Bangkok Bank

Bangkok Bank Plc (BBL)
What’s new? Mr Kosit Panpiemras, BBL’s Executive Chairman, stated that the bank could beat its official FY11 lending growth target range of 6-8%, given 9M11 loan expansion of 11.5% YTD. Its NPLs will rise slightly to Bt45.8bn at YE11 from Bt45.6bn at YE10, due mainly to fallout from the flooding. Nevertheless, BBL will maintain its loan loss provisioning at Bt7-8bn for FY11.
Analysis: The bank’s FY11 lending expansion looks set to exceed our forecast of 11% by a modest margin. BBL’s 10M11 net loan growth was 12.5% YTD, but we anticipate that it will report portfolio contractions for November and (probably) December. Thus, we conservatively assume expansion of 11% for FY11 and 7% in FY12 (our FY12 number is based on management guidance). We are optimistic about the outlook for FY12, which will be buoyed by both private investment and government spending.
BBL will set loan loss provisions of Bt7.2bn for FY11, we expect, despite the flooding (which will force many other banks to increase LLPs substantially). Note that the bank has the highest loan loss coverage ratio in the sector of 185% (the mean ratio is 99%) with a low NPLs/loans ratio of 2.8%, while its lending is dominated by corporate business, which is statistically much less risky than the retail and SME categories. Thus, we do not expect the bank to set bigger loan loss provisions, as we don’t anticipate a significant rise in NPLs (due to flooding in 4Q11).
Action: We believe that BBL will prove to be more resilient to economic volatility and fallout from the flooding than other banks, due to the fact that it has the largest loan loss cushion in the industry and its business is dominated by the corporate category (61% of its aggregate loan portfolio). Besides, its capital adequacy ratio was solid at 16.1% at end-September 2011, sufficient to support operations for years without need for capital-raising. 
Currently, BBL trades at undemanding YE12 PBV of 1.0x (its long-term average PBV is 1.2x). In comparison, the local Bank mean is 1.1x and the regional peer average is 1.5x. We maintain our BUY rating. BBL stands out as a safe long-term investment during a period of global and domestic economic uncertainty.