engagement through our digital platform, both commercial and retail. With that, we hope that we can get more than 90% digital penetration. And also that would come with the engagement, we should be able to manage our costs further down so that our cost structure would be comparable to the virtual bank, which will start to operate in a few years down the road. And last, we must continue to build sufficient buffer because we don't know what happened in operation just took place yesterday. We don't know the -- whether the geopolitics will continue. And we, as an export import country cannot deny that we will somehow get the impact from the big boy games. So we must provide sufficient buffer in case that anything happen to the global economy again. So I think that this year, credit cost could be a bit better than last year, but we should not expect too much that the shape of the economy for this year will be much improved. It will be better, but I think the improvement will not in very stable and widespread fashion. The one that would not survive would not be able to recover under this kind of economic environment, but the one that can adjust, I think they will start to show good result this year. So that brings to my last page before I pass to Khun Naris and Khun Somkid, our strategy framework. Would you flip to the next page, please? On the strategy framework, you can see that we focus on 4 areas with these 6 key themes. We must improve revenue cost, risk cost and capital management. So what we have done so far is, number one, we focus on how we better and better manage our asset liability. We pay high dividend. We retire our expensive hybrid capital, and we will continue to do that this year, better manage capital and ALM altogether. On the revenue part, we need to become more customer-centric, which Khun will show you in more details so that we can better manage customer engagement and improve the revenue through our ecosystem strategy. On the cost, we must continue to be very much very disciplined in investing in both digital and physical. So physical and digital investment has to go together with just one objective to improve our customer experience through product and service. So the investment must be directed toward that goal. With that, we can clearly track whether our investment yield good results, which means better customer engagement and better product holding and return at the end. On the risk cost, if we can achieve that, we should continue to be able to improve our risk cost, which is the case for last year that our Stage 2 and Stage 3 is smaller than the pre-pandemic period, which means that the selective growth strategy start to pay off on that space. On capital management, I think the action already explained itself that we continue to improved dividend payout ratio. And as I -- as we announced by the end of the year that we will move a bit more on to acquiring business that connect to our ecosystem. The diligence is still under its way. And I think we should be able to announce something after we finish the diligence and negotiation process. So last but not least, we will continue to improve our ROE and dividend payout ratio by executing the initiative as I discussed up until this point. So may I pass for Khun Naris to explain in more detail what we have done so far based on that 4 areas and the strategic intent that I just described. David, please. Thank you.

Thank you, and good afternoon, everyone. So I'll jump right on to the first theme of our strategic framework, which is effective asset liability management. I think as CEO touched upon already that 2024 was quite challenging from the macro point of view. So I think what we try to focus on is really carefully and prudently manage the return or NIM of our portfolio. So we end the year with a slight decline in NII at minus 1%, but we managed to manage our NIM according to the guidance that we have given to everyone. So we came to year-end at the upper bar of the NIM guidance at 3.25% and in detail, essentially trying to manage both the loans and deposit proactively. On the loan part, I guess, as we have mentioned before that I think the focus is not just simply growing the loan portfolio, but grow it where we want to grow. So we try to shift the portfolio mix towards more on the high-yield portfolio. So even though the overall lending portfolio changed slightly last year, but when we look into the detail, the high-yielding part of lending portfolio grew quite a bit as well. For example, cash we grew it at 6% last year, cash home at about 12%. So when we look at the overall proportion of high-yield loans in the overall portfolio, we grew from 28% in 2023 to 31% last year. So I think that's the part on loan activities. On deposit, also similarly, I think given that the loan didn't grow last year, we also need to manage the deposit balance as well to manage overall NIM. But what we try to do, given that the interest rate environment expect to in the downward trend, we also try to shift the deposit mix so that we have a higher proportion of the deposit so that we can help lower the interest payment that we pay out when the deposit of the -- when the interest rate of the deposit decline. So given that the short to medium ten-year portion of the TD portfolio went down from 79% to 72% -- sorry, went up from 72% to 79% last year. So I think that's essentially the key activities on the ALM. And I think the direction for this year, I think the proactive management of asset and liability continue to play a crucial role in 2025 as well. So moving on to the second theme, digital first revenue generation engines. I think this one, as the framework imply, I think to us is probably one of the longer-term initiative. It means actions is happening as we speak, but for it to yield the impact that we expect, this one probably takes a bit longer than balance sheet management. So all in all, I think it's a continuation of the uplifting in the digital capabilities so that we manage to capture the main bank relationship with our customer base and help shift the relationship between us and our customers from monoproduct relationship to multiproduct relationships. So that's kind of the end game that we expect. So if we move on to Page 16. So I think in terms of the result from last year, I think the NII [indiscernible] as Khun Piti and I touched on, a slight decline given the softening of the macro factor. For non-NII, I think the loan also went down a bit in line with the overall lending activities, but the nonloan-related fee income, we managed to grow it slightly at 1%. And as I said earlier, I think the overall activity is, I think, even though the macro environment continue to be quite soft, I think we use this time to make sure that we invest in our core capabilities so that whenever the macro outlook come back, so that by that time, we have all the capabilities that we need to further penetrate the market. So when we think about the capabilities, I think at the moment, we look at it in 3 dimensions. First one is how do we improve our lending activities. And I think over last year, we have rolled out some of the key capabilities that I can touch on in the next page. Also, I think more and more we migrate the customer onto the digital platform because we found out that the engagement level that we can have with the customer on the digital platform is much richer than the offline world. That way, we can continue to cross-sell or offer the right product or solutions to the customer whenever they need it. And lastly, I think we continue to focus on the ecosystem play that we shared with everyone in the past. I think it helped us to stay focused in terms of the target customer and help look at it from the customer point of view rather than just focus on the financial product on the bank view. So essentially, these are the 3 sub theme under this initiative. If I move on really quickly on Page 17, just a quick glance in terms of what we try to do, right? I think one thing that we try to improve a lot last year and will continue into this year is how do we make sure that we have fast time to yes and fast time to disbursement or drawdown when it comes to serving our lending customers. And the capability that we built last year is the customer can use our mobile banking within a few screens. Customer can know their preapproved credit limit, which hopefully help them make purchase decision much better. And this one also lower our cost to serve because we lower the rejection rate given that we try to give indicated credit decision upfront. Moving on to the next page. I think another area is engagement. I think we talk a lot about personalization capability on the TTB Touch platform. Just want to share with you that I think we think we are on the right track. And last year, we increased the capability or the capacity of the platform so that right now, we can target everyone on the mobile banking platform. And as you can see on the right-hand side, all the key metrics in terms of impression, views went up significantly in 2024. Lastly, on the next page, I think continue on the theme of personalization. This year, we plan to uplift the capability even further rather than just messaging or informing the customer, we want to also introduce what we call gamification so that we can start influencing the behavior of our customer through small tasks or mission that we give the customer in exchange for some reward points or small points so that the customer continue to adopt the behavior that we plan for them. Also in a couple of months, we will also roll out the loyalty program through TTV platform -- so this one, hopefully allow us to communicate more effectively to our customers such that it's clear in their mind that the more they use TTB, the better they will get in terms of the benefit. So lastly, as I discussed, ecosystem continue to play a key role when it comes to designing the customers' journey and proposition for the bank. Just to reiterate that we, as a bank, want to focus on 4 ecosystem or 4 target customer groups. One is the car owner. The second is the homeowner. Third is the salary man and lastly, the wealth customer group. And as you can see on the following page, which I will not go through detail, but I think this one, I think the key platform of capability that we invest 2 years or last year -- 2 years ago or last year, I think, continue to build a strong momentum for us in terms of deepening the relationship with our customers and also generating the digital sales overall. So that's it in terms of the second theme, digital first revenue generation engines. And lastly, on my part, the third theme, the cost management through the digitalization and branch effectiveness. So I think the overall direction that we are heading towards is -- we want to ensure that the customer have a better experience through the capability that I have just said. But at the same time, we want to ensure that we, as a bank, have lower cost to serve because when we look at the cost to serve across multiple channels or touch points, I think it's very clear to us that the digital channel has the lowest cost to serve. So in line with the behavioral shift of the customer, we also try to influence how we decide the customer journey in such a way that we gradually migrate the customer from contact center from branch to the mobile banking application. And as shown on Page 25. So I think this is kind of the key summary of what we are trying to do. On the left panel, you can see that the increase in terms of the traffic going to our digital platform gradually shift over time. As of now, the average daily user that lock in into our mobile banking is about 1.4 million customers a day. So I think that's quite a sizable number. And every time a customer lock in, as I touched on earlier, is a chance for us to communicate to them to engage them. So I think that has been quite helpful in terms of deepening the relationship. And through that, we also see the share of digital channel, both the service part and sales part gradually went up over time as well. And I think parallel to the increased adoption and engagement to digital platform, when we look at the off-line platform also, we see the behavior shift in the opposite pattern. So the footfall of the brand went down, the traffic to the concept tech center also went down year-on-year, about 12% to 13% last year. So we also try to shift our cost footprint accordingly as well. You can see here that over the course of the last 6, 7 years, we essentially cut down the number of branches by half, partly thanks also to the merger cost synergy. Similarly, the number of staff also gradually went down as well given that when we shift the footprint from offline to online, we also gain productivity and efficiency as part of that. And net-net, I think the result of that shown on the right-hand side that we can manage our operating cost quite effectively year-on-year, showing negative decline at 5%. So I think that's kind of where we are at in terms of gaining cost efficiency through digitalizations. So I pass on to CFO on the fourth [indiscernible].

Do going through the 14th page about this asset quality. The number, I think, speak by itself. It's the effort from -- over the past 2, 3 years that we continue derisking and lift up the customer selection criteria. And under this year, we're going to show you a quick preview on how we move to manage the collections at the end of this year. Starting from the left side, I think it's quite clear that we have the criteria that is much conservative than the normal DPD, which you may see from the Stage 2 that half of it is the DPD while the rest is -- the other half coming from the qualitative similar to Stage 3 that we have about 3/4 coming from the DPD, while the other 1/4 coming from the -- and we continue to build up the ECL at about THB 20 billion this year with THB 17 billion coming from the normal ECL while we still build a buffer towards the management overlay by about 2.5%, and that would help us to maintain the at the sustain level at above 150% under the control NPL of about 2.6%. I think for the overall asset quality, if we look back over the past 3, 4 years, you will see that we have come quite far the next page we have the LR to total loans of almost 5% in this year comparing to pre-COVID level that we have only 3%. This is the effort that we still keep buffer on the LLR level in order to lift up the extra collection. And can we move to Page 33 and the LLR level, especially from the continued effort on noncllalage through the sales and write-off, you may see that the percentage cover on the Stage 3 is lower and we still have more buffer at the Stage 1 and 2 level. So if you see the LLR number in the balance sheet is lower, but that is quite in line with the lower NPL number, and we still have the LLR at above 150 like I mentioned. And next page, we show the NPL ratio level that's coming down from the peak of 2021, which is the COVID period. And after that, we try to reduce the NPL numbers. And last year, we enact the 2.59%. And just to quick preview on how we use digital in the collection process. Before the due date, we start to have the touch. And right now, we have more channel to the customer, including the system. And right now, we start to move on to offering the restructuring on the contract and sign on the touch, which this will be launched in April this year. That will be -- that will make the customer do debt restructuring much easier and at any place that they are convenient. And next page, we show how we use the capital to support the liquidity recycling. Again, the page that we are quite proud of the number of the profit comparing to 2019 before COVID and before the M&A, we have a growth of about 24% per year and that makes our ROE in last year reached about 9%. I think we halfway from the target that we give to the investor at 10% in the next 1 or 2 years. So that would be under the economic challenge that we have to go through in the next 1 or 2 years. IA is improving from 4% in 2021. The improvement during '22 and '23 is mostly coming from the effect from that we manage the cost of fund under the prefund strategy, while the last 2 year '23 and '24 is coming from the strategy that we focus on the high-yield loan and result in the higher NII. And in last year, we have NII to RWA at around 5.1%. One thing to note here that we still have the remaining tax benefit at about THB 1.6 billion to be recognized by before 2028. And moving to the last thing, the optimized value creation. I think we have discussed over the past analyst meeting that we have a few more ways to manage the shareholder valuation. Apart from the traditional dividend payout ratio, we are considering the share repurchase. And another is the organic growth, which the investment mostly in the digital and IT. We have set aside the budget in 2025 around THB 5.9 billion, about 10% higher than 2024. And mostly the concentration would be in the digital and IT investment. While the inorganic growth, like CEO mentioned in the earlier session that we are in the M&A due diligence process, and it should be announced -- we should end it very soon. page would show the strong of the capital base. We still have the total capital at 19.3% by end of last year. One event to mention here is that in December, we have the AT1 redeem that would make the CET1 and Tier 1 ratio, sorry, lower than the last quarter and comparing to the last year, but that's the minimum and we're still higher than the minimum level required by the BoT I think that's it from this I pass back to CEO on the 2025 financial guidance.

Thank you, Okay. As you can see on this page, the loan growth for this year will continue to be quite tough. As I mentioned, the homebuyer, the car buyer, they're still on the wait-and-see mode for those who are able to buy. And those who are willing to buy may not pass the lending criteria of most banks because as you see, the new home loan price start to decline a bit because few stock still remain in the backlog of developers and the Chinese car continue to dump their price even the trajectory has come down. the used car price and the liquidation price, even it has been stabilized, but bankers are becoming very careful when it comes to new origination. So the loan growth will be quite limited this year, maybe some from large corporate. But most corporate is still -- they are also holding on to their investment and deleverage their balance sheet to make sure that they can recover and pass through this difficult economic cycle. So deposit growth, it is not the strategy to grow, but our strategy is to ensure that we have the right size of deposits, meaning that we have room to cut deposit that has high cost so that we can maintain the NIM at decent level. But the NIM also heavily rely on the MPC rate, the BoT rate that would very much depend on the direction of Fed fund rate as well. That's why we have quite a wide range on this one because the NIM has to link very much to something that we cannot control as well. On the non-NII growth, as I mentioned earlier in the beginning of this section that our fee engine on the bancassurance and on the mutual fund, even it starts to show good recovery, but a large portion of our fee comes from loan-related business. So if we can grow that part, we would be able to manage to grow the fee. But if the economy is still weak, that would be a big challenge. So what we need to do is to continue to manage our cost well, rationalize the branch footprint, make sure that our investment would be focusing on the area that will result in the long-term cost efficiency. And with that, we think that the Stage 3 remain challenging because customers who cannot pay will start to show their symptom. And on top of that, where the bank market used to rely on selling of the NPL as seen from last year that company that were set up to buy bad assets from banks start to have their own issue as well as they cannot collect or they cannot liquidate the asset that they purchased. So they slowed down the purchase, meaning that the NPL through loan sale would become more and more challenging. That's why we set the sales target a bit higher than what we have at this point. So the credit cost would remain to be at a moderate level, not sharply reduced because of the reason that I just mentioned. So that would be the guidance for this year and months to come. Okay. Thank you, Khun. So I pass it back to Khun Dararat so that she can open up for Q&A.