Krung Thai Bank

Investment thesis

We expect KTB to deliver further good lending growth in FY15, driven by the role it plays financing state agency infrastructure projects. Besides, its capital adequacy ratio of 15.4% (10.4% Tier-1) will allow the bank to lend aggressively for at least several years without capital-raising. The stock currently trades at inexpensive PBVs of 1.48x for YE14 and 1.36x for YE15 (up 0.5SD); its last peak was 1.7x in 2013 (up 1.5SD). We have a BUY call on the bank.

Slow net lending in October, as expected

KTB announced total net lending of Bt1.73trn at end-October, up just 0.1% MoM, 4.6% YTD and 5.8% YoY. This was due to a big government loan repayment and a more conservative retail credit approval policy. We expect its lending performance to improve significantly in November onward on seasonality—chiefly trade finance for exporters. In addition, the new government is moving to accelerate budget disbursement and institute a stimulus package. Note that the numbers for October put KTB’s 10M14 lending growth at 4.6% YTD, which is in-trend to achieve management’s full-year lending growth guidance range of 5-7%. 

Our model assumes loan growth of 7% for both FY14 and FY15. Given that the bank has achieved the swiftest 10M14 loan growth in the sector, we see scope for upside to our FY15 loan growth assumption. 4Q14 lending growth should accelerate YoY, driven by improving political and macro-economic factors. 

Loan loss provisioning likely to decline in 4Q14 onward

KTB aims to reduce 4Q14 LLP-setting to a normal level of about Bt700m/month following heavy provisions of Bt9.97bn for 9M14. At end-September, its loan loss coverage ratio was 108% and a low NPLs/loans ratio of 3.1%. We assume FY14 LLPs of Bt11bn, down 10.5% YoY. But we also expect the bank to set heavier FY15 LLPs of Bt12bn, up 9% YoY, in tandem with stronger lending growth (across the corporate, SOE and retail categories).

NIM should be stable in FY14 and FY15

Given that among big banks it has the strongest FY14 loan growth profile, KTB’s NIM should be sustained in the 2.6-2.7% range, according to management. Also, it plans to expand high-yield lending (personal loans and SME business). At end-September, KTB’s loan composition could be categorized into corporate:SME:retail:state agency in the proportions 38:19:35:8, respectively. Note that we assume NIMs of 2.65% for FY14 and 2.64% for FY15 in our model. Management expects the one-day Repurchase Rate to stay at 2.00% throughout 2014, then rise in late 2015. Note that we did not model for higher interest rates in FY15 (which would benefit KTB).