Bangkok Bank

Bangkok Bank  Plc (BBL)

Investment thesis
BBL is the obvious play for corporate and SME loan growth and the expansion of Thai companies offshore because of its size (the biggest single-client lending limit of any Thai bank), its extensive foreign branch network and its corporate lending expertise. Its prospects are solid—the loan portfolio will sustain growth, driven by business with corporates and export-oriented SMEs (including cross-border trading) and offshore lending. Moreover, BBL has the highest CAR of 15.2% (14.4% Tier-1), the lowest loans/deposits ratio (90%) and the highest loan loss coverage ratio (214%) among Thai banks, so has the greatest scope for corporate and SME lending upside in the sector once the political turmoil ends. BUY!
5-7% loan growth guidance for FY14, led by SME business
The bank has a modest FY14 lending growth target range of 5-7% (we expect 6%), following 9.2% expansion in FY13. BBL anticipates growth across all lending categories (especially upcountry). SME business, which comprises 28% of the total lending, is targeted to rise by 6-8%, while the objectives for corporate (45% of lending) and international loans (16% of the portfolio) are 4-6% and 5%, respectively. Retail growth (12% of the portfolio) is targeted at 8-10%. BBL expects 2014 GDP growth of 3%, assuming only limited political violence.
The advent of the AEC in 2015 will presage greater intra-regional consumer and infrastructure spending. BBL has the most offshore branches of any Thai bank and has the greatest expertise in offshore banking and cross-border M&As.
10% FY14 fee income growth target, driven by loan-related fees 
Management’s FY14 fee revenue growth target is 10%, following 11% expansion last year. The drivers are trade finance, mutual fund and bancassurance sales commissions and cash management fees. BBL guides that the international operation (global market services), greater cross-selling of financial products and fees tied to loans will add to fee income this year.
FY14 NIM guidance of 2.3%, assuming no further Repo Rate cuts
Assuming only subdued price competition and no further cuts to the BOT’s policy interest rate this year, BBL assumes an FY14 NIM of 2.3-2.4%; it posted 2.4% for last year. The bank has set an FY14 credit cost (loan loss provisions/loans) in the range of 45-50 bps. The implication is that the bank will set FY14 LLPs of Bt8-8.5bn (against Bt8.6bn last year). Its YE14 NPLs/loans ratio policy ceiling is 2.2%, flat YoY.
FY14 cost/income ratio target range of 41-43% (we assume 44%)
BBL’s targeted FY14 cost/income ratio represents a decline from the 44% posted for FY13. Management guides that FY14 OPEX will rise by 7-8% (against a 2.2% increase in FY13). We conservatively assume an FY14 cost/income ratio of 44% in our model.