Bangkok Bank

3Q14: Beat expectations on investment gain BUY

Bangkok Bank Plc (BBL)

3Q14 net profit of Bt9.6bn (+7%YoY, +6%QoQ) beat our forecast of Bt8.8bn,

mainly on investment gain. In the quarter the bank had mediocre loan growth,

minimal NIM improvement, strong growth in non-interest income (investment

gain and fee income), continued tightening of opex and immaterial asset

deterioration. We expect better loan growth and fee income in 4Q14 and 2015.

Key points:

1. Loan growth: As expected, continued to fall, losing 1% QoQ, 0.6% YTD, upon

repayment of large corporate loans. However, there continues to be demand

for SME, mortgage and international loans. We maintain our 2014F loan

growth at 4%, as next quarter is high season for working capital loans.

2. Net interest margin: In line with expectations, +2bps QoQ to 2.38%. A 6 bps QoQ

fall in cost of funds exceeded the 4 bps QoQ slide in yield on earning assets. We

expect NIM to be sustained in 4Q14 by a rising loan to deposit ratio.

3. Non-interest income: Larger than expected, +30% YoY, +18% QoQ, mainly driven

by gain on investment and asset disposal as well as a pickup in fee income of

5% YoY and 4% QoQ, mainly from its securities business, lending, and mutual

funds. We expect to see a further recovery in fee income in 4Q14 on the back of

recovering loan growth and high season for bancassurance and mutual fund.

9M14 fee income (-1% YoY) accounted for 72% of our full-year forecast (+4%).

4. Cost to income ratio: Up 173 bps QoQ but down 81 bps QoQ to 46.5%. This

reflects successful efforts to control costs: this came down despite an

expansion of its branch network and investment in IT system.

5. Asset quality: As anticipated, NPLs by amount rose 2.5% or Bt1.1bn, as a result

of a reclassification of one large SME loan as an NPL after failing to get debt

restructuring done in time. NPL ratio inched up to 2.65% from 2.55% at 2Q14.

Provisions rose 42% QoQ to cope with rising NPLs. However, the bank maintains

its full-year provision target at Bt8.5bn, expecting provisions to ease in 4Q14

after the restructuring of this loan. Loan loss reserve (LLR) coverage slipped to

198% from to 216% at 2Q14.