Banking Sector

THURSDAY, OCTOBER 11, 2012
Banking Sector

3Q12F preview: Good momentum continues

 

 
3Q12F expected to continue 1H12’s good loan and fee income growth momentum 
with stable NIM QoQ. 
Potential good surprises at KBANK and KK but potential negative surprises at 
BBL and TCAP.  
KTB and KBANK remain our top picks. 
3Q12F preview. We forecast banking sector earnings to increase 24% YoY in 3Q12F and to be 
stable QoQ. 3Q12F results overall are expected to  reflect:  1)  good  loan  momentum  carried 
over from 1H12; 2) stable NIM; 3) QoQ acceleration in fee income (excepting BBL where fee 
income will be stagnant QoQ); 4) QoQ stable  provisions (excepting TCAP where we expect 
rising provisions QoQ); and 5) stable cost to income ratio.  
Continued good loan growth. We expect 3Q12F loan growth to continue to move similar 
to 2Q12 at ~3% QoQ. Loan growth in 3Q12 was mainly driven by retail loans (home and auto) 
followed by SME loans. Corporate loans grew slowly due to high repayments at BBL, KBANK 
and BAY. We estimate 9M12 YTD loan growth to be ~9% (8.4% 8M12) We maintain our view of 
sustainable good loan growth at 14% for 2012F vs. 15% for 2011, driven by continued strong 
private investment and consumption, rising public investment and season for working capital 
loans.
 
Potential positive surprises. There is the possibility of surprises on the upside in 3Q12 for 
KBANK and KK. For KBANK, this lies in loan growth, mainly on the gain in SME loan 
momentum  in  September  and  in  NIM,  with  KBANK believed to be the only bank with 
meaningful NIM improvement in 3Q12 from both yield and cost of funds improvement and 
the insurance business. The beginning of consolidation with PHATRA in September could 
usher in a positive surprise for KK as PHATRA is likely to have done well off the stock market 
rally in September.  
Potential negative surprises. BBL and TCAP are positioned to surprise on the downside in 
3Q12. For BBL, the negative surprise is expected to be in NIM, as loan to deposit ratio was 
pressured down by aggressive fund raising,  and in fee income, mainly bancassurance. For 
TCAP, the negative is likely to lie in provisioning, which we expect to rise substantially without 
a provision write back. 
KTB and KBANK as the top pick. We keep KTB and KBANK as our top picks. KTB: 1) Its 
recapitalization overhang is removed, giving it the ability to remove the LLR overhang,  
2) worries about asset quality have been eased by SSI’s capital call and 3) it is the best play on 
the theme of accelerating public investment. KBANK: 1) solid expansion in non-NII; 2) better 
cost to income ratio as the IT upgrade approaches completion and 3) accelerating loan 
growth upon SME loan demand recovery.