Banking Sector

Banking Sector

Although overall earnings in 1H14 are not impressive, growth is
foreseen in 2H14 and 2015 instead. Accordingly, we are likely to
revise up our forecasts. Top picks during the reviving economy are
SCB, KBANK, and KKP.

- Profit to stabilize in 2Q14 despite slowing economy
We estimate 2Q14 net profit of ten commercial banks under our coverage at
B50.3bn, stabilizing both qoq and yoy. Overall, the banking business has
remained good in 2Q14, against the slowing economy and decelerating
loans. NIM has been strong because of gradually decreasing funding cost. At
the same time, fee income has stabilized despite a low season and long
holidays. A pressuring factor in the quarter, on the other hand, is rising
NPL; this is not worrying since it will occur only from some debtors, not
from the economic downturn as a whole, but it might cause the debt
provision to increase. TMB and KTB would show the largest net profit growth
whereas BBL would post the greatest plunge in net profit this quarter.
- Growth awaited in 2H14
We have not projected to see business growth in 1H14 but 2H14 and 2015
instead. The economy in 2H14 would get stronger from the NCPO’s
economic stimulus roadmap. Consequently, we maintain our 2014 GDP
growth forecast of 2%, which would help increase the confidence toward
earnings growth of the banking sector in 2014 and might lead to earnings
forecast up revision soon because our previous assumption was too
conservative.
- Top picks are SCB, KBANK, KKP
We assign NEUTRAL for the sector and select SCB, KBANK, and KKP as top
picks during the reviving economy as they focus mainly on giving SME and
retail loans.