Banking

Banking
3Q13F: Decelerating top line growth. We estimate a rise of 18% YoY and 4% QoQ for the banking sector in 3Q13F. Our estimates reflect: 1) a slowdown in QoQ loan growth in all segments, especially auto loans, to a moderate ~2% vs. 3.4% in 2Q13, in line with slowing domestic consumption and investment, 2) a slight squeeze in NIM on more aggressive fund raising and rising deposit competition, 3) QoQ stagnant non-NII, mainly fees related to loans and the capital market, 4) QoQ increase in opex without last quarter’s reversal of provisions covering possible losses with the TAMC, and 4) a return to normalized provisions after making countercyclical buffer provisions in 2Q13. See Figure 1 for details for each bank.
Slower rise in auto NPLs. TISCO (already released 3Q13) and KKP saw a slower rise in NPLs from auto loans, particularly those on used cars. This may indicate that the deterioration of used car loans is reaching bottom and lines up with the view of industry experts that used car prices will recover at the end of this year or early next when the oversupply of new cars eases.
TCAP: Potential positive surprise from MBK. MBK, in which TCAP holds 20%, booked a gain of ~Bt1bn from the sale of land. This could push TCAP’s 3Q13 earnings up above consensus forecast. TCAP’s overall operating results are expected to be weak in 3Q13, with the sector’s most sluggish loan growth, lower fee income related to the capital market and rising NPLs.
KTB: Strongest earnings growth of big banks. We expect KTB to have the highest QoQ earnings growth among big banks at 53% on the back of: 1) a temporary return to normalized provisions, 2) no repeat of the one-off investment loss from the mark-down of investments in financial institutions, 3) seasonal hefty dividend from the Vayupak fund.  
Downside risk to 2014F rather than 2013F.  Our latest cut in the sector’s loan growth to 11% for 2013F has already factored in the widespread downgrades in 2013F GDP forecasts brought by disappointments in exports, consumption and investment. We forecast loan growth to be 5% for 2H13F, slower than 6% for 1H13. We do, however, see downside risk to our 2014F loan growth of 10% if public investment is delayed, since this would have a pass-on effect to private investment.
Shifting to investment-led loan growth. The passage of the Bt2trn infrastructure bill will be key to restoration of private sector confidence and bring back a long-absent capex cycle. Meanwhile, high household debt has ended consumption-driven loan growth. Though we expect a delay in public investment - including the Bt2trn infrastructure plan - we expect loan growth to shift to an investment-led cycle in the next few years from the consumption-led cycle seen for the past several years.
Top picks – KTB and BBL. We are more optimistic towards corporate and SME loan growth than consumer loan growth, particularly auto loans, and are also more concerned about the asset quality of consumer loans than business given the high level of household debt at 80% of GDP. BBL and KTB remain our top picks as investment cycle plays.