TMB or TMB Bank Public Company Limited and its subsidiaries announced today its 1st quarter financial performance of 2021. The Bank posted net profit of THB 2,782 million, up 125% from 4Q20 due to less provision compared to previous quarter. In 1Q21, the Bank set aside provision of THB 5,480 million. Such an amount was higher than normal level but decreased from THB 8,237 million in 4Q20 when the Bank significantly elevated provision in preparation for economic uncertainty in 2021.
Mr. Piti Tantakasem, CEO, mentioned "Overall, operating performance in 1Q21 was under challenging environment as economic situation has not fully resumed to a normal level. Therefore, the Bank put priority on loan quality rather than volume growth. Although, this could pressure interest income, it is more important not to add more risks to the Bank's balance sheet and asset quality under the current circumstance.
Cost discipline is another key important factor. TMB and Thanachart Bank have efficiently managed operating expenses despite the integration activities to merge the two banks. This can be reflected by cost to income ratio which has been in line with the target since the beginning of the merger.
In the aspect of COVID-19 situation, the Bank saw an improving trend from customers following the resumption of economic activities. Loan under moratorium program has gradually reduced. At the beginning, it was around 40% of total loan portfolio and down to 14% at the end of 1Q21. The Bank has closely monitored customers and found that most of customers under the relief programe still have debt service ability and they requested only for a modified repayment terms to match with their current liquidity during this difficult time.
The resurgence of the pandemic in April may have an impact in the near term. However, TMB and Thanachart Bank as well as other Thai banks have strong financial position, supported by robust capital base, strong liquidity and risk absorption ability. Moreover, last year, most banks already accelerated their provision levels in order to prepare ahead of NPL trend in 2021.
In addition, the supporting measures from government sector and the Bank of Thailand, namely the extension of debt moratorium period and the latest measures of asset warehousing and special soft loan, were a crucial instrument that allows banks to provide better assistance to customers and retain customers who still have potential in the long run. Furthermore, this lessened impacts from provision setup and helped banks manage asset quality more efficiently.
With the strength of Thai banks complemented with mechanism from the government, Thai banking industry are ready and able to assist customers amid a long recovery to the pre-COVID 19 level"
The details of operating performance are as follows. Deposit was THB 1.38 trillion, up by 0.8% from the end of 2020 (YTD). The increase was in line and as part of the post-merger plan by reducing Time Deposit and replacing with flagship products such as All Free and No Fixed which continued to grow well.
Loan was reported at THB 1.38 trillion, down by 0.9% YTD. This was in line with the direction to grow new loans selectively. Key loan growth areas would come from secured loan especially mortgage and hire purchase. Although secured loan may generate lower yield than unsecured lending, it helps limit portfolio risk, given the fragile economy due to COVID-19 pandemic.
For interest income, even cost of deposit continued to decline on the back of deposit optimization after the merger, the loan quality strategy and low interest rate environment outweighed NIM. Consequently, NIM dropped to 3.00% from 3.06% quarter-on-quarter (QoQ) and Net Interest Income was at THB 12,872 million, down by 4.8% QoQ.
Net fee and service income was at THB 3,032 million, up 2.1% QoQ. Key driver was mutual fund fee, boosted by new IPO launches as well as favorable market sentiment. However, bancassurance fee was slowdown from a high season in 4Q20. Also, the Bank had sold its investment to limit impact from volatile bond markets and booked gain from the sales in the previous quarters. As a result, gain from sales of investment was lower QoQ. Overall, Non-Interest Income came in at THB 3,971 million or dropped by 7.6% QoQ.
On the expense side, the Bank continued to manage and keep cost discipline while there were integration activities and one-time expense incurred from the merger plan. In 1Q21, operating expense was at THB 7,928 million, a 2.0% decrease QoQ. Cost to income ratio was at 47%, in line with target range of 47%-49%.
As a result of revenue and cost mentioned above, pre-provision profit was recorded at THB 8,898 million, down by 9.3%. This reflected a result of the Bank's prudent business direction amid fragile economy. However, as provision dropped 33.5% QoQ to THB 5,480 million, net profit was at THB 2,782 million or rose by 125.3% from 4Q20.
In terms of asset quality, the Bank expected to see an uptick in non-performing loans in 2021, due mainly to asset deterioration and a slower NPL resolution than last year. As expected NPL ratio was reported at 2.75% at the end of 1Q21, compared to 2.50% in the previous quarter. The NPL ratio was still under the Bank's estimated guidance of 3.6%. NPL coverage ratio, as a result, declined to 124% from 131% in the last quarter but still considered a high level.
Capital adequacy was among the top tier in Thai banking industry. As of March 2021, the preliminary CAR and Tier 1 was reported at 19.5% and 15.5%. The figures were above the Bank of Thailand's minimum requirement of 11.0% and 8.5%, respectively.
Mr. Piti Tantakasem concluded "For the merger between TMB and Thanachart Bank, the integration has progressed as plan with no impact from COVID-19 situation. The entire business transfer is expected to complete by this July as target.