Stock analysts anticipate declining earnings for banks in the second quarter due mainly to tax payments, while earnings will also fall due to higher funding costs and sluggish lending caused by political turmoil.

Kim Eng Securities (Thailand) Plc said in its report that the seven banks that it covers would record an earnings fall of 3.9 per cent in the second quarter compared to the same period last year. The decline is likely because several banks have resumed paying corporate income tax because they have recorded net profits after several years of net losses in the wake of 1997 financial crisis.  However, operating profit of these seven banks will record growth of 16.9 per cent year on year as the net interest margin has increased.

Banks earnings will also fall 8.5 per cent compared to the first quarter this year as interest income, net dividends and income from investment are down, Kim Eng said.

Net interest income at these banks in the second quarter is expected to increase by 17.9 per cent year on year, mostly due to higher lending rates as well as increased lending. However, net interest income is likely to

decline from the first quarter this year.

Capital Nomura Securities Plc also forecast a fall of net profits for banks in the second quarter by 5.16 per cent from the first quarter due to a lack of dividend incomes from the Vayupak Fund as well as higher funding costs. Thus, the net interest margin is likely to decline from 3.41 per cent in the first quarter this year to 3.3 per cent in the second quarter.

Income from fees is likely to rise by 3.2 per cent along with higher lending growth in the second quarter, compared to an increase of 1.42 per cent in the first quarter.

The Capital Nomura report said banks' net profits in the third quarter were likely to decline further due to higher funding costs as banks have competed by raising their deposit rates to attract customers over the past few months. In addition, lending growth is still a concern, although lending in May still grew well, it said. Over the first five months, lending growth was only 2.6 per cent, while consumer confidence continued to decline due to political uncertainty.

The brokerage said if lending growth remained sluggish in the fourth quarter, banks' net interest margin would decline significantly. It maintains a neutral recommendation for banking stocks.

Asia Plus Plc, another brokerage firm, also forecast that earnings of the eight banks that it covers would decline 13.2 per cent quarter on quarter to Bt20.2 billion in the second quarter, mostly due to declining extra incomes and investments. However, excluding their extra incomes, operating profits in the second quarter will increase 1.8 per cent quarter on quarter.

The securities firm said the growth of banks' total lending in the first half had slowed to 0.6 per cent from the end of last year due to the economic slowdown, compared to the target of 4.1 per cent. Deposit growth in the first half was 5.5 per cent, compared to 8.7 per cent for the full-year target.

Prasarn Trairatvorakul president of Kasikornbank said the bank's net profit in the second quarter is expected to be about Bt3 billion. He said the bank recorded a net profit of Bt3.6 billion for the first quarter, though lending over the period was lower than in the second quarter. The bank maintains a four-percentage-point spread between deposit and lending rates.

"Our net interest margin in the second quarter has good prospects, although we offered higher deposit rates recently. But deposit rate hikes would impact on the bank's margin in the third to fourth quarter," he said.

Siriporn Chanjindamanee,

Somruedi Banchongduang

The Nation