Banking sector

Banking sector

- Roadmap to spur economy. Accelerate investment to help SMEs and retailers
The National Council for Peace and Order (NCPO) announced an economic roadmap
consisting of the following urgent measures that would also benefit the banking sector:
1) Household LPG price will be fixed at B22.63/kg without time limit in order
to extensively increase purchasing power of retail consumers and to slow down
an increase in food and raw material prices. Previously, household LPG price was set to
increase by B0.50/kg/month for the next 15 months until it was equivalent to the
global price; 2) Value added tax (VAT) will be kept unchanged at 7% for
another year in order to gain customers’ confidence toward uninterrupted
spending without concerns about rising product prices in the future; 3) Regarding
the Rice Insurance for 2014 Crop Year, money will be prepared for paying
insurance premium and compensation for possible damages. This will directly
benefit farmers by creating confidence for cultivation in the next crop season.
The rice insurance will also cover the cases of lower production than targeted or
damage from natural disasters; 4) Investment on infrastructure projects i.e.
mass transits, double-rail trains, and roads will be accelerated, which will
help regain confidence for future government and private investments. If the
timeframe of the projects is concretely scheduled, it will be a positive factor for both
corporate and SME investments before the mega projects; 5) urgent measures to
take care of entrepreneurs will be advantageous for SME and retail loans e.g.
loan guaranteeing for SME, OTOP, and retail entrepreneurs that have been severely
impacted by bank’s deceleration of loan issuance. If the Thai Credit Guarantee
Corporation (TCG) plays a greater role in helping these entrepreneurs, growth will be
seen from this type of loan. Moreover, a policy of loan granting for retail customers
with good financial history at not exceeding B1.5m each with an interest rate of
4.125% for one to three years will directly benefit SME and retail loans.
- Better loan business expected in 2H14, decreasing earnings downside
We begin to have better view toward the banking and loan business in 2H14. If key
economic indicators like private investment and consumption improve, it will help boost
net loan growth in 2014-2015 above our estimate of 6.26%yoy and 7.45%yoy,
respectively, as well as net profit growth in the same period above the previous
conservative assumption of 2.4%yoy and 8.9%yoy, respectively.
- Upgrade to NEUTRAL. Short-term plays: KBANK, SCB, TISCO, TCAP, KKP
We upgrade our recommendation for the sector from UNDERWEIGHT to NEUTRAL. In
the short term, the banks with large proportion of SME and retail loans are projected to
outperform the sector again, particularly small players like TCAP, KKP, and TISCO. Big
banks with NEUTRAL weight like KBANK and SCB have a chance of rapid price surging
as well.