Afternoon, analysts and fund managers. Welcome to TTB, third quarter performance briefing. We know today is a busy one, so we'll keep it short and concise. With that, I would like to ask CEO to walk through our performance and life for this quarter. Piti Ka.
Hi, good afternoon, everyone. Thank you for your time. As Kuda said, I know it's a busy day for you guys, so we try to keep it short and spend most of our time for Q&A. First of all, I think it's a positive surprise for everyone to see quite a good performance for third quarter for both banks, including TTB. I would like to start off by saying that don't be too excited or upbeat about the bank performance. I come back to that, why. I would like to call the theme for TTB for this quarter that we aim for natural beauty with longevity in mind. Why is that?
Even with a positive loan growth in commercial and retail, our NII still suffer by rate cut, which I believe that it will continue on next year, or may even start by the end of this year. The downward pressure on NII remains. For us, we still have contraction in auto loan portfolio, mainly in new car and on SME by intent. On new car, it will remain a challenge because number of car sales continue to come down, and the price is still very much on a price war mode, meaning that the positive outlook on the loss on repo might not continue if you find we have a case already in, and the price war remain quite aggressive on the new car market.
Fortunately, the decline in NII is positively offset by strong fee income growth, both from bancassurance, mutual fund, credit card. That's why at the end, our bottom line, our income, remain flat even with big drop on NII, mainly due to the rate cut that is faster than we anticipate. P&L positive improvement, Q on Q, mainly supported by not only the fee growth, but on the expense and on the risk cost. Digital transformation start to pay off, can see that we might be the only bank that OpEx continue to stay flat or even come down this year by close to 1%. Even with the decline in income, we can still keep our profit at a decent level. Together with a good risk management, can see that risk costs start to come down and loan loss reserve go up a bit this quarter.
Why I think we should not be too upbeat about the outlook? What would be happening in Q4? First, sentiment on investment or selling investment product might not continue. On Q3, the NAV of most mutual fund went up because of the sharp decline on the bond yield and flattening yield curve, and the equity market performed very strongly. Q4 might not be the same. On top of that, the positive impact from KSO started from Q2 to Q3, but already ended. Maybe the small positive on the AMC of THB 100,000 NPL customer might kick in at the end of the year, but the impact will be very small. Why is that?
Because when we structure this, we see that, THB 100,000 cost of level represents 70% of the NPL customer for the whole industry, but represents only 17% of the total outstanding, meaning that the impact to the bank, I mean, positive impact to the bank would be very small in recovering that NPL, but the impact to the number of high population would be large. Can see that, why, why say that the investment sentiment would not be as strong, where the loan growth on car loan, home loan, would continue to be under pressure because the oversupply is still there, big income, and the bond yield went up very sharply, from 10 year 1.2 at the lowest level to today, go back to 1.7, meaning that the NAV value of 10 years one could come down as much as 5% in a ratio period.
We start to see some drawdown in big mutual fund, which would create a negative sentiment for investment product. Yes, people will still move money to investment product, but may not be as aggressive as in Q3 because of this sentiment. Therefore, with this limited growth opportunity, we will continue with capital management. We will resume our buyback early next year. This year, we have to pause by six months. With this limited loan growth, with the outlook that we see, I think it's important that we aim to optimize return to shareholder by continuing to improve the way we pay dividend, the way we manage capital to buyback, which will resume next year. Last thing, because you may ask TTB team anyway, that why FVTPL is so limited for the case of TTB. I said that the theme is natural beauty.
We very worry when we see this kind of volatility in the market. So our mark-to-market gain from bond portfolio, bond HTM, HTC, and SDO, available for sales, or even equity that we gain from debt asset swap, we put it almost all in OCI, meaning that the mark-to-market gain will go through OCI, not P&L. So that we will not face with this up and down in P&L volatility. Altogether, mark-to-market gain that we talk about is about THB 10 billion. That majority, super majority go to OCI. That's why you do not see this number went up and down and impact our P&L, drastically. The only significant mark-to-market, which we cannot put in OCI, is our investment in Wagyu Park Fund, which is quite small, comparing to the size of total investment. So P&L swing will be very limited, both positive and negative.
If you can flip to the next page, can see that our theme remains the same, that I think this is the time that we start to shift gear more toward digital, meaning that if the growth is limited, we have to remain very prudent when it comes to asset acquisition. We have to be very cautious when it comes to new kind of investment in M&A or whatsoever. Being conservative, the only way that we can continue to deliver good performance is through OpEx management through new business model that can only be achieved through digital transformation, which Khun Narit will quickly walk through the success in shifting more and more toward digital first, digital only, that we aim for. On the next page, can see that the trend continues to be positive.
Of course, the steepening of the net profit would not be as drastic as before, meaning that in order to continue to give good return with the limited upside on profitability would be on capital management and dividend management, not through the aggressive push in growing asset at the expense of the risk on asset quality. On my last page, this is to share again that, even loan growth is tough for this year, we can manage to bring deficit down to be in line with loan growth and keep deemed at decent level, even with faster and deeper rate cut than we originally anticipated. Our fee and non-NII growth is quite robust, thanks to our transformation in the way that we sell BA and MF, and also good result from our effort to grow credit card business.
CI ratio remains a big challenge because of the income growth, not because of the cost increase. NPL, we can manage it well. The risk cost starts to come down, as you see, our profit for this quarter grew quite significantly from second quarter, but again, cannot be too complacent about situation and good result. On last page before I pass to Khun Narit, this strategic intent remains the same. Narit will explain from this page onward on the progress of our transformation. Thank you.
Yeah, good afternoon, everyone. Moving on to the next page, in terms of our strategic framework, remains the same as what we discussed all along, composing of six initiatives. Let me provide an update on the first three, and then I pass on to the CFO on the remaining three.
On the first item, affected asset liability management, if we move on to the next page, I think overall, NII for this quarter declined slightly, about 2.6% Q on Q, to THB 12.4 billion. I think the key reason is really about the declining NIM, as you can see on the bottom left. Given that the interest rate has been cut for four consecutive quarters, we see the compression in NIM as a natural result of that. When you compare the NIM in the third quarter against the quarter before, NIM narrowed down by about 10 basis points. Another factor which also impacts NIM is also the impact from the U5B health program, which CFO will go through in detail in a bit.
On top of that, I guess, on what we can control, I think, similar to the past quarter, we are also trying to manage what we can manage. That includes exploring pockets of growth where we can improve the yield of the lending portfolio a bit through products like unsecured lending or CYB or home, CYS. I think the proactive asset liability management remains the theme. We optimize where we can, without putting us in too much risk. Moving on to the next page, I think, besides the NIM compression, when we look at the overall lending portfolio, you can see that the lending portfolio declined slightly, about 0.7% Q on Q. When you look at the momentum, you can see that the amount of decline per quarter starts to narrow quite a bit.
Given that I think more and more we observe pockets of growth whereby new bookings start to exceed repayments. Those areas, especially around the unsecured retail lending, credit cards, as well as the mortgage portfolio where we see some growth in CYS products as well as the home loan refinance products. The auto loan portfolio I think could be detached on a bit already. I think still downward pressure from the low new car sales, which caused the new car loan to go down. However, I think we see some pockets of growth from the product like Cash Your Car, which see double-digit growth in the previous quarter. Again, this is based on the relatively low base of this product compared to the overall portfolio.
I think commercial, better momentum, but, given the de-risking of the SME portfolio, I think the overall commercial portfolio is still on a declining trend, about 0.5% Q on Q. Moving on to the deposit side, I think given the decline in lending portfolio, the deposit also, on, slight decline, trend as well, as we try to manage the, both the asset side and the liability side. When we look at each of the key composition of the deposit portfolio, I think what we have tried to do in this past quarter is to manage the high cost TD. When you look at the composition of the TD portfolio, you can see that it went down a bit from 33% in total down to 31%. The major product is really the 24-month TD and up and up, which we try to manage out, the high cost component.
Also, next to that is the CASA component. I think this one is more of a long-term initiative for us to really build the main bank relationship with our customer. You can see here that I think the percentage of the deposit, which is CASA, is on an increasing trend. In fact, when you look two years back, you can see that, not on this page, but I think two years back, we used to have a percentage of CASA less than 40%. I think it's gradually on the rise, which is in line with our long-term strategy. On top of that, I think another notable shift is really on the growth of the FCD deposits. Given the low rate nature of the Thai Baht deposit, I think increasingly more wealth customers opt for FCD deposits as an alternative asset class.
We see quite a big change in terms of the balance of the deposit, the FCD deposit growing by almost 50% Q on Q. Maybe moving on to page 13, I think 13 and 14 touch on the proactive asset liability management. I think as I discussed last quarter, the theme remains prudent asset liability management, optimized where we can, without compromising risk. I think in this past quarter, we shift a little bit more toward fixed rate bonds as well as a little bit more toward FCY bonds. Again, all for investment, A rate and above. In case of the FCY bond, it is fully hedged to eliminate any FX risk. In terms of borrowing on the following page, again, trying to optimize the borrowing cost a bit further.
You can see that the borrowing cost goes down by 12 basis points Q on Q. I think the key change is really last month we, early redemption of the blue bond worth $50 million as well as the refinance of their lending at PAMCO at a lower rate. I think that's really the key change. Moving on to the second initiative, digital first revenue generation. I think, as Khun Preechasammakul already, on page 16, the fee on non-NAI performed well in this past quarter. I think it lies with the industry. When you look at the component, we see both improvement from the loan-related non-NAI as well as the non-loan-related. I think the loan-related is really the pickup in new booking momentum, as I touched on earlier.
For the non-loan-related, I guess, slowdown in FX and trade fee, given that, the front-loading nature of import-export activities in the first half of the year. Other than that, I think we observed improvement in fee generation across all product categories from commercial fee, bank cash allowance, mutual fund, as well as credit cards. I think that's good news. On the next page, I think in terms of the push on the digital, I think you can see that on the right-hand side that I think the contribution of the digital channel now is very significant, becoming a major channel whereby we initiate new sales, not just lending or deposit, but also mutual fund as well. I think that momentum continues on. Maybe I jump to page 19.
As I touched on last time, we did a soft launch of the customer loyalty program and gamification feature on TTB Touch. I just want to share with you, over the last four, five months, doing the soft launch without any major publicity. I think we start to see impact coming in. For example, the number of customers participating in our mission, which we assign to each individual customer, is over 1 million customers already. We managed to assign a mission to the wealth customers to accumulate more AUM with us. That contributes to the delta AUM of about THB 14 billion. I think over the last four, five months, about 75,000 customers received an upgrade in their loyalty tier, which reflects, I think, what we try to convince the customers to bank more with us to gain more privilege and benefits.
I think all in all, very promising start of the new feature and also the sharpening of the business model to build more main bank relationships. We will do the proper launch of this function in the future next month. Hopefully more impact to come on this function. On ecosystem, maybe I will not go through all the detail, but just want to reiterate that I think we remain very focused in terms of who we want to serve. We want to make sure that I think we focus on profitable growth and profitable customers as much as possible. I think all in all, we try to shift from mono product relationship with the customer through our flagship product to become more of a multi-product relationship with the customer and aspiring to become the customer main bank in the end.
I think that's kind of the theme of the ecosystem play that cuts across all the ecosystems. Moving on to the third initiative, cost discipline through digitalization and branch optimizations. If I may jump to page 25, as Khun Preechasammakul already mentioned, you see the overall OpEx continue to decline, about 5% year- on- year. That is driven by essentially two big cost components. I think one is the branch network. We see about a 20% decline in the footfall into our branch year on year. When we look at the improvement in terms of the number of branches, you see that for year to date, the number of branches has gone down by about 40 branches. Right now we are at 432. Given the reduction in number of branches, I think the headcount also declined slightly as well.
Given that, I think we continue on the theme of trying to optimize the traditional infrastructure, which is a bit higher cost to run, and try to shift the transaction and the customer more and more to the digital platform whereby we have a much lower cost to run. Maybe on page 28, quickly, I think the leverage of the digital technology to help improve productivity does not just end with the sales service platform like TTB Touch. On top, I think as what I have shared in the past, we leverage the building block, the technology of TTB Touch, to really also help improve the productivity of our people as well.
The platform that I'm discussing is called TTB Enterprise, which is essentially the staff assist platform whereby the customer in branch, our direct sale at auto dealer, or even our contact center will use this common platform as a way to better serve the customer. It also helps transition from service to sales better. Overall, hopefully achieving the better cost to serve through higher productivity and no paper involved. This one, we do the full launch, nationwide launch at all the branches, earlier a couple of months ago. The number of transactions going through the platform has somewhat picked up quite a bit. I think we are on track to also transition our contact center to be on this platform next month. That's the roadmap for TTB Enterprise for the remainder of this year.
I think that's it in terms of the cost management. Maybe I pass on the CFO on the remaining initiative.
Good afternoon. Let's move to the fourth part, which is about the asset holdings. The next page will show the overview of the asset indicators, which we still continue on the conservative approach. One of the proven results is to predict costs that is manageable and the safeguard of the shelter values against the uncertain economic outlook like this year. The next page still shows the portions of the stage two and three. More than 50% of the stage two is still coming from the qualitative downgrade while the stage three is about one third coming from the qualitative. This trend is quite stable from last year.
If looking on the top of the chart, which showed the LR over the loans, we still continue to improve this ratio over the pre-COVID period, which is about 3.1% versus today is about almost 5%. The next two pages will show the KSO or unified wheelhouse in summary. The next page, so far we have about 7.1%-7.5% of the total loan that is eligible. However, 44% of that part adopt the KSO, which is equivalent to about THB 40 billion. The main portion is still coming from the home loan and the SME, while the high purchase is about 40% of the total applied portfolios. The next page would show the trend of the ECL. In this quarter, we have total credit costs about 131%, which coming from 118% from the normal ECL.
In this quarter, you may see it's rising a bit, Q1, Q2 about 19%, but actually Q2 is extraordinarily low, which the impact from the KSO. However, if we look back in the past five quarters, we still see the downward trend of the normal ECL numbers and ratio. We still keep the LR at about 151% in order to ensure that we have sufficient reserve, especially throughout the outlook of the economy in the next 12 months. The next page is still proof how we try to distribute the LR at the stage. We still improve the LR distribution as the LR is more put at the stage two, while the less on the stage three is the effort, which is the result of the effort to de-risk from the non-collateral of the stage three.
The next page, the percent of the loan may be quite stable, but if you look at the absolute numbers, stage two is continuing to decline from about THB 114 billion last year to about THB 106 billion in September, while the stage three number is quite stable at about THB 39 billion. If you look in terms of the percentage, it's about 2.8%. I think that's the key in the asset quality numbers. The next part would be on the use of the capitals, which right now ROE is about 8.6% nine months and still improved on the usage of the RWA. However, if we look at only the percentage of the NAI to RWA, we see the soft turn, which is followed the trend of the downward interest rate. In this page, we show the remaining tax benefits of about THB 6.9 billion, which we can recognize within 2028.
The last part would show the, which are about how to manage the shareholder valuations, which we still aim to balance between the immediate returns, which is the dividend and the share purchase, and the long-term investment. In this quarter is the first quarter that we start to consolidate TNS, the securities company, which is the part of the actions on the inorganic growth. The next page would show the capital ratio, the dividend payout that so far we still have to pay out about 60%, which is one of the highest in the banking industry, and the dividend to be paid out tomorrow by the way that you may get the check. In terms of the dividend yield, it's still around 7%.
Upon that dividend payout, we still keep the capital level at the solid level, and we still be one of the highest in the DC banks. The last part would be the update on the share buyback, which we aim the program by 1st August. So far we can purchase about THB 5.1 billion, which is equivalent to 73% of the budget of the first year budget that we got. We still aim to continue this program next year and within the boundary of THB 21 billion that we get approved from the board. I think that's it on these sections.
Thank you.