Bangkok Bank

Bangkok Bank Plc (BBL)

1Q14 preview — in a stall. We expect BBL’s 1Q14 profit at Bt8.6bn (Bt4.49/share), a
slip of 5% YoY - on the absence of a one-off gain – and a rise of 12% QoQ. BBL guides to
QoQ zero loan and deposit growth, QoQ sustainable net interest margin (NIM), flattish
fee income both YoY and QoQ, QoQ seasonal easing in cost to income ratio to 42%,
Bt2-2.1bn provisions (in line with full-year target of Bt8-8.5bn) and a slight increase in
NPLs from qualitative reclassification.
Positive surprise in 1Q14 NIM guidance. BBL’s statement that it expects NIM to be
stable QoQ is a positive surprise for us. With the highest exposure to money-market
rates, BBL is typically hit the most by interest rate cuts. However, BBL appears to be
more vigilant in managing NIM than expected. BBL claims it was able to negotiate with
some clients to change interest charge terms so that these loans are not affected by
interest rate cuts. This is the key factor behind the stable 1Q14 NIM.
BBL keeps 2014 targets unchanged even though most other banks have cut targets
because of the prolonged political uncertainties. It still expects for 2014: 5-7% loan
growth (vs. 9% for 2013); 10% fee income growth (vs. 11% for 2013); slight squeeze in
NIM; stable provisions at Bt8-8.5bn with credit cost of 45-50 bps; a rise in cost to
income ratio to normal at 41-43% on the absence of 2013’s one-off Bt2.6bn reversal of
provisions for loss sharing with the TAMC. The reason it can stand firm on its 2014
targets is that it has a focus on corporate loans, for which loan growth and asset
quality are least impacted by the economic downturn. Meanwhile, it has low exposure
to small SME and retail loans, those likely to be hit the most by the economic
downturn.
Maintain as top Buy: We keep BBL as our top buy, seeing it as the most defensive
bank in an economic downturn in two respects. 1) By all parameters – 214% LLR
coverage, 16.9% capital adequacy ratio and the highest liquidity at one-third of total
assets, BBL has the strongest balance sheet, giving it the softest cushion to weather
the economic downturn brought by the political turmoil. Representing a flight to
quality, BBL shares have historically initially outperformed during economic downturns.
2) BBL has the highest exposure to corporate loans, which are positioned to be least
damaged by the economic downturn in terms of both growth and asset quality.