Banking Sector

Banking Sector

Lower concerns about economic downside in 2014
The National Council for Peace and Order (NCPO) started its economic stimulus
roadmap with an urgent measure to provide B92bn in total, B40bn from the Bank
for Agriculture and Agricultural Co-operatives (BAAC) and the rest by borrowing
from other local banks through auction, to pay rice farmers for their paddy under
the rice pledging scheme, with an objective to boost liquidity and purchasing power
of retail consumers. Other measures include the following: household LPG price
fixing at B22.63/kg without time limit in order to extensively increase purchasing
power, a fiscal and monetary measure to help SME operators by asking the Thai
Bankers' Association and the Specific Financial Institutions to grant credits for grade
A SME operators and the Thai Credit Guarantee Corporation (TCG) to allocate
additional B165bn from loan guarantee fund to SME operators, and a tax measure
of to keep VAT at 7% for another year; all these measures will benefit both SME
and retail loans. Another urgent measure is the disbursement of FY2014 budget and
drafting of FY2015 budget, effective since October 1, 2014 onward. The FY2015
budget will be used under a FY2014 budget bill for proceeding with unfinished
projects from 2014, especially the infrastructure projects i.e. mass transits, doubletrack
railways, roads, and flood prevention project. The disbursement will be made
only on necessity to regain confidence for government and private investments.
This measure, if certainly scheduled, will benefit private corporate and SME loans
relating to the mega investment projects.
- Better 2H14 outlook increases forecast upside
We hold a 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. We
revise up fair value of six commercial banks under our coverage: BBL, KBANK, KTB,
KKP, TCAP, and LHBANK, and upgrade our recommendation: from HOLD to BUY for
KBANK, SCB, and KKP; from SELL to HOLD for TCAP, but downgrade our
recommendation for LHBANK from HOLD to SELL because the share price still has
downside from the new fair value.
- New top picks: SCB, KBANK, KKP
We maintain NEUTRAL. Top picks are SCB, KBANK, and KKP, which are suitable for
investing amidst the economic recovery for their focus on SME and retail loans.