Bangkok Bank

We hosted BBL’s luncheon yesterday with Mr Chartsiri Sophonpanich, president. The bank expects loan demand expansion, especially for SME and international lending. BBL’s key areas of focus are: 1) regionalization (especially CLMV markets), 2) urbanization and 3) digitalization. The bank will use its extensive foreign branch network and its corporate lending expertise to support the expansion plans of its corporate and SME clients. BBL has the highest CAR (18.3%), the lowest loans/deposits ratio (86%) and the highest loan loss coverage ratio (204%) in the Bank sector. As such, it has the greatest scope for loan growth upside once economy strengthens. BUY!

3-5% loan growth guidance for FY15, led by SME and offshore

BBL has a modest FY15 loan growth target range of 3-5% (we expect 5%), following 1.7% in FY14. Management expects growth across all lending categories (especially in the provinces). SME business (30% of total loans) is targeted to rise by 5-7%, corporate (41% of loans) by 2-4% and international business (16% of loans) by 6-8%. Retail growth (13% of the portfolio) is targeted at 6-8%. BBL assumes 2015 GDP growth of 3-4%. 

The AEC will augment long-term growth  

The AEC will facilitate greater intra-regional consumer and infrastructure spending in 2H15, claims management. Thus, its lending strategy focuses on 1) urbanization (nearby mass transit routes) and 2) regionalization (business in CLMV markets, cross-border M&As and special economic zones). BBL also plans to invest in digital platforms, such as mobile banking, which should boost fee income and facilitate cross-selling of financial products.  

FY15 NIM will be 2.3-2.4% and FY15 fee income to grow 6-8%  

Management’s FY15 fee revenue expansion target range is 6-8%, following 2.3% growth last year. The drivers are mutual fund and bancassurance sales commissions and loan-related fees. We have cut our FY15 fee income growth assumption from 11% to 8%. BBL guides for an FY15 NIM of 2.3-2.4% (our number is 2.34%); it posted 2.37% for FY14. BBL anticipates FY15 loan loss provisions of Bt8.5-9bn (against Bt8.7bn last year). Its YE15 NPLs/loans ratio policy ceiling is 2.0%, unchanged YoY.

FY15 cost/income ratio target range of 44-45% (we assume 46%)

BBL’s targets cutting its FY15 cost/income ratio from the 47% posted for FY14 to 44-45%. Management guides that FY15 OPEX will rise 6-8% (against a 7% increase in FY14). We have cut our FY15 OPEX growth assumption from 10% to 7%. We conservatively assume an FY15 cost/income ratio of 46% in our model. If the ratio were lower than our assumption there would be scope for upside to our earnings forecast.