Banking sector

- Feb loan growth thin. BAY, TMB, LHBANK, KBANK lead growth 

 

Ten commercial banks under our coverage (except KTB) reported the Summary Statement of Assets and Liabilities as of February 2015 with outstanding net loans (after allowance for doubtful accounts) of B7.66tr or the growth of 0.48%mom and 5.80%yoy. Overall, 2M15 net loan increased 2.75% from end-2014, which was strong when compared with FY2015 target growth of 7.00%yoy, led by BAY, TMB, LHBANK, and KBANK. Other banks, on the other hand, posted lower net loans, mostly mid- and small-cap banks that focus on car leasing loans, i.e. TCAP, TISCO, and KKP, which were adversely affected by higher repayment rate than loan launching rate and the banks’ more stringent loan approval policy. 

 

- Profit recovery expected in 1Q15 

 

We estimate 1Q15 net profit of ten commercial banks under our study to rebound from B49.2m in 4Q14. BAY, BBL, KBANK, KTB, LHBANK, SCB, and KKP would show earnings growth from 4Q14, driven by lower operating expense after a high season passed and lower credit cost. However, the core business is believed to remain sluggish; NIM is projected to continue weakening from the prior quarter. Although some banks have reduced their deposit rate to be consistent with the one-day RP rate cut to 1.75%, they are reductions of long-term fixed deposit rate, which will take time before they help lower funding cost. At the same time, although loan rate reductions (SCB, KBANK, and KTB) are at a lower rate than the deposit rate cuts, it can immediately affect loan yield in March 2015 and fully in 2Q15. In addition, loan growth has been thin in 1Q15 owing to a low season. Accordingly, net interest income and NIM would weaken (before gradually reviving in 2H15 if there is no further policy rate cut). In terms of fee income, good growth from the fund management business and bancassurance (TISCO) was not able to compensate for decreasing loan-related fee income, especially from the car-leasing loans. 

 

- Top picks are KBANK, KTB    

 

We maintain NEUTRAL for the banking sector. Top picks are 

 

KBANK(FV@B300) for its highest ROE among peers with potential for notable fee income growth and KTB(FV@B29) for its ROE tends to increase over the next two years.