up 40% from previous year on the back of synergy realization
TMB posted 2020 net profit of THB 10,112 million, up 40% from previous year on the back of synergy realization from the merger with Thanachart Bank. In 4Q20, the Bank raised provision level further although NPL ratio remained low at 2.5% in preparation for 2021 economic uncertainties. Integration is expected to be completed by July 2021 as plan.
TMB or TMB Bank Public Company Limited and its subsidiaries announced today the financial performance of 4th quarter and 12 months of 2020. Overall for 4Q20 results, both income generation and expense management continued to improve from 3Q20 and led to the Pre-Provision Operating Profit (PPOP) of THB 9,805 million, an 11% increase quarter-on-quarter. For full year, PPOP was at THB 37,266 million, a 90% increase from the previous year. This reflected synergy realization as the Bank could execute the synergy initiatives as plan. With improving performance, the Bank therefore raised its provision further although NPL ratio remained relatively low at 2.5%. In 4Q20, the Bank set aside provision of THB 8,237 million and a total of THB 24,831 million for full year with objective to strengthen financial position ahead of economic outlook and Covid-19 impact in 2021. After provision and taxes, 2020 net profit was recorded at THB 10,112 million, up 40% from 2019.
Mr. Piti Tantakasem, CEO, mentioned “Key mission of TMB and Thanachart Bank in 2020 was to focus on the execution of the synergy initiatives to realize merger synergies, especially balance sheet synergy and cost synergy and the completion of integration process within this July. But when Covid-19 outbreak started, we have emphasized on providing financial supports to our affected customers as well as heightening our financial position and maintaining prudent risk management. All of these have become our top priories in 2020.
In terms of financial results, unavoidably there was a pressure on revenue side due to economic contraction and multiple interest rate cuts. Nonetheless, TMB and Thanachart Bank could execute the synergy initiatives as plan. As a result, the Bank realized balance sheet synergy value from the optimization of deposit and loan mix. Cost synergies from operating efficiency and cost saving from duplicate expense between the two banks also helped improve cost management. Consequently, operating performance remained strong.
For risk management, although the current NPL ratio was relatively low at 2.50%, compared to 2.35% in the previous year and the majority of customers who exited debt-relief program could resume normal loan repayment, the Bank expected that the new round of Covid-19 outbreak would put pressure on customers’ debt service ability going forward. Therefore, the Bank decided to raise provision level significantly given our strong operating performance. Consequently, coverage ratio which indicates risk cushion rose to 134% from 120% as of 2019. This reflected our prudent risk management and the preparation against NPL trend after the expiry of debt relief programs. Note that, at the end of 2020, loans under debt relief programs dropped from around 40% at the beginning to approximately 15% of total loan portfolio. The remaining portion are mostly under the second phase of moratorium programs.
The details of 12-month 2020 operating results are as follows. Deposit of THB 1.37 trillion declined by 1.8% from 2019. Such a decline was in line with the optimization of deposit and loan balance. Moreover, as part of the post-merger plan, the Bank continued to reduce Time Deposit and replace it with flagship products such as All Free and No Fixed which continued to grow well.
Loans was reported at THB 1.39 trillion, relatively flat from previous year. Key factors were the slow growth of new loans and the change in loans structure to improve portfolio quality by reducing unsecured loan portion. With the consolidation of Hire Purchase portfolio from Thanachart Bank, secured loan portion increased and approximately 90% of retail loan portfolio was collateralized.
On the revenue side, TMB reported net interest income of THB 53,805 million, up 100.3% from last year (YoY). Key driver was NIM which rose to 3.00% from 2.81% last year, reflecting a realization of balance sheet synergy and the well-managed uses of funds.
Non-interest income was at THB 14,986 million, up 15.7% YoY. The slower growth when compared to interest income side showed the impact of Covid-19 on fee income generation. Net fee and service income was recorded at THB 10,575 million, up 30.6% YoY as a result of a slowdown in bancassurance and mutual fund fees especially during 2Q20. Lastly, total operating income was reported at THB 68,791 million or grew 72.8% YoY.
On the expense side, cost synergy realization supported the Bank’s cost management despite the integration cost incurred from integration process and resulted in lower cost to income ratio to 46% from 51% in last year. PPOP therefore remained strong at THB 37,266 million, up 89.6% from 2019 and this allowed the Bank to increase provision level to THB 24,831 million. After provision and taxes, 2020 net profit was recorded at THB 10,112 million, up 40% from 2019.
Liquidity and capital remained strong. The Bank’s Liquidity Coverage Ratio (LCR), which shows the stock of liquid assets to support liquidity needs under severe liquidity stress scenarios, stayed in the range of 170%-220% during the year, well above the BoT’s minimum requirement at 100%. Capital adequacy was among the top tier in Thai banking industry. As of December 2020, the preliminary CAR and Tier 1 rose to 19.5% and 15.4% from 18.9% and 14.6% last year. Also, the capital ratios were well above the Bank of Thailand’s minimum requirement of 11.0% and 8.5%, respectively.
Mr. Piti Tantakasem concluded “with our preparation and financial strengthening done in 2020, the Bank is ready for 2021 and will continue to support our customers who affected from the new wave of Covid-19. For the merger deal, the integration is expected to complete by this July as plan.”