Banking Sector

Banking Sector
- February 2014 loan sluggish
Nine commercial banks under our coverage (except KTB) declared a summary
statement of assets and liability as of February with outstanding loan (after
allowance for doubtful accounts) of B7.24tr net, dropping for the second consecutive
month by 0.08%mom but growing 8.09%yoy. We did not expect loan growth in
February as it was an off-season period and the domestic political situation has been
pressing confidence in investment and domestic consumption. Most banks reported
lower net loan, except KBANK and BBL that could still show monthly growth, mainly
from short-term working-capital corporate loan, while retail loan declined due to low
season. Other banks' loan contracted; LHBANK and TISCO posted the largest decline
in net loan because of high repayment of retail loan in car leasing business. For
TISCO, corporate loan and SME loan also shrank. Overall, the sector's 2M14 net loan
growth is still in line with the FY2014 net loan growth target at 6.8%yoy. In terms of
deposit (including funding for small banks), outstanding deposit in February 2014
was B8.05tr, growing 1.20%mom and 9.42%yoy. Most banks reported deposit
growth. KKP, BAY and TMB were with the strongest deposit growth, while TCAP and
SCB (declining for three consecutive months after reducing cost of deposit close to
peers') showed the largest decline in deposit this month.
- Earnings forecasts with downside
We hold a negative outlook for fundamental factors and profitability of the banking
sector in 1H14. Held back by the economic slowdown as a result of the prolonged
political problem, there is only slim hope about benefits from the government and
private’s mega investment projects. If the political turmoil continues, 1H14 GDP
growth and loan growth forecast would be revised down further, so the sector’s
earnings forecast would be slashed again. Meanwhile, retail loans have become more
worrying. Banks have to adopt stricter policy of loan issuing, and NPL situation has
begun to show clearer negative sign. Another risk is decreasing interest rate; our
study shows that for every 25bp decrease in the loan and deposit rate, 2014 NIM will
drop by 1.90bp from the current assumption of 3.12%, which would thus depress
2014 net profit of the sector by 2.71%. However, we have already included a 25bp
interest rate cut in our forecast (previously slashed interest rate forecast by 12.5bp).
- Selective play: BBL and TISCO
We maintain UNDERWEIGHT. 2014 EPS growth is projected to decrease to only
3.4%yoy. We still like BBL (FV@B197, 1.17x PBV, long-term ROE forecast of
13.3%), which has the lowest PBV among big-cap banks and gives 4% yield on
average. We also favor TISCO([email protected]) for its 6%p.a dividend yield as its
recovery is the fastest in car leasing sector.