Bangkok Bank (China), a wholly owned subsidiary of Thailand's largest bank, realises its double-digit target for 2015 lending growth is a very challenging one, with loan demand from Bangkok Bank's clients doing business in China having declined amid an economic slowdown in the market.
Suwatchai Songwanich, chief executive officer of Bangkok Bank (China) - or BBC for short - said the bank had witnessed loan growth of 2-3 per cent during the first three months of the year, in line with current expectations. However, the BBC target of double-digit growth for the full year presents a big challenge for him and his team, due to the slower pace of China's economic expansion.
Last year, BBC's lending growth came in at almost 10 per cent.
"What we have seen is all kinds of customers - Chinese, Thai and multinationals doing business in China - slowing down their activities, resulting in reduced loan demand," he said.
The decline in loan demand is due to the slower growth in manufacturing and retail sales in China, he said, referring to the country's National Bureau of Statistics last week reporting retail sales in the first quarter having grown by 10.6 per cent year on year, while the manufacturing sector expanded by less than 10 per cent.
Retail sales growth had averaged 12 per cent over the past three years.
Given these factors, BBC this year is looking to expand its customer base in new areas in order to increase its loan portfolio, said the CEO.
One-third of BBC's loan portfolio of US$1.1 billion (S$1.4 billion) is Thai corporates, with the rest made up of lending to Chinese companies and multinationals.
Suwatchai said that during a period of slower growth in lending activity, the bank also needed to balance revenue by seeking fee income instead - by leveraging the advantage of Bangkok Bank's network across ASEAN.
BBC will concentrate more on customers with potential to grow despite China's economic slowdown, he said, adding that Thai-linked companies and the midstream consumer-products industry were the bank's primary focus.
China's retail sales growth of 10.6 per cent is regarded as healthy enough to sustain the midstream consumer products segment, said the chief executive.
At the same time, the bank will have to be more selective in providing loans to Chinese small and medium-sized enterprises amid slower growth, as SMEs are more fragile than corporates, he said.
"Our loan criteria are unchanged, but we will consider the balance sheet of customers first, and also what kind of businesses could be seriously affected by the economic slowdown," he explained.
Another challenge for BBC this year is striving to maintain its net interest margin, which Suwatchai acknowledged could be slightly down after China's central bank recently cut benchmark interest rates. The People's Bank of China lowered the one-year deposit rate by 25 basis points to 2.5 per cent, while the one-year lending rate now stands at 5.35 per cent.
Fan Zhigang, deputy head of the Financial Research Institute at the Industrial and Commercial Bank of China (ICBC), last week said at the fifth anniversary of ICBC (Thai) that even though the Chinese economy had slowed, the mainland could maintain growth of 6-7 per cent for the next five to 10 years, backed by the purchasing power of local consumers and the migration of rural residents into cities.