Banking Sector

Banking Sector  

 

LHBANK, BBL outgrows peers in May 

 

Nine commercial banks under our coverage (except KTB) reported the Summary Statement of Assets and Liabilities in May with outstanding loan (after allowance for bad debts) of B7.74tr net, decreasing 0.2%mom but increasing 6.5%yoy, led by LHBANK (from big corporate loans) and BBL (mostly from loans at overseas branches and retail loans), while the other banks posted lower loans, especially BAY, TCAP, and TISCO. Overall, 5M15 net loan has grown 3.8% from end-2014, which is in line with our FY2015 forecast of 8.7%yoy. 

 

Profit to shrink in 2Q15, particularly KTB 

 

We estimate FY2015 net profit growth of the banking sector at only 3.9%yoy. The interest rate has entered a downtrend after the policy rate cut to 1.25% (one more meeting is waiting ahead); the two recent policy rate cuts would fully affect NIM in 2Q15 for yield would decrease for a full quarter. Loan rate cut since March for two months would show an effect in 3Q15 as well, under a NIM forecast of 3.05% for 2015. Moreover, credit cost has increased as a result of a stringent debt provisioning policy, under an assumption of 100bp in 2015; a significant increase is anticipated in 2Q15 from KTB’s special provisioning of B3.6bn. Loan growth would still decelerate due to a low season. Accordingly, 2Q15 earnings would shrink from B52.3bn in 1Q15 and B52.2bn in 2Q14. 

 

Top picks are KBANK, BBL; buy TMB 

 

We maintain NEUTRAL for the sector. SETBANK has undergone more than 15% 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 relieving concern about the interest downtrend. Top picks are KBANK(FV@B270) and BBL(FV@B209); we also recommend buying 

 

TMB([email protected]) for its good asset quality, with the highest NPL and SML (one to three-month outstanding) coverage ratio of 80%, versus the sector’s average of only 56.6%.