Banking Sector

Banking Sector
- April loan barely grows. Minor banks suffer severely
Nine commercial banks under our coverage (except KTB) declared a summary
statement of assets and liability as of April with outstanding loan (after allowance for
doubtful accounts) of B7.24tr net, growing slightly by 0.07%mom and 7.92%yoy,
still in line with FY2014 net profit growth projected at 6.28%yoy. As long holiday
takes place in April, demand for loan is usually low. Also, the political unrest has also
pressed consumers and investors' confidence. Minor commercial banks' (KKP, TCAP
and TISCO) net loan, mainly car leasing, has declined and become too weak to
negate increasing repayment. New car leasing has dropped along with decreasing
car sales, while used car leasing has been delayed to lower risk. However, LHBANK's
net loan grew by 1.5% (largest growth), mainly from corporate loan and housing
loan. For major commercial banks, only KBANK's net loan grew by 0.9%mom
(mainly from short-term working capital). BBL's net loan stayed unchanged while
SCB net loan fell by 0.5%mom. In terms of deposit (including funding for small
banks), outstanding deposit in January 2014 was B7.87tr, falling 0.71%mom but
growing 6.28%yoy. SCB, LHBANK and BAY were with the strongest deposit.
Competition in deposit gathering has been sluggish. As a result of weakening loan,
small amount of money was needed for loan issuance.
- Nothing to expect on 2Q14 earnings forecast
We maintain our negative outlook on the sector's fundamental factors and
profitability for the reminder of 2014. Though 1Q14 net profit made up 25% of
FY2014 earnings forecast, only major banks have been strong thanks to diversified
source of income. Because car leasing downtrend is likely to continue throughout
2014, minor banks' interest income and fee income has contracted significantly.
Moreover, higher debt provision would be needed as asset quality is likely to drop.
2Q14 earnings result is expected to stay unchanged qoq at the best scenario. Core
income, net interest income and NIM is expected to be affected by the interest rate
cut in late-March 2014, while fee income is likely to drop as a result of decelerating
loan issuance and insurance business after long holiday passed. 2Q14 debt provision
is expected to stay as high as 1Q14; normalized provisioning expenses have been
raised already.
- Selective play. We favor BBL and TISCO
We reiterate UNDERWEIGHT for banking stocks; FY2014 EPS growth is expected at
only 2.4%yoy. We still favor BBL(FV@B197) with 1.17x PBV and a good resistance
from the economic crunch and TISCO([email protected]) with over 6%p.a dividend yield.