Banking sector

Banking sector

Good loan growth. MoM loan growth gained speed to a good 0.8% in May (vs. 0.4% in April),
backed by accelerating SME loan growth – to the point where the SME and retail segments
supplied most of May’s loan growth. The sector’s 5M13 YTD loan growth of 3.5% is lagging our
forecast of 14% for the year, but we believe our forecast will be achieved since corporate and
SME loan growth is traditionally higher in the second half than in the first half. For this year,
an investment cycle will be ignited by the government’s Bt2trn infrastructure projects in late
2013. Auto loan growth is expected to slow further in 2H13 upon the end of the impact from
the first-car buyer scheme.
Bt340bn flood protection loan agreements sealed.The Public Debt Management Office
disclosed that four banks - the Government Savings Bank (GSB), BBL, KBANK and KTB - won
bids for the Bt340bn flood protection loans and have already signed the loan agreements.
The loans have 1-year maturity with interest rate of 3.8%. GSB has gotten close to half of the
loans, with the remainder shared by BBL, KBANK and KTB. We continue to prefer large banks
to small retail-focused banks, as their medium-to-long term outlook is more favorable than
for banks focused on retail, especially now that government policy is shifting more strongly
toward pro-investment policies (i.e. Bt2trn infrastructure project) after a long run of proconsumption
policies.
Decreasing excess liquidity. Although MoM growth in deposits & borrowings accelerated to
0.9% in May from 0.3% in April, the system’s excess liquidity continued decreasing. We expect
tightening liquidity in the banking system to put downward pressure on net interest margin.
Top picks – BBL and KTB. KTB and BBL are kept as our top picks as investment cycle plays.
KTB continues to be our lead sector pick on: 1) easing credit cost after the 4Q12 sharp hike in
LLR coverage, 2) easing asset quality risk after SSI’s completion of capital raising and loan
rescheduling and 3) its position as a government bank that puts it at the top of the list for
loans for public investment. BBL is our other choice, supported by: 1) the largest excess
liquidity and capital funds to capture loan growth opportunities trigged by the investment
cycle, 2) the largest exposure to corporate loans, which will benefit the most from the
investment cycle and 3) the smallest impact from the BoT’s policy to encourage higher
general reserve, given its highest LLR coverage.