Banking Sector

Banking Sector

 

- Every 25bp rate cut will depress sector’s profit by 0.67%   

The policy interest rate has entered a downtrend. Since the inflation rate and local fuel price have decreased, the Bank of Thailand (BOT) imposed an easing monetary policy by cutting the benchmark interest rate. According to our sensitivity analysis, based on data from the financial statement at end-2014, which includes net loans, deposits, issued bonds and liabilities, and interbank loans and liabilities, every 25bp decrease in the policy rate will depress the sector’s 2015 NIM by 1.11bp, from the current forecast of 3.137% to 3.126%, and lower 2015 net profit by 0.67% from the current forecast of B225bn; the impact from the policy rate cut will be fully seen in 2Q15. However, the impact, either negative or positive, will be very limited, so will the policy rate cut. If the government also uses a stimulus fiscal policy by accelerating budget disbursement, there will be lower necessity for the policy rate cut. Moreover, the estimated impact from the interest rate downtrend is insignificant on the net profit forecast because banks still have compensation from other sources of income, especially from fee.  

- Negative for KTB, BBL, TCAP. Positive for BAY, KKP, TISCO   

Based on our study, the banks that will be adversely affected by the decreasing policy rate most are KTB, BBL, and TCAP since they have bigger proportion of floating rate loans than floating rate source of capital (mostly deposits) or some of them are net lenders in the money market. On the other hand, BAY, KKP, and TISCO will most benefit from such a situation.  Top picks are KBANK, KTB    

We maintain NEUTRAL for the banking sector. Top picks are KBANK(FV@B300) and KTB(FV@B29), which have high tolerance to the interest rate downtrend, have other sources of income as compensation, and are ready for the country’s coming mega investments; FY2015-2016 net profit of these two banks is projected to outperform peers’.