BANK Sector

BANK Sector
July loan growth weakest mom in 2 years. KTB wins largest growth
Ten commercial banks under our coverage reported a summary statement of
assets and liabilities (C.B 1.1) as of July 2013 with a combined net loan (after
allowance for doubtful debt) of B8.53tr, increasing only 0.23%mom and 12%yoy.
Most commercial banks showed monthly growth, except for BAY (-1.3%mom and
+10.4%yoy), LHBANK (-1.1% and + 40.2%yoy) and BBL (-0.3%mom and +
8.4%yoy). The decline in the net loan in this month resulted from repayment of
corporate loans, which were short-term working capital loans (BAY, BBL). Retail
loans also showed slower growth, especially housing (BAY, LHBANK) and car
leasing (BAY). The bank that showed the largest net loan growth this month was
KTB, mostly from continuous growth of private corporate loans, while government
corporate loans showed the first growth in this month although accumulated net
loan since the beginning of the year until present has decreased from end-2012
(but they were short-term loans, so continuous growth could not be guaranteed in
the rest of the year). Other big banks like KBANK and SCB showed net loan growth
of around 0.5%mom from all types of loans (except car leasing and housing loans
for SCB), though still lower than the growth in the prior month. Medium and small
banks like TCAP, KKP, and TISCO also showed lower net loan growth mom (except
KKP with flat net loan growth mom) due to pressure from contracting car leasing
and housing loans. Overall, the net loan growth of the banking sector in 7M13
increased to 5.6% from end-2012 (YTD), quite high comparing to FY2013 target at
9.8%yoy, thus helping to alleviate concerns because loan growth usually
accelerates in 2H, despite a threat of domestic economic deceleration. Combined
deposits (including loans for small banks) in July 2013 were B9.37tr, escalating
0.7%mom and 11.7%yoy, versus deceleration in the previous month, reflecting
fiercer competition in deposit gathering to keep the market share. The Government
Savings Bank (GSB) has also heightened its deposit gathering. BAY, TISCO, and
KBANK showed the largest growth in deposit this month, while LHBANK was with
the lowest growth.

Rising pressure on 2H13 and 2014 profit
We have a more negative outlook toward the business and earnings of the banking
sector in 2013-2014, especially for loan and fee income, because it has to depend
on local economy, which tends to decelerate in the export, private investment, and
private consumption sectors. If the government’s mega investment projects are
terminated, it will affect Thailand’s economy until 2014. Recovering export volume
might not be able to offset other contracting economic figures. Moreover, with
rising concerns over asset quality, banks will have to keep high debt provision.
Previously, 2H13 net profit had been projected to improve from 1H13 due to
decreasing debt provision and the growth of core business on a high season of loan
and fee income. However, after the recent forecast cut to reflect the economic
slowdown in 2H13, there is a good chance that the loan growth might not be
aggressive, while debt provision would remain high. 2H13 net profit would make
49% of FY2013 net profit forecast.

Underweight. Still like BBL and KBANK in long term
We assign UNDERWEIGHT. The sector’s EPS growth in 2014 is estimated at
9.6%yoy, lower than the market EPS growth of 13%yoy. Top picks are BBL and
KBANK, which are big-cap banking stocks with healthy financial status and capital
base, and long-term profitability. In the short term we recommend avoiding the
stocks relating to retail loans, especially car leasing, which are TISCO, KKP, TCAP,
and SCB.