Banking Sector

Banking Sector

- Banks gradually decrease deposit and loan rates following RP1, led by SCB
After the Bank of Thailand announced on 27 November to cut the RP1 by 0.25%,
SCB was the first among peers to reduce its deposit and loan rates. The bank
decreased MLR by 0.25%, MRR by 0.10%, fixed deposit rate by 0.05-0.15%, and
saving deposit rate by 0.125%, becoming effective since today (29 November). At
the same time, other banks are reviewing their interest rates, which are projected
to be cut. However, they might not reduce the MLR rate as much as 0.25% like SCB
because their loan rate structure consists mostly of MLR, whereas SCB’s comprises
mainly MRR.
- 2014 profit affected by 2.4%. KTB, BBL, TISCO impacted most
We have a negative outlook toward the Thai economy and the sector’s profitability
in the next three to six months. It is still unclear whether the government’s mega
infrastructure project will be able to proceed and the economy has been aggravated
by the escalating political tension, resulting in decreasing loan demands.
Accordingly, commercial banks will have to cut their loan rate to boost demand and
help their debtors, against the already tight liquidity at present. According to our
study, every 25bp decrease in the loan and deposit rate will make 2014 NIM of the
sector decrease by 3.8bp from the current assumption of 3.14% and 2014 net profit
decrease by 2.4%. The banks that will get the least impact from this round of
interest rate decrease are LHBANK, TCAP, and KBANK. As net borrowers in the
money market, LHBANK and TCAP will be able to negate the net impact from their
floating loan and deposit rate. For KBANK, despite being a net lender, most of the
impact will be offset by a positive factor from loan and deposit as its deposit
structure consists of the largest floating rate among peers (equal to KTB). On the
other hand, KTB, BBL, and TISCO will be affected the most. KTB and BBL have a
very large proportion of floating rate loan, so they will be immediately impacted
when the interest rate is cut and they are also big net lenders. For TISCO, although
it has large fixed rate funding structure, it also has large fixed rate loan and
deposit, so the benefit from the interest rate decrease will be insignificant.
However, as a net lender (the biggest among peers), TISCO will get a significant
adverse impact. Nevertheless, we believe the interest rate decrease will be limited
at only 25-50bp because of the liquidity factor, so the effect on the sector’s net
profit in 2014 that is projected at 2.40-4.80% is still manageable and able to be
compensated, maybe by increasing other incomes, especially fee income that has
grown significantly in 2013 with 10.8%yoy growth projected next year.
Consequently, we maintain our FY2014 net profit forecast of the sector at B218bn
or the growth of 10.2%yoy.
- UNDERWEIGHT. Already undergo correction but lack boosts in short term
We maintain UNDERWEIGHT for the banking sector, projecting the EPS growth in
2014 lower than the market’s EPS growth of 13.3%yoy. Moreover, in the short term
the share prices might undergo correction due to fluctuating market and the
interest rate downtrend. Top picks are BBL and KBANK, which have strong financial
status and capital and good profitability in the long run. For small-cap bank, we like
TISCO, as it is believed to show the fastest recovery among leasing companies.