Major Thai commercial banks delivered better-than-anticipated profits in the second quarter of 2025 despite challenging economic conditions, according to analysts at CGS International Securities (Thailand). However, the industry faces ongoing strains amid tepid loan growth and worsening asset quality.
Resilient Earnings in Q2
The collective net profit of eight commercial banks under CGSI’s coverage reached 57.2 billion baht for the April-June period, marking a 5.2% increase from the same quarter last year, though slipping 3.6% from the previous quarter. Notably, Kiatnakin Phatra Bank (KKP) led profit surprises with results exceeding estimates by 40%, benefitting from robust fee income. SCB X (SCB) also outperformed, posting earnings 18.4% above expectations, aided by investment gains and tight cost controls. Kasikornbank (KBANK) delivered a positive surprise as well, reporting a profit beat of 17.5%, attributed to effective expense management.
Strong investment and fee income were key drivers behind the positive earnings surprises, offsetting weaker results in other areas.
Growth Pressures Evident
However, banks continue to exercise caution in extending loans, particularly in the small business and retail segments. Total pre-provision operating profit (PPOP) growth edged down by 0.3% year-on-year and 0.9% quarter-on-quarter as aggregate loan balances slipped 0.8% from a year ago and 0.2% sequentially.
Non-performing loans (NPLs) inched higher, with the sector’s average NPL ratio rising to 3.72%, up from 3.68% in the prior quarter. Credit costs increased by 8 basis points quarter-on-quarter to 150 basis points. Meanwhile, provisions for problematic loans also rose, with NPL coverage reaching 192.5%.
Margins Under Pressure
The sector’s net interest margin (NIM)—a critical gauge of lending profitability—declined to 3.27% in Q2, reflecting a 32 basis point drop year-on-year and sliding 9 basis points from the previous quarter. Yields fell faster than funding costs, putting additional pressure on sector earnings.
Muted Outlook for Second Half
Looking ahead, CGSI anticipates a softer profit trajectory in the latter half of 2025, citing persistent margin compression, lackluster loan demand, and elevated credit costs. The brokerage maintains a neutral stance on the banking sector overall, highlighting SCBX (SCB) and Krung Thai Bank (KTB) as preferred picks for investors.
