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

Good afternoon to everyone. I hope it's not too late to say a happy New Year to everyone. And I wish you all have a prosperous year for -- year of course. I think it's on time already. So I would like to pass the stage to CEO to wrap up year 2025. And then later on, following that, it will be CFO and Chief Digital and Strategy to give you more detail and then come back with our guidance for this year. Over to you Khun Piti.

And thank you, everyone, for your time, your interest. Once again, I hope it's not too late to say happy New Year to the year that may not make everyone so happy with all the volatility and uncertainties that we are facing. So let me skip this page because after the meeting, you can read it anyway, and then let's go to the next page on the journey on Page 3. Go back 1 page, please. Yes. As you see for many time, our journey continue. Starting from last year, 2024, things that we think it will not happen and did not happen mean all the good things that we know that it will not happen, it did not happen. And things that we think that it will happen, it did happen, meaning that all the bad things. So when you say that, are we too conservative and are we too pessimist on the outlook? I think now it's proved that it's better to be on the conservative side and things seems to continue on that trajectory. So on this page, we start our journey from the synergy, cost synergy, balance sheet synergy and revenue synergy. What's next after we have done most of that already. So this year onwards, I think things would continue to move in the direction that we want to see, meaning the business model transformation. But that does not mean we are going to do fancy things, follow all the hypes, but we would stick to basic things that we consider it is a transformation. It is something that we will try to make our business model become more digital oriented, digital first, digital only. And with that, we hope that it will help improve product offering, reduce customer attrition, improve customer experience, increase revenue with lower cost to income, improve cost efficiency. That is the goal and that will continue. On the next page, as you see, in order to achieve that, we continue our journey. We try to reduce the risk on the SME portfolio, shift the mix more to retail and on selected segments, selected product, on selected segment to make sure that risk-adjusted return is right. One thing that could be a bit different would be on the SME side. This year, we will revisit and may start to grow SME on selected segment again. Why is that? Because we work with the government through Minister of Finance, with the industry that we want to see the way to support SME in a more systematic manner. This year together, we will launch the promise, start with the government e-procurement to make lending to SME more transparent so that we can do more of the risk-based pricing, can be more systematic, more structured, focus on the right customer with transparency and visibility. We will start to focus on the segment that we began last year. For example, the partnership with [indiscernible] that would allow us to do more of the data-driven lending. Something like that would start to kick in this year. So going back to something that we stay away from, meaning that we have to find a way to do things differently because we believe that lending to SME is still very important for the economy and for us, but we cannot do in such a way that we have done it before. On the asset quality, we continue to build in the cushion to LRR and manage down the Stage 3. To define that, we believe that if things going in the direction that we want to see, we might be able to start to release back to the P&L. But if things continue the way we think it is, meaning that with the asset -- right asset growth strategy, we can manage the quality of the portfolio without the declining -- further declining or fast declining in economic situation, meaning stabilized quality, then the cushion could be released back. That's why we built not just to keep it, but to use it when things getting better. The focus for last year and this year is not only on the NPL. NPL come if Stage 2 is big. But if we can manage to build better quality portfolio, we should continue to see lower Stage 2. And that is the goal to continue to reduce the Stage 2. And if we achieve that, the level of Stage 3 and flow will come down and the risk cost will come down over a period of time. And that's how we drive our profitability over the year. On the capital, as you see, capital is already very strong. That's why our goal is to manage capital through buyback. And on digital users, you can see that now we have 6 million (sic) [ 6.36 million ] users. Then what next? So from now onwards, it's all about monetize the customer that we have, make sure that the attrition rate getting lower and we can understand them more, keep them longer, make them happier and offer them the right products. That is the goal. On the next page, I think I will not spend much time on this one. You already saw the result. As you see, we do not expect that we will see loan growth, and we try to selectively grow the loan at least to flat the balance sheet. But last year still was not a good year for retail for auto loan, even the market come back a bit, but the overall is still on the declining trend. Rate cut as already expected of 2x cut became 4x cut. On the fee growth, 16% is a large number, and it will not repeat itself because 6%, close to 6% that comes from the reduction in fee expense because of the You Fight, We Help or KSO program. It will not repeat itself this year. It's kind of onetime. But of course, that onetime helped reduce the risk cost, increase the fee, but result in big decline in interest income because we have to waive all the interest of the good customer. And with the big reduction in income, it means even we can stabilize the cost, the CI ratio remain at 45%, not coming down as we expect. The rest, I think I already explained that -- why the number turned up that way. Moving to the strategic intent. We will not -- with all the tax remain the same. Next, it's about the quality growth, not just the growth. It's about the investment, but not about investment that anything digital, but it must be digital that would change the business model, would help achieve our goal. And the goal is on the right, the improvement in ROE cost income, high-yield loan mix. That are the goal and how we're going to achieve that and the progress of where we are. May I pass it to our Chief Strategy, Khun Naris to explain that. Thank you.

Thank you, and good afternoon, everyone. So I think in the next part, I'll let me and the CFO provide an update on the strategy framework. I guess, just in terms of our framework itself, we still believe that we are in the right direction and the framework that we communicated to you over the last year still very much hold for 2026. I think the effort, as CEO mentioned, is more around sharpening our thinking and reaping the benefit of the effort and investment that we put in earlier so that is going to be -- continue to be the theme for 2026. So let's focus first on the first theme, effective asset-liability management. So all in all, on Page 4 -- on Page 8. So we -- in 2025, with NII of 50.6%. That's about 10% decline year-on-year. I think as we communicated all along, I think it's pretty much driven by loan contraction from the external environment and softening demand as well as the NIM compression from the MPC rate cut that we observed pretty much every quarter last year. However, if you look at the quarterly trend of NII on the bottom right, you can see that while we are on the declining trend still, I think the NII at a quarterly level start to stabilize somewhat towards the end of the year. So I think that's 2 things that I think tell us. One is, I think at the -- on the big picture, I think we are still operating in the backdrop of a softening economy. The level of market volatility and uncertainty remain very much very high, and that will continue into 2026. In terms of the direction of the bank, we focus on what we can control. And hopefully, that will help counterbalance some of the external forces coming back at us. So maybe let's move on to the next page in terms of the loan book. So I think on this part, given the softening economy, the loan book overall declined by about 2.9% year-on-year. If we look at the last quarter, though, we see a small growth of 0.6% Q-on-Q. I think on this particular point, I just want to be clear that I think what we observed in the last quarter is rather seasonal rather than a structural shift signaling growth expansion in particular, for the last quarter, essentially, the key driver, expanding of the working capital loan from corporate segment, credit card loan from the year-end spending, as well as the car loan from the motor show event towards the end of the year. But I guess, in aggregate for 2025, which will go into 2026 as well, we expect the real demand to remain soft as can be implied through very low car sales, very low home sales compared to the historical level. So when it comes to strategy for the bank, I think the direction that we have been operating over the past couple of years remain very much relevant. We remain cautious when it comes to new loan booking. We don't want to trade short-term benefit of producing NII growth at the expense of risk cost later down the road. And all in all, we want to explore pocket of growth where the risk-adjusted return makes sense. For us, I think the retail customer remain at higher return, and that's the area that we want to focus. Within pocket of retail customer, we want to focus on top-up loan, focusing on the customer that we know, focusing on the customer that we already observed that they have good repayment discipline as well as some of the high-yield lending product as a cross-selling product on the good customer that we have like credit card. So moving on to the next page. In terms of the deposit portfolio management, I think more or less driven by the pattern we observed in lending. At the end of the day, this is something that we manage together. Given the soft lending demand, we also manage the deposit accordingly. And on top of that, I think the optimization of the cost of deposit is also something that we work on. So given the declining rate over the last 5 quarters, I think what we are working on as well is also optimizing the cost of deposit. As you can see in terms of the composition of the deposit portfolio, the proportion of TD slowly coming down, very much so in the last quarter as we managed to reprice a bit of TD AUM that come due. And I think the product that received the benefit of that is what we call hybrid or product like no fixed as that is a nice place where our customer can park their AUM while waiting for the right investment opportunities. And on top of that, you can also observe that the CASA proportion of our balance come up a bit. I think that's driven by absolute growth in CASA balance as well as the decline in TD proportion, as I said earlier. So -- maybe we move on to the next part in terms of the overall yield and cost of deposit movement. As I said earlier, I think the yield part -- the part that we cannot control is the MPC rate cut, which keep pushing down the yield. The part that we can counter that quite a bit is essentially optimization in our lending portfolio to focus on pockets whereby produce a bit higher yield without taking excessive risk. And I guess on the deposit part is pretty much what I said earlier in terms of repricing the TD portion. But all in all, if you look at the quarterly movement of both loan yield and cost of deposit, you can observe the pattern that the passing through of the impact from MPC rate cut happened quite a bit more on the loan yield aspect, while the cost of deposit, you only see a bit more impact on the last quarter last year. This is the nature of the repricing of loan versus the repricing of deposit, whereby the deposit part got locked up in TD quite a bit. So I think the impact would cut somewhat delayed. I think on this regard, we expect that the repricing of deposit will continue throughout the first quarter or the first half of 2026. So I think that would hopefully help counter the impact of any further MPC rate cut this year. So moving on to investment. I think this -- I think overall theme and direction remain the same. We focus on prudence. We focus on disciplined execution, and we want to prioritize stability and liquidity over any speculative return. So I think that will continue to be the theme for us and throughout 2026. Moving on to the borrowing part on the next page. I think this one also similar. So there is less and less need for us to do borrowing. So in the last quarter of last year, we also reduced the borrowing further given that one of the PAMCO bond came to maturity, and we did not roll that over. So I think that's pretty much an update on the balance sheet management. Let me move on to the next part, which is essentially how we improve PPOP through ecosystem play and digital migration. So on Page 15, so on the big picture, on the contrary to NII decline, we observed growth in non-NII. But as CEO mentioned, essentially part of that growth in non-NII driven by one-off KSO impact. But if we exclude that impact, the non-NII growth came to about 10% growth last year, which if you look at the right-hand side, the key driver of that come from the nonloan-related fee. If we look on to the next page, maybe you get a better glimpse in terms of key driver of the growth. Essentially, the broad theme is wealth management fee. We see a bit of growth in the last quarter for investment for structure note fee as well as bancassurance. And also, I think throughout last year, we observed continued momentum in credit card, trade and FX, which is the area that was doing quite well last year and hopefully continue into this year. Moving on to the next part. I think as we keep updating you on the ecosystem play, I think we still believe that these are the key areas for us to really enhance the revenue generation capability in the long term. Why is that? Essentially, the contribution of ecosystem customer is really the key driver of TTB economic model. Essentially, when we define ecosystem customer, we talk about 4 ecosystem, salaryman, homeowner, car owner and wealth customer. And combine all these 4 ecosystem, we are talking about at least 80%, if not 90%, contribution of our balance sheet and P&L. So what are the key shifts that we are expecting? Essentially, when we say ecosystem play, what we mean is that we want to shift from product-centric or product play into customer-centric or customer play that we look at the customer as a whole and try to address their need and pain holistically. And hopefully, that would result in the relationship that is a bit deeper between us and the customer from the mono-product relationship to multiproduct relationship. And hopefully, that also helps us sharpen how we engage this group of customers because their need and play would be quite clear through the ecosystem lens. And lastly, there may be certain areas that we need to go beyond banking product and service. I think we would be willing to do that through in-house development or even partnership. So that's essentially the key theme or how we plan to approach ecosystem. So moving on to the next part. I think we would like to share some of the key drivers for each of the ecosystem. I think the common theme across all of this ecosystem is the digital penetration and digital engagement because digital platform through ttb Touch is probably the only way whereby we can keep frequent engagement with this group of customers. And that's what we have been driving over the last couple of years to ensure that each and every customer would have ttb Touch on their mobile phone, and they keep coming back regularly. So that would serve as a chance for us to really engage with them, talk to them and hopefully convert some of those occasions into cross-selling and upselling opportunities. For each of this ecosystem, as you can see on the slide, there would be product suite that we look at the need and pain of each of the ecosystem and think that there would be something that we would like to engage the customer with. For example, for car owner, rather than just focusing on auto loan, we would also look at the CYC Top-up. We would also look at the motor insurance as an example. For homeowner ecosystem, I think a point to be known here is a shift in the -- how we approach the market. In the past, mortgage through new home is the way that we try to grow this portfolio. But given muted new home sales, we shift the focus to refinance. And you can see from the bar chart in the middle that the amount of refinance in terms of unit and in terms of bar went up quite a bit year-on-year. That's because of the shift in focus. And maybe moving on to the next part on the wealth ecosystem. I think this one is very important to us, given that I think lending, as we discussed, would continue to be challenging. And we think that the group of customers that still have purchasing power and continue to spend is probably this group of customer. And given low interest rate opportunity for us to really engage with the customer in terms of the investment opportunity become increasingly more and more. And you can see on the chart that I think this ecosystem for us continue to grow in line with that direction. Also on top of that, we launched the loyalty program for all the customers in the bank. But I guess when it comes to target customer, the loyalty program really geared towards the real customer, given that this would benefit the most. And you can see from some of the key stats shown on the slide that I think we get good engagement in terms of the number of customers moving up the loyalty tier, which means they have higher product holding with us or they have higher AUM with us. That reached a certain tier -- criteria, also participation in the mission as well as the AUM uplift from the well-related mission, which is quite sizable at THB 14 billion. So moving on to the next part, I guess, in addition to ecosystem, another thing that's really important is the digital migration as well as the shift in business and operating model to drive digitalization. As you can see on this page, I think the contribution of digital on the sales side is quite significant already. So at the end of last year, we are approaching 50% of the retail sales via digital channel already. And if we break it down into product key product, you can see that I think across all the key products, the digital adoption is quite high. So that I think we believe that would continue to be the case for 2026 as we think that -- I think the growth in terms of the digital sales continue to be very strong and adoption by the frontline customer to use digital as their tool for fulfillment, still there's some room that we could drive further. Moving on to the next. I think in terms of the key highlights, I just want to highlight a few things. As I discussed last year in terms of the launch of the staff-assist tool called ttb Enterprise. I think just want to wrap it up that we roll out to all the branches and the contact center nationwide already about 5,000 staff using this tool clearly at the front line. And that allows us to essentially migrate from the commercial platform that we use for CRM, and that would result in saving around THB 40 million a year for that in terms of licensing fee that we don't need to pay. Another area is AI. So I guess you probably have heard a lot about AI use cases. I think for us, we actually use it for one of the key feature of ttb [ Touch ], whereby the customer can chat and ask question, inquiry about anything. At the end of 2024, we rely about 80% of the conversation to be done by staff. Fast forward at the end of 2025, that 80% went down to roughly 40%. So that's the level of progress that we have made. And I believe that I think the trend will continue in 2026 as well. And CYC top-up loan, I think this one, as we discussed, very important for us in terms of key strategic product. And we use digital to essentially allow instant credit decision and the customer would receive disbursement within 1 minute. And the proportion of booking went up from less than 10% to 17% at the end of last year. Maybe last page. On Page 24. So I guess in terms of customer behavior, we see the shift continue from offline to online. What that means for us is we continue to optimize our physical footprint accordingly. So last year, the branch network came down by about 10%. We end the year at 432. That also allowed us to reduce the workforce to 13,600. So all in all, when it comes to OpEx, despite the increase in digital investment and all, we offset that with the savings from branch footprint and staff. So the OpEx remained pretty much flat year-on-year between 2025 and 2024. So I think that's the key achievement, and we believe that the cost discipline is something that we focus on and we will continue to be the trend for 2026. So that's it for my part. Let me pass it on to CFO on the remaining 3 items.

Good afternoon. So this is the path for the asset quality, which I noticed from many of your research. I compliment on our continuous -- on the strength of these asset qualities. So next page. I think the 3 key actions that leads us to the strong asset quality is the employment of the risk-adjusted returns in order to screen the customers acquired to ensure that we get the right customer at the right risk-adjusted return. And the second one is to early engage with the travel customers to offer the package or the campaign in order to ensure that they will survive. And the last one is employ the digital and AI-led collection to improve the efficiency. The next page will be the result of our 3 key actions, starting from the loan staging at -- in Stage 2 has been declined about 50 basis points from the last year, while the Stage 3 you may see that it's slightly higher partly because of the lower of the total loan balance. However, the balance of the Stage 3 remain unchanged. Even though we declined Stage 2 balance; however, we still ensure that our portfolio is at a strong level. We're still using the qualitative as a factor to stage the loan, as you may see from the right side that even though the DPD after 30 days only 2/3 of the overall, we still have another 1/3 that we use the qualitative downgrade and similar to the Stage 3 level. And the next page would be the summary of the You Fight, We Help program in -- that we have done in 2025. Overall adoption is about THB 41 billion, which is about 3% of the portfolio loan. And majority of it is coming from mortgage and SME, which play around the customer core asset and this would ensure the high success rate. And right now, we have another program to support the customer, which is called Tangluk to support the Southern Flood Relief Program, especially in the Songkhla area. So far -- as of December 2025, the customer has applied for this one is about THB 4 billion, and this program will still continue in January. And the next page will be the ECL that we have set along the year. On the right side, we show that the LLR level is stable year-on-year. We closed at about 152% and the composition of the ECL mostly coming from the ECL at about 106 basis points in 2025, but we still use the opportunities to insert the overlay by about another 30 basis points. So altogether, total credit cost is about 136 bps. This reduced over 2024 that would suggest a strong. And the next page would be the composition by setting even though we have the inspection and reduced the portion for the Stage 3, but we still put a lot of ECL on the Stage 2 and Stage 1. And the last part would be the historical of Stage 3 over the past 2, 3 years, that's quite stable. And like I mentioned, the number of percentage may be higher, which depends on the total loan balance. And next section will be on the capital efficiency. And overall net profit in this year is about THB 20.6 billion, slightly declined 2% from last year and the ROE is about 8.6%. The NII to the RWA may be declined follow -- the NIM which followed the MPC rate. And the last part is about optimized shareholder value, which is 4x. I think this year in 2025, we have done a lot on the bottom 2, which is the share repurchase and the inorganic growth. The next page would be the detail. In last year, we have acquired 2 businesses. Number one is security business with the objective to complete the suite of the investment product to support the wealth ecosystem. This has been completed the transaction in July, and that would -- that has already started the operations and we are in progress of the rebranding activities. And the second one we just completed shareholder agreement in November. And this will be the new JV set under the TTB consumer for our subsidiary. This would be to support the lower income payroll ecosystem and that would -- the key items that we plan to do is to enhance the credit scoring and underwriting effectiveness. This company is under the setup and to get approved by the BOT and expect to start the operation in the second quarter of this year. And the next page would show the solid capital. So end of 2025, we have the capital ratio of 19.5%, much higher than what is required by the BOT and the Tier 1 of 17.5%. While the dividend is -- we have done the interim dividend in the -- for the first half performance at 60%, and that's equivalent to the dividend yield around almost 7%. And last page, we showed share buyback. Last year, we have done THB 5.1 billion of the share buyback of THB 21 billion program. And this year, we have announced the second share buyback with a budget of THB 8.9 billion. That would be equivalent to about 4.5% of the total capital. Today is the first day that we have done the repurchase. So that will enhance the shareholder returns on top of the dividend that we have regularly paid. And the overall share buyback would be on 4th of February, which we -- under this, we use general offer [indiscernible]. Out of this second round program, we still have another THB 7 billion of the pocket that we may execute in this year or next year that is to be seen on the total market sentiment. I think that's it from my side.

Thank you, CFO. Now I would like to turn to Khun Piti for the guidance for this year.

Yes. I think what would not be surprised to see this guidance that we still expect that the loan growth still be very minimal by would it come from and still mostly on retail, but very selectively. As mentioned, we will start to resume a bit of SME because the tools that would allow us to lend in a more selective manner on the industry or the company that we can see better information, know that it will be the surviving part of the SME will be available next -- this year with the support from the government and the effort from the industry collectively. So the loan growth would be minimal. With that, we have to manage deposit to be in line with the loan growth, meaning we can further trim down high-cost deposit in order to maintain the net interest margin because we expect that there will be at least one more cut, which we'll continue to further suppress the loan yield with the rate cut. And having too much deposit will start to become negative carry, not positive carry because what we can earn from repo would be less than the high rate deposit that we gave to the customer. So managing the loan-deposit ratio and deposit amount is very important in maintaining the net interest margin. As Khun Naris mentioned, we believe we can continue to grow fee income based on the business model that we just mentioned, but it will not be as high as last year because this year, we will not have the KSO program. With that effort that will continue on, on the digital first digital-only rationalization, optimization of our branch footprint, the way that we run operation, we should be able to continue to manage CI, our expenses in a good manner. On Stage 3, why we believe that it might go up. Two major things since we are moving a bit more towards higher yield loan on the retail portfolio and also on the Cash Your Car and Cash Your Book, that will result in better yield, but it would come with a bit higher risk cost. But all in all, the impact will be positive to the bank. That's the first thing. Second thing, as mentioned, last year is better than it should be because we have the special program supported by Central Bank the You Fight, We Help or KSO. This year, things will be back to normal, then the Stage 3 would go up a bit. So with that, we believe that the -- with the business model and with the outlook of the economy, the normalized credit cost would be around 130 bps to 135 bps. And with that, we think that we should be able to stabilize the profit provided the declining rate environment and the rising risk in the overall economy. However, with the buyback program that CFO mentioned, we should be able to continue to give a good total return back to the shareholder despite the fact that this new year would not be a very happy New Year. Thank you.

Thank you, Khun Piti.