For the initial stage, Ms Sarachada expects the lending services of local virtual banks to help narrow the gap between formal and informal lending.
Kiatnakin Phatra Securities (KKPS), the brokerage arm of Kiatnakin Phatra Financial Group (KKP), expects the combined loan portfolio of Thailand's three virtual banks to reach 200 billion baht in 5-6 years.Given the Bank of Thailand's requirement that each virtual bank increase its registered capital to 10 billion baht during the second phase of operations, from at least 5 billion baht on the day the business commences, bringing the combined registered capital to 30 billion baht, KKPS expects the three lenders to expand their total loan portfolio to around 200 billion baht within 5-6 years.
However, the profitability of virtual banks will depend largely on their business models, particularly their sources of income. Based on a study of 45 virtual banks worldwide, the brokerage found the average break-even period ranges from 1-9 years, said Sarachada Sornsong, an equity analyst at KKPS.
Globally, virtual banks typically begin by offering deposit products before expanding to other financial services, including lending, insurance and investment products. While lending is the primary driver of profitability, virtual banks generally require more time to build their loan portfolios and generate sustainable earnings.
