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Financials Focus
The land of smiles
Many travel brochures describe Thailand as the land of smiles. And Thai
banks’ price performance likely brought a smile to investors’ faces over the
past couple of years. This year, though, has been a different story. The price
performance of the Thai banks has been the proverbial two sides of a coin,
with direction seemingly dictated by the top down call. However, beyond the
macro, there were two sector issues I wanted to delve into during my recent
round of bank visits in Bangkok: margins and corporate lending.
Margins: Under pressure
Post my meetings with the various Thai banks, I would say that the street
estimates on margins have been too high. Earlier this year, several banks
were reportedly taking a more aggressive stance on deposits, with the step-up
program on deposits a prominent feature of this campaign. The first quarter
results bear out part of the impact from higher funding costs.
Corporate loans: Flash
Corporate-related lending may continue to lead growth for another quarter.
We’ve been a bit surprised to find corporate lending driving loan growth. The
question for us had been whether this is simply a flash in the pan or whether
there’s sustainability behind this trend.
I’m, however, in agreement with our man-on-the-ground, Passakorn
Linmaneechote, that corporate loans will slow down in the latter part of the
year. Corporates are cashed-up and the outlook for rising interest rates will
likely see companies pay down their loans quicker.
Thai macro: Wants to break free
The macro background on Thailand is looking good and this may be the
biggest draw to the Thai banks. There could be upside surprise to GDP and,
with it, loan growth could break out as well.
The key concern as far as macro is concerned seems to be inflation. More
specifically, the lifting of the oil subsidy that could create a jump in inflation. If
inflation persists, inflation expectations could change.
Play the game
Rising rates, funding cost pressure (to go with the competition on loan yields),
and resilience of corporate lending for the time being: in such an environment,
I’d prefer banks that have good liquidity, a high share of lower costing CASA,
or banks that are able to garner a higher proportion of longer-term deposits
within their fixed deposit mix. Banks with good non interest income would
also be preferred.
Taking the points I just mentioned into consideration, SCB (SCB TB,
Bt115.00, OP, TP Bt130.00) could continue to outperform in the near term. I
sense momentum is with this bank. However, further down, I can see why
KBank (KBANK TB, Bt127.00, OP, TP Bt150.00) is our top pick, as it seems
well positioned in the operating environment that we just described.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Financials Focus
The land of smiles
Many travel brochures describe Thailand as the land of smiles. And Thai
banks’ price performance likely brought a smile to investors’ faces over the
past couple of years. This year, though, has been a different story. The price
performance of the Thai banks has been the proverbial two sides of a coin,
with direction seemingly dictated by the top down call. However, beyond the
macro, there were two sector issues I wanted to delve into during my recent
round of bank visits in Bangkok: margins and corporate lending.
Margins: Under pressure
Post my meetings with the various Thai banks, I would say that the street
estimates on margins have been too high. Earlier this year, several banks
were reportedly taking a more aggressive stance on deposits, with the step-up
program on deposits a prominent feature of this campaign. The first quarter
results bear out part of the impact from higher funding costs.
Corporate loans: Flash
Corporate-related lending may continue to lead growth for another quarter.
We’ve been a bit surprised to find corporate lending driving loan growth. The
question for us had been whether this is simply a flash in the pan or whether
there’s sustainability behind this trend.
I’m, however, in agreement with our man-on-the-ground, Passakorn
Linmaneechote, that corporate loans will slow down in the latter part of the
year. Corporates are cashed-up and the outlook for rising interest rates will
likely see companies pay down their loans quicker.
Thai macro: Wants to break free
The macro background on Thailand is looking good and this may be the
biggest draw to the Thai banks. There could be upside surprise to GDP and,
with it, loan growth could break out as well.
The key concern as far as macro is concerned seems to be inflation. More
specifically, the lifting of the oil subsidy that could create a jump in inflation. If
inflation persists, inflation expectations could change.
Play the game
Rising rates, funding cost pressure (to go with the competition on loan yields),
and resilience of corporate lending for the time being: in such an environment,
I’d prefer banks that have good liquidity, a high share of lower costing CASA,
or banks that are able to garner a higher proportion of longer-term deposits
within their fixed deposit mix. Banks with good non interest income would
also be preferred.
Taking the points I just mentioned into consideration, SCB (SCB TB,
Bt115.00, OP, TP Bt130.00) could continue to outperform in the near term. I
sense momentum is with this bank. However, further down, I can see why
KBank (KBANK TB, Bt127.00, OP, TP Bt150.00) is our top pick, as it seems
well positioned in the operating environment that we just described.
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