Bank sector

Bank sector

BOT implements Basel 3 with tier 1 capital ratio of 6% and CET1 of 4.5%
On 14 December 2012 the Bank of Thailand (BOT) issued 7 notices
regarding a capital regulatory framework according to Basel 3, which
can be concluded as follows. 1) A domestically listed bank has to
maintain its tier 1 capital ratio at no less than 6%, with a common
equity tier 1 element of no less than 4.5%, or a total capital ratio (CAR)
of no less than 8.5%, which is the same level of the current . 2) A
branch of a foreign bank has to maintain its total capital ratio (CAR) at
no less than 8.5% like a domestically listed bank, as we have concluded
in the table on the next page. The new framework will be effective since
1 January 2013 onward. For the leverage ratio and liquidity risk
management measure (because of the international financial crises
which result mainly from the illiquidity of financial institutions as a result
of the wholesale funding system as well as an over business expansion
of financial institutions), the BOT is now monitoring framework of the
Basel Committee on Bank Supervision (BCBS) and analyzing its impacts
before adopting the framework to the bank system in Thailand.

Confirm no need of capital increase as tier 1 of Thai banks is high at 10.5% and mostly is CET1
The risk management department of the BOT has confirmed that there is
no need for the Thai banks to raise capital in order to comply with the
new framework, which is in line with our previous view that the Basel 3
will not have an effect on the Thai banks (except for those that might
have to increase capital to prepare for future growth, such as KTB).
Capital Adequacy Ratio (CAR) of the Thai banks at end-9M12 comprises
of tier 1 capital by 10.5%, which consists mainly of CET1, except for
TCAP that has goodwill but the bank has already sold the life insurance
business to reduce risky assets and increase more CET1. Consequently,
we believe that after the Basel 3 is effective in early 2013, the Thai
banks will still be clearly far from concerns about capital raising.

2013 - golden year of bank investment. Top picks are KBANK and TCAP
We maintain OVERWEIGHT for the banking sector. Although SETBANK
has been rallying gradually, PBV at 1.8x is still very low compared with
the average PBV of regional banks such as in Indonesia, Malaysia, and
the Philippines which have shown robust GDP growth as benefiting from
the government’s economic stimulus measures. We select KBANK and
TCAP as top picks because of their outstandingly promising EPS growth
in 2013 and attractive upside.