Tuesday, August 04, 2020

Big drop in bank stock prices walloped SET Index yesterday

Jun 23. 2020
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By The Nation

The Stock Exchange of Thailand Index on Monday (June 22) fell by 18 points due to a 6.37 per cent drop in the price of bank stocks, experts said. Investors sold bank stocks after the Bank of Thailand (BOT) ordered banks to hold off paying interim dividends and buying back shares to strengthen their capital to deal with risks in the future.

Also, bank stocks were under pressure from the central bank’s measures to cut the interest rates charged for credit cards, personal credit and hire purchases to help people struggling with debt due to the Covid-19 crisis.

These factors caused the price of bank stocks to drop 6.37 per cent, while the SET Index fell by 18 points to 1,352 at yesterday’s close. Foreign and institutional investors made net sales in stocks of Bt3.106 billion and Bt3.695 billion, respectively.

Bangkok Bank’s stock dropped the most, by 9.09 per cent, followed by Siam Commercial Bank (7.44 per cent), Kasikorn Bank (6.79 per cent), Tisco Financial Group (5.78 per cent), and Kiatnakin Bank (5.68 per cent).

A Capital Nomura Securities stock analyst said BOT’s order caused negative sentiment for bank stocks, although the banks’ capital adequacy ratio is currently 19.6 per cent, higher than the central bank’s minimum criteria of 12 per cent.

“The central bank’s announcement showed that the Covid-19 impact on the economy and asset quality may be worse than they expected,” he said. “BOT’s intervention always lends negative sentiment to bank stocks.”

The analyst also said BOT’s move has impacted banks that pay interim dividends more than banks that pay dividends only once a year as investors expect dividends as promised.

“However, banks’ dividends are expected to decrease due to a decline in profits,” he added.

Theerasate Prompong, an analyst at Maybank Kim Eng Securities (Thailand), said interim dividends totalling Bt14.3 billion have been held back, causing banks’ and stock market dividend yields this year to drop to 4.38 per cent and 3.46 per cent, respectively.

“The price of bank stocks dropped sharply due to uncertainty among foreign and institutional investors following BOT’s intervention,” he said. “Therefore, we advise investors to avoid investing in bank stocks.”

Principal Asset Management chief investment officer Win Phromphaet said BOT’s move would impact bank stocks only in the short term because bank fundamentals are still strong.

“Currently, we are still investing in bank stocks at a moderate level, but our fund is still interested because we have other stocks that can escape the impact from Covid-19,” he said.

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