Banking

Banking  

 

Banks’ 1Q15 results were subdued, with a negative surprise lying in asset quality and NIM. Fortunately, this was offset by a positive surprise in non-NII. The lackluster loan growth came as no surprise. We believe 1Q15 puts the disappointments behind us and gradual recovery is on the way. The sector’s share price weakness offers a chance to accumulate. 

1Q15: Disappointing NPLs and NIM offset by better non-NII than expected. The sector’s 1Q15 earnings show a small recovery with average growth of 4%YoY and 6% QoQ, in line with our forecast and minimally below consensus. Digging into details revealed a negative surprise lying in rising NPL formation and narrowing NIM, fortunately largely offset by a stronger non-NII than expected, mainly from the capital market. TMB, KKP and KTB were most disappointing, mainly on asset quality.   

Raised provisions on reemerge of asset quality concerns. NPLs rose 6% QoQ across the sector (excepting TISCO and TCAP). The rises were alarming at KTB (+18% QoQ), KKP (+14% QoQ) and LHBANK (+23%, though this was off a low base). The sector’s credit cost rose 12 bps QoQ to 102 bps in 1Q15 and LLR coverage slipped to 133% from 138% at 4Q14. The bright spot was the slowing formation of NPLs on used car loans in 1Q15 as well as losses on repossessed cars. We raise our 2015F credit cost for TMB, KKP and KTB but believe this issue is old news.  

Cut 2015F NIM, though expect improvement in 2Q15. Worse than expected, the sector’s net interest margin (NIM) fell 6 bps QoQ as a result of the lag between re-pricing loans and deposits after the rate cuts in March. Rising NPLs also exerted downward pressure on 1Q15 NIM. This is expected to improve in 2Q15 as a result of deposit re-pricing, migration toward low-cost saving deposits and rising L/D ratio. We cut 2015F NIM for BBL, KBANK and KKP to fine tune with 1Q15 results. 

Lackluster 1Q15 loan growth no surprise; gradual pick up later. The limp organic growth in loans YTD of 0.1% came as no surprise; most of the loans were corporate and SME, with auto loans continuing to contract in 1Q15. We maintain our forecast of sector organic loan growth of 7% vs. 4% in 2014. However, we slash 2015F loan growth for TCAP, TISCO, KKP and KTB. We expect loan growth to gradually pick up in 2Q15 before getting into high gear in 2H15, led by acceleration in public investment and resumption of inventory restocking after the end of a destocking cycle. 

Stronger non-NII than expected. Beating expectation, the sector’s non-interest income (non-NII) grew 14% YoY and 8% QoQ from net fee & insurance income, trading & forex gain and investment gain. BBL beat the most. 

KTB and KBANK still top picks with a slight TP cut. We keep KTB and KBANK as the sector’s picks on the back of their potential outperforming top line growth. We cut target price of TMB to Bt2.8 from Bt3, BBL to Bt240 from Bt250, KBANK to Bt260 from Bt270 and KTB to Bt26 from Bt27. We cut 2015F earnings by 8% for TMB (on provisions) and 3% for KTB (on provision), BBL (on NIM) and KBANK (on NIM).