Banking Sector
No more worries about interest rate, NPL in focus instead Neutral
Banking Sector
- Lower concern about interest downtrend lessens pressure on KTB, BBL
The MPC decided to keep the policy rate unchanged at 1.50%, thus relieving concern about NIM and net profit of the banking sector if the interest rate remained in a downtrend. However, we do not revise up our forecast in 2015-2016 for an upside is upside even though 2015 NIM is estimated at 3.05% under a policy rate forecast of 1.25% and because every 0.25% cut in the lending and deposit rate would affect the sector’s profit by 0.67%. In addition, the policy rate may be lowered further in the rest of the year if the economy rebounds slower than projected. Yet, the MPC’s decision helped lessen worries of KTB and BBL, the big banks that were most affected from the interest rate downtrend; the twice lending and deposit rate cuts earlier will have a full impact in 2Q15 and then start to ease off in 3Q15.
- NPL in focus now. BBL, KBANK, TMB has highest coverage ratio
NPLs have been increasing, so have one- to three-month special mention loan (SML) outstanding from 1Q15, which might get worse into NPLs and cause 100% debt provision (from 2%). BBL and BAY faced the biggest increase in SML among peers in 1Q15, rising 47.5%qoq or B17.7bn for BBL and 43.2%qoq or B14.3bn for BAY, which can pose a downside for 2015 earnings. BBL, KBANK, and TMB are the strongest players in the present from their highest NPL to SML coverage ratio among peers at over 80%, versus around 50% of KTB and SCB, and 26.3% of TISCO, the lowest among peers possibly because it used a collective approach in making provision for car leasing loan, its core product, based on historical loss rate and adjusted with probability of default (PD) and loss given default (LGD).
- Top picks are KBANK, BBL; buy TMB
We upgrade the sector to NEUTRAL. SETBANK has undergone more than 13.4% correction since 1Q15 earnings report, compared with the sector’s forecast cut of only 7%, indicating a limited downside, while there is also benefit from the interest rate. Top picks are KBANK(FV@B270) and BBL(FV@B209); we also recommend buying TMB([email protected]).
