Banking Sector

Banking Sector

- Jan loan shows first shrinkage in 2.5 years
Nine commercial banks under our coverage (except KTB) declared a summary
statement of assets and liability as of January with outstanding loan (after allowance
for doubtful accounts) of B7.25tr net, down 0.24%mom but up 9.30%yoy. While we
had not expected significant loan growth in January as it was an off-season period,
net loan in the month even fell negative for the first time in two years and a half as
a result of the domestic political situation. Most banks reported lower net loan,
except KBANK and TMB that could still show monthly growth, mainly from shortterm
working-capital loans, while SME and retail loans remained quite flat. BAY and
TISCO posted the largest decline in net loan because of high repayment of credit
card (TISCO) and personal loans (BAY). Overall, total net loan growth in January
was still in line with our conservative target for FY2014 at 7.2%yoy. In terms of
deposit (including funding for small banks), outstanding deposit in January 2014 was
B7.96tr, staying flat mom but growing 9.16%yoy. LHBANK and KBANK were with the
strongest deposit growth, followed by stable growth of others, while TISCO and SCB
showed the largest decline in deposit this month (a decline after strong growth in
December 2013 for SCB and the second consecutive month of decline for SCB).
- Negative outlook for 1H14
We hold a negative outlook for fundamental factors and profitability of the banking
sector in 1H14. Held back by the economic slowdown as a result of the prolonged
political problem, there is only slim hope about benefits from the government and
private’s mega investment projects. Meanwhile, retail loans have become more
worrying, particularly for housing and car leasing loans, since banks have to adopt
stricter policy of loan issuing because of clients’ lower purchasing power.
Furthermore, NPL situation has begun to show clearer negative sign. Consequently,
FY2014 net loan growth would weaken to only 7.2%yoy as we project. Another risk
is decreasing interest rate; our study shows that for every 25bp decrease in the loan
and deposit rate, 2014 NIM will drop by 3.8bp from the current assumption of
3.13%, which would thus depress 2014 net profit of the sector by 2.4%. However,
we have already included a 0.25% interest rate cut in our forecast.
- Lack stimulus in short term
We maintain UNDERWEIGHT. 2014 EPS growth is anticipated to decrease to only
4.9%yoy. We still like BBL (FV@B197, 1.17x PBV, long-term ROE forecast of
13.3%), which has the lowest PBV among big-cap banks and gives 4% yield on
average.