Banking sector

 

 

We maintain our Overweight call for  the sector as valuations, while no longer cheap, remain reasonable. Our sector picks, TCAP and BAY, align with our preference for the retail-focused players. KTB is our choice among the large banks on valuation grounds. To fund these positions, exit BBL. 

 

What Happened

Bank loans expanded 1% mom on aggregate in August, mirroring the average growth pace year-to-date. TISCO again outpaced peers with a whopping 3.3% growth mom, thanks to its brisk car-related lending. For the same reason, TCAP posted a decent growth. SCB led the race among the big banks, attributable to its more retail-business mix. Among the laggards, KBANK continued to suffer as its SME turf remained under strong competitive pressure. BAY’s sub-par growth was explained by its intentional step-back from low-yield corporate deals, in favour of more profitable retail and SME lending.

 

What We Think

Our 12.5% loan growth target for FY12 still seems valid. We also maintain our view that retail credit will continue to outshine the wholesale side. New loans YTD reported by TISCO,

TCAP and TISCO were well ahead of the pack, as well as our expectations. These banks share similar retailfocused traits. If not for the non-retail growth drag, BAY could belong to the same league. Despite its trailing growth, we do not rule out the possibility of BAY catching up with our full-year target. Typically, BAY’s lending is most active during the 4Q retail spending season.

Among the growth leaders, TCAP seemed the real eye opener. Its loan growth for the whole of last year  was just 4.5% which is already dwarfed by its YTD growth of 10%. Our initially optimistic growth target of 12% now seems an underestimation.

 

 

 

What You Should Do

Stay with the retail-focused banks. TCAP remains our top pick, followed by BAY. Among the large banks, we pick KTB on valuation grounds and room for growth surprises post its

recapitalisation.