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

Good morning, everyone. It's a pleasure to have you with us for this earnings call. So, to start today's session, I would turn the floor to Khun Piti, our CEO, to give you highlights of this first quarter's results. And after that, Khun Naris, Chief Strategy and also Khun Somkid, CFO, will walk you through and deep dive into the financial performance and operational highlights. Over to you, Khun Piti.

Thank you, everyone, for your time. Since the financial results of our banks already came out, maybe if I need to put the headline on to the results for the first quarter, I will call it good from far, but far from knowing what will be next. And maybe only [ Trump ]and his son would know what will be next. Besides, I think most banks, we are saved by Vayupak and the result is exaggerated by KSO. I will go in more detail, why I give the headline like that. But one thing I noticed is that most banks, if not all, start to share the same thing, which I would call this a phenomenon of convergence in strategy and direction. That are, first, flight to quality; second, cost rationalization; third, focus growth; and fourth, preparation for potential negative impact. And last but not least, capital management includes dividend improvement. The first one, flight to quality. I keep mentioning this for years that the outlook for Thai economy is not that strong. So, it would be better for the bank to really focus on the quality. So, you can see that the risk cost for this quarter has come down to 83 basis points and with actual MO 53 basis points, mainly allocated to potential CAR impact and mortgage on the low-income group. Second one, the cost rationalization. You can see that our base costs are very much flat, but additional cost for this quarter come mainly from the mutual separation program. And the newly acquired TTB wealth and incentives that grows with the fee growth. Speaking of fee growth, why I say that we are saved by Vayu and exaggerated by KSO. You can see the fee growth of 37%, and I call this exaggerated by KSO because we must take out the KSO and because the benefit of KSO will start from second quarter last year. And Vayupak fund has shown good dividend and capital gain in quarter 1 of this year. If removing that out, you would see only 10% growth, not 37%, which most banks sharing the same characteristic and also that growth Q-on-Q on non-NII. That's why I said it's good from far. Focus growth. You cannot save risk costs and growing at the same time. We managed to bring down risk cost, but it came at the expense of asset growth. However, we can manage to grow loans in area that we still see a decent risk-adjusted return through our risk-based pricing strategy. That's why our NIM is still very much manageable. And preparation for potential negative impact. We have set an IMO, as mentioned, mainly for home loan of low income and the sector that may have impact from CAR situation. And with all that, we are very confident that we can continue to provide a decent total return through a good dividend and continue on the buyback program. So may I pass on to Khun Naris and Khun Somkid to walk you through more details.

Thank you, Khun Piti. So, I think moving on to next -- I think as we did every quarter, let me and Khun Somkid provide you an update on each of the key strategic initiatives of TTB. Starting with the first one on the balance sheet management. Let's move on to the next page. So, in this quarter, in quarter 1, essentially, our NII declined slightly by about minus 1% Q-on-Q. This one, I guess, as you may know, is mainly driven by the softening macroeconomic environment. So, we observed the cut in the MPC rate in February. I guess the GDP for Thailand still remain very much sluggish on top of the geopolitical uncertainties in the Middle East. I guess the bank strategy remain what we shared last time. We focus on what we can control. So that means quality growth, as could be mentioned. Also, on the NIM side, we try to defend the NIM by proactively managing our balance sheet. As you can already see on this slide, NIM actually moved upward Q-on-Q by 7 basis points. This is in the opposite direction as the overall MPC rate, as you may know already. I guess there are a couple of factors that result in this. Number one, as I shared also last quarter that we proactively managed our TD, which is the high cost of deposit. I think that's contributed to lower cost of funding, which allows us to boost up NIM. Also, another important initiative is also our gradual shift toward a higher-yield loan mix, including things like top-up loans, CYB, CYC, CYH as well as credit card that also helped us defend the NIM from further declining. So, I guess that allow us to show the NIM result at 3.02% in this quarter. Please note though that I think the impact of MPC cuts came very late in the first quarter. So, the full quarter impact from the latest cut is yet to come fully in the second quarter. Moving on to the outstanding loan growth. I guess, in line with macro environment, we see a slight decline in terms of the loan outstanding. The major decline comes largely from corporate segment, SME as well as a slight decline in auto lending. However, in line with our strategic direction, we still see moderate growth in our high-yield portfolio. For example, Cash-Your-Home and personal loan increased by 3% Q-on-Q as well as our CYB portfolio also still see a healthy growth rate of 10% increase in balance Q-on-Q. For the deposit, I guess, we try to manage loan outstanding and deposit outstanding together. Given the decline in loan balance, we also run down the deposit slightly. Our deposit shrink by about minus 1% Q-on-Q. The major component that results in the decline is largely the TD, which is the high-cost component in our deposit base. So, TD went down by about 13% year-to-date. So that's helped us enhance the NIM, as I mentioned earlier. Also, I guess, you will notice that the decline in deposit is slightly less than our loan outstanding decline. That would allow us to lower the LDR ratio a bit from 95% to 94%. This would add a little bit more buffer and flexibility for the bank to manage the liquidity and provide cushion in case of uncertainties. On the next page, I guess, just a little bit deep dive on the NIM part. If we separate into the loan yield and cost of deposit, you'll see that I think the loan yield holding up quite well despite the MPC rate cut from the shift in loan mix portfolio, as I mentioned earlier, while the cost of deposit declined 11 basis points Q-on-Q, partially from TD repricing as well as shifting TD balance to other hybrid product as well as investment product. So, the last component of balance sheet management that I want to focus is on the investment portfolio. I guess a slight change in terms of our investment portfolio. I think one thing is slightly more proportion of fixed-rate bond. We shift from 87% last quarter to 90% in this quarter just to lock up the rate as we think that the rate is at the low level already. Another part is to shift the proportion of our investment slightly more towards mixed medium-term investment to benefit from the steepening of the yield curve. I guess on borrowing, nothing changed much. Our borrowings still remain at THB 15 billion, similar to last quarter. So, I think that's overall update on the balance sheet management. Let me move on to the revenue generation. So, in this quarter, as Khun Piti already touched upon, we see a healthy increase in non-NII, but that's largely driven by the element of KSO as well as Vayupak. But excluding these two items, I think the core income still shows moderate growth at around 10%. If I move on to the next page, maybe I will share some of the key components of the core fee income. I think the part that did very well still is on the mutual fund and structured note sales. I guess this is in line with broader interest rate environment in the country. So, as MPC coming down, deposits become less and less attractive compared to alternatives. So, we see behavior of our customers shifting their wealth from products like TD or Hybrid deposit to products like mutual funds or structured notes. So, we continue to see healthy growth in the fees related to these two products, showing 9% growth Q-on-Q and 75% growth year-on-year. I guess on top, our strategic fee product like bank's "cash your" as well as credit cards still demonstrate a very healthy growth year-on-year, despite a slight decline Q-on-Q, given seasonality aspect of these two products, which has high volume in the last quarter of the year. Trade and FX remain very healthy, growing 17% Q-on-Q, but flat year-on-year. So, I think that's kind of the summary of the fee and non-NII aspect. Maybe I touch briefly in terms of our ecosystem play. As Khun Piti mentioned, we want to be very focused when it comes to growth. We want to ensure that we do not compromise on the asset quality part. So, we focus on what we know well. So, these are the four ecosystems that we focus on. If we move on to the next part, just to share with you, I guess, for each of the ecosystems, we don't look at any single product in particular, but we want to make sure that we capture the relationship as a whole using the flagship product that we have in each of the ecosystems. So, I guess I will not bore you with all the numbers, but you can see that I think most of the key metrics are still trending in the right direction in line with our strategy. Maybe moving on to the next page in terms of the wealth ecosystem, also, I guess, similar to the previous three ecosystem, also something that we focus on a lot. I think maybe one clarification on the FCD balance, you may see a slight decline Q-on-Q. This is based on the customer behavior that are shifting the FCD AUM into other types of products like mutual funds that I mentioned earlier as well as some of the alternative investment products. But overall, I guess, we still see a healthy performance of our wealth segment. Also, another key indicator is the loyalty status breakdown. So, I guess we launched this quite some time already, and you can see that it started gaining scale. The number of customers moving up loyalty tier is already exceeding 170,000 customers, adding AUM over THB 16 billion in AUM. For us, this is more or less a long-term strategic initiative that we want to convince the customer that the more they bank with us, the more benefit and privilege that they would get and seem like the customers are adopting the program quite well. Moving on to the digital part. So, on the next page, this is maybe just focus on the left-hand side. This is the first time that actually the revenue generation from TTB Touch and TTB Enterprise, which is our staff assistance platform, exceeds 50% already. So first-time revenue for our retail banking came from these two platforms in line with our strategic intention to lower the cost to serve, increase staff productivity as well as enhance the customer experience. And we still believe that I think this ratio will continue to grow up as there are still pockets whereby it's on our road map to expand these two platforms to cooperate. Maybe I move on to Page 23. So overall, as I mentioned, Digital continue to grow quite healthily. On the offline part, I guess, we continue to observe the shift in the customer behavior away from the offline channel. So, traffic at branch, transaction at branch as well as calls to contact center agents trending downward, roughly about 10% to 14% Q-on-Q. And lastly, moving on to the cost part on the next page. So, in line with our shift in the channel mix that I mentioned, we also try to rationalize our cost base in line with the shift in the customer behavior. So, we will see that the number of branches is trending downward still. We end the quarter at 409 branches -- so a slight decline further from the end of last year. Also, the number of staff also trending down, touching 13,200 employees with us. So that would translate into the very well controlled OpEx. As Khun Piti already touched on already, if you look at OpEx on this page, year-on-year, maybe showing a slight increase of 8% year-on-year, but that largely comes from a component that is from the mutual separation program as well as from the consolidation of TTB Wealth into our consolidated P&L. But other than that, if we just look at salary, the largest fixed cost in our OpEx, it remained pretty much flat Q-on-Q, very well control. So, I guess that's the update on my part. Let me pass on to Khun Somkid on the remaining three areas.

Everyone. So, on the asset quality. Next slide, please. I think this four number show the result of continuations of our conservative as well as disciplined -- the number is quite maintained in terms of LLR and NPL number has been steady or downward trend over the past 10 to 14 quarters. This is the result of the three actions, which is the ensure the risk-adjusted returns from the optimizing portfolio and risk-based pricing. The early engagement of the troubled customer, which would help improve the NPL prevention or NPL formations and as well as the enable which is the Digital and AI-led collection. The next page would be the composition which proves our conservative asset policy strategy. 40% of the stage 2 is coming from the DPD of 1 to 30 days. But rest is classified the same as the stage 3 which is 3.3% DPD more than 90 days and this is LLR/total loans to 5% versus the 3% during the pre-covid period. Next page. I think 'You Fight, We Help' number is stable because we ended the program application. So, it's about THB 39 billion or about 3% of the total loan. And we use the conservative staging criteria, which would take about 15 to 27 months before we can do the upgrade. So far 85% of the customers can continue to perform normally in their stage and we will see the upstage in the second quarter of this year onwards. While in the first quarter, we have the program to support the southern flood-relief provisions and incidents we have both internal one, which is called Tangluk, the customer in this program is about almost THB 1 billion or about 0.1%. And on top of that, we have the program in collaboration with the BOT, which is about THB 1.3 billion or 0.1% of the total loan. So altogether, it's about THB 2.2 billion. The next page would be another key number that proves the stable and sustain of the asset quality in terms of the ECL on the left chart, which is a downward trend from 120 in the first quarter of last year towards 83 basis points. However, it's like the not confidence in the Middle East and also the decline in the secondary housing prices. So, on top of the normal ECL and put the MO for about THB 1.6 billion in this quarter. So, all together in this quarter, we have the risk cost of about 136 basis points and that would sustain our LLR on the right chart to be 154%, which is stable for about 10 quarters. And upon the next page, the reserve and the credit cost and the MO that we put, the beauty of it is that we have the stable to decline after stage 3, so that we put the ECL and MO on stage 1 and stage 2 to make the portfolio qualities better. And the next one, I think one of the factors that we can sustain the Stage 3 is that we are quite good on the reducing of the Stage 2 from 2020, which we have Stage 2 of about 8.3% or THB 132 billion downwards to THB 102 billion in this quarter and that would reduce the Stage 2 to be about 7.7%. I think -- and that would sustain our Stage 3 in the past. And the next part will be on capital efficiency. You may see that the left chart, the profit has been growth comparing to during the merging bank period, and we have the average growth of about 19% and the ROE is about 8.6% and the usage of the capital using the NII towards RWA is quite stable and on the downward trend follow the NIM and interest rate that is on the downward trend. And the last part, the optimized shareholder value creation. I think this is the balance of the four actions, which in this quarter, we have the update on the share purchase and the inorganic growth. And -- the next page will be the update on the inorganic growth. We have the new subsidiary. One is the TTB Wealth that we have 99.97%. Just to recap, this is to support the ecosystem and the update one is TTB leasing, which we hold about 70%. This is to support the payroll ecosystem on the motorcycle leasing. And we just set up the company, and the new booking will start in second quarter. So maybe in the next time, I will update on that performance. And the next page is -- we show -- I think this is quite good page to summarize the balancing of the actions. We have stabilized LLR ratio to support the asset quality, the capital ratio that is still on the strong base. We have about 19.7% CAR ratio in the first quarter. The 20 basis points up from the last quarter because we have the capital roll in February. And the last balance is the return to the shareholder in terms of the dividend. Just to share that in 2025 versus 2024, we have used almost the same number of money in terms of the dividend payment, but it returned to be the dividend per share higher, especially the second quarter, which we have done 2 rounds of share buybacks so that the dividend per share would increase from THB 0.066 to THB 0.068 equivalent to 5% and sum up to be THB 0.134 for the 2025 performance and dividend yield is stable at about almost 7%. And just to update on the buyback program. And so far, we have the budget of about THB 35 billion. We just got approved from the AGM yesterday, and this is equivalent to about 18% of our capital and the program would be extended from 2027 to 2028. Right now, we are in the Phase III with the budget of THB 9.6 billion, which we execute during the February towards the August -- and that would support on the bottom right chart that support the price of the share to grow up during the past 2 quarters. Yes, I think that's it from my part. So, I pass on back to you.

Thank you.