Krungthai Card (KTC)'s net profit fell 50 per cent in the second quarter due to higher funding costs, prompting the company to look for new businesses to boost income.

The options include mutual funds, acting as a sales agent for life insurance policies, and providing mobile payment services and entertainment content.

The firm announced a net profit for the second quarter of Bt80.36 million, down from Bt160.95 million in the same period last year due mainly to rising funding costs, provisions for bad debts and operating expenses. The company's first-half earnings were Bt215.53 million, down 34 per cent from Bt328.2 million a year earlier.

Senior executive vice president Chutidej Chayuti attributed the fall in net profit to three key factors: an increase in the cost of funds, a jump in bad-debt provisions and rising operating expenses.

He said the company's funding costs had increased by 100 basis points between the end of 2005 and the middle of this year. This was in line with the country's 14-day repurchase rate (R/P) increase. The policy signal rate increased from 4 per cent to 5 per cent during the period.

In the first half of the year, KTC recorded total expenses of Bt2.47 billion, Bt166 million of which consisted of card acquisition costs, which increased 223 per cent year-on-year. The company's provisioning for bad and doubtful debts over the period totalled Bt654 million, up 51 per cent year-on-year.

KTC president and CEO Niwatt Chittalarn said the firm planned to boost credit-card and consumer-loan accounts significantly in 2006 and 2007.

The company has set aggressive targets for its customer base expansion in preparation for future revenue growth, particularly fee-based income. It has total accounts of about Bt1.5 trillion, of which Bt1.3 trillion is credit-card based, and the remainder loan-based.

The company's ratio of interest to fee income is 65 per cent to 35 per cent. KTC wants to adjust this balance to 50:50.

"Our yield has been reduced, particularly in the credit-card business, due to the higher cost of funds. We started the credit-card business in 2002 [after splitting from Krung Thai Bank], when the R/P rate stood below 2 per cent and the interest rate charge on credit cards was 18 per cent. Now, the R/P rate has increased to 5 per cent, while the card rate has remained unchanged," Niwatt said.

He said the company would

use its customer base to expand into retail businesses, employing

a product cross-selling stra-

tegy. These include selling life insurance policies, mutual funds and providing mobile payment and entertainment content services.

Once the KTC brand is strong enough, he said, the company would examine other ways to expand fee income, such as providing marketing or loan portfolio management outsourcing services for other credit-card issuers.

Somruedi Banchongduang

The Nation