Bangkok Bank

Bangkok Bank Plc (BBL)
3Q13F preview. 3Q13F will show growth of 15% YoY on higher top lines but slip 12% QoQ, mainly on an absence of extra income to ~Bt9bn. Key takeaways from 3Q13 preview guidance:
1) Loan growth: Slower QoQ, mainly on corporate and SME loans.
2) Net interest margin: Slight narrowing QoQ as competition to raise deposits raised cost of funds. However, high loan growth booked at the end of 2Q13 led to good net interest income in 3Q13.
3) Non-interest income: Down QoQ, with fee and dividend income falling plus a lower gain on NPA sale.
4) Opex: Up QoQ without last quarter’s reversal of provisions for TAMC loss sharing, but still on track to meet its full-year target of 10-12% YoY growth with 44-45% cost to income ratio.
5) Provisions: QoQ decrease to normalized provisions of Bt1.7-1.8 bn from Bt3.4bn in 2Q13, in line with 2013 target of Bt8-8.5bn. This suggests no more extra provisions in 2H13.
Loan growth: Slower in 2H13 but sustainable through next year. BBL expects loan growth to slow HoH in 2H13 on weaker private investment growth, as it has been seeing a slowdown in loan applications, leading to slowed growth in corporate and SME loans in 3Q13. Growth in retail loans for 3Q13 was stable QoQ. Loan growth YTD lines up with its full-year target of 6-8%. For 2014, the bank expects to keep its loan growth unchanged from this year. Note that BBL conservatively has not yet factored in any of the Bt2trn infrastructure investment into its loan growth target. We maintain our loan growth forecast at 7% for 2013 and 2014.
Raising funds via offshore debentures. In September BBL issued US$1bn offshore debentures to finance its offshore lending. These are issued in two tranches – 5-year maturity with 3.3% interest rate and 10-year maturity with 5% interest rate. Currently, ~60% of its offshore lending is financed by offshore funding. We believe this reflects the bank’s increasing efforts to increase liability duration to lock in funding cost, which will put upward pressure on cost of funds.
Maintain as sector’s top Buy. We keep BBL as the sector’s top buy for two reasons: 1) L-T investment cycle play and 2) a safe haven with the most solid balance sheet and low exposure to household debt risk. We keep our target price and forecast unchanged.