Banking sector
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July loan still affected by slowing economy Neutral
Banking sector
- KKP, KBANK, TMB grow against peers in July
According to the Summary Statement of Assets and Liabilities of nine commercial banks under our study (except KTB), outstanding net loan (after allowance for bad debts) in July was B7.76tr, contracting 0.05%mom but still growing 6.5%yoy, led by KKP, KBANK, and TMB; growth was seen mainly from corporate loans, while SME and retail loans decelerated significantly. On the other hand, net loan of TCAP, BAY, and TISCO decreased most this month, mainly car leasing loan. Overall, 7M15 net loan grew 4.0% from end-2014, which is still in line with our full-year estimate of 7.5%yoy.
- Profit growth expected in 3Q15, led by KTB, TCAP
We estimate FY2015 net profit growth at only 3.9%yoy, using a conservative method by including an effect from a cut of the policy rate to 1.25% (another round of cut is possible) and an increase in credit cost due to banks’ more stringent debt provision policy amidst weak asset quality. Loan growth would also weaken from 2014 (excluding BAY’s deal of BTMU acquisition, FY2015 net loan growth would be only 5.8%yoy). For 3Q15, we project net profit of ten commercial banks under our coverage to grow from B51.3bn in 2Q15 and B53.9bn in 3Q14 as bad debt allowance expense would decrease (KTB, TISCO), after the banks had already made high provisioning in 2Q15, although NPLs would continue increasing in the quarter. NIM would start to stabilize when compared with 2Q15; despite pressure from yield, there would be a benefit from decreasing funding cost as a result of the deposit rate cut. KTB and TCAP would show a better net profit growth than peers in 3Q15 due to its decreasing allowance for bad debts.
- Top picks are KBANK, TCAP
We recommend NEUTRAL. SETBank has already undergone 23% correction from end-2013 until its PBV is only 1.2x, which is -2SD lower than the five-year average of 1.7x and below the regional average of 1.27x, thus a very limited downside. We like KBANK(FV@B232) for its good loan and revenue diversification and TCAP([email protected]) for its stronger asset quality and capital base and better net profit growth than the sector’s average in 2015-2016.
