Banking Sector

Banking Sector  

- 4Q14 profit weakens as projected     

 

Ten commercial banks under our coverage posted combined net profit in 4Q14 at B49.2bn, shrinking 8.7%qoq (yet growing 8.9%yoy). Operating expenses increased on seasonal effects, mainly personnel expense, premises and equipment expenses from branch expansion and additional ATM installations, and other marketing expenses. NIM weakened slightly because average funding cost rose at a faster rate than average loan yield. Net interest income showed flat growth against accelerated net loan growth in the last quarter of the year (KTB, SCB, and BBL) because those loans could still not generate income for a full quarter. Fee income showed better growth due to a high season, mostly from credit card and other electronics services. Debt provisioning expense stayed flat because of decreasing NPLs, but it could not compensate for the aforementioned adverse factors, thus resulting in decreasing net profit in 4Q14.  

 

- Corporate and SME, spearheads for 2015 growth    

 

We slash our net profit forecast in FY2015-2016 respectively by 6.2%yoy and 5.8%yoy, mainly by decreasing the assumption for net loan growth and income from other operations and increasing the assumption for operating expenses. After the revision, FY2015-2016 net loan growth is estimated at 9.5%yoy and 12.5%yoy, respectively. We still have a positive view about the banking business in 2015, believing that acceleration of government expenditure disbursement for both fixed expense and investment expense in the rest of the fiscal year and economic stimulus packages will be beneficial for private investments in projects (corporate and SME loans) relating to the government infrastructure projects. We estimate FY2015 net loan growth of 7.9%yoy. For 2015, there is still a challenge from the amendment to the Civil and Commercial Code B.E. 2557 (No. 20) regarding new regulations on guarantee law and mortgage law (November 13, 2014), taking effect after 90 days from the date of proclamation on the Royal Gazette (February 11, 2015). According to most banks, they believe the law amendment will have a limited and insignificant effect on the business. 

 

- Top picks: KBANK and KTB    

 

We maintain NEUTRAL for the sector. Top picks are KBANK and KTB, which are ready for the mega investment projects and whose FY2015-2016 net profits are projected to outperform the sector’s.