• Bond: KBANK 5.458 28
  • Indicative Yield-to-Maturity (YTM): 5.458% (Indicative as of March 2)
  • Credit Rating (Moody’s/Standard & Poor’s/Fitch): -/BBB/-
Detailed Information

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Fundamental View

AS OF 23 Feb 2023
  • Kasikornbank (KBank; Baa1(stb)/BBB(stb)/BBB(stb)) is a sound and historically profitable bank, partly supported by its SME book.
  • Margins are good as a result of its strong SME franchise, though NIMs have been steadily falling over the past 5 years as a result of strong competition and the bank’s efforts to diversify its exposure to a more balanced mix across the segments.
  • Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in Q4 of 2022, and some uncertainty to KBank’s asset quality trajectory remains in FY23.

Business Description

AS OF 23 Feb 2023
  • Kbank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
  • KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
  • As of end-Sep 2022, the bank's loan mix by segment consists of 35% corporate, 32% SME, 28% retail and 5% others.
  • KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
  • It partially owns a life insurance company, Muang Thai Life.

Risk & Catalysts

AS OF 23 Feb 2023
  • Worries over the SME segment typically finds KBank in the limelight given its SME focus. However, we expect support measures for SMEs to remain in place until the economy is back on a stable footing, given the importance of SMEs to the Thai economy.
  • Risks from prolonged forbearance measures and high household debt remain for the Thai banks, but our view on asset quality and margin pressure is more sanguine now as China’s earlier than expected reopening brightens the outlook for Thai tourism and overall growth this year, which in turn bodes well for consumer and SME health.
  • However, KBank’s asset quality trajectory is uncertain as management undertook a surprise sizable balance sheet cleanup in 4Q22 that led to credit costs exceeding guidance, and will continue with further cleanup efforts in 2023.

Key Metrics

AS OF 03 Mar 2023
THB mn FY22 FY21 FY20 FY19 FY18
PPP ROA 2.36% 2.38% 2.44% 2.72% 2.88%
ROA 0.86% 0.98% 0.85% 1.20% 1.27%
ROAE 7.3% 8.3% 7.0% 9.9% 10.6%
Equity / Assets 13.4% 13.1% 13.4% 13.8% 13.2%
CET1 Ratio 15.9% 15.5% 15.5% 16.2% 15.9%
Gross NPL ratio 3.19% 3.76% 3.93% 3.65% 3.34%
Provisions / Loans 2.11% 1.73% 2.05% 1.74% 1.75%
Gross LDR 91% 93% 96% 97% 96%
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CreditSights View

AS OF 23 Feb 2023

Kasikornbank is the 2nd largest bank in Thailand. We have been cautious about its one-third share of the loan book to SMEs given COVID-related loan restructuring and growth challenges, but have liked its high NIMs, strong capital, and ability to grow in tough times. However, a reassessment of risk in its legacy SME loans and growth to higher yield small ticket loans led credit costs to spike in 4Q22. Uncertainty to KBank’s AQ trajectory remains as further cleanups are to be undertaken in 2023, but the bank’s strong capital is a key credit strength and credit costs, if contained within management’s FY23 guidance of 175-200 bp is manageable for the bank. We also see China’s reopening as a mitigating factor for asset quality and margin pressure. We have Kasikornbank on U/P.

Recommendation Reviewed: February 28, 2023

Recommendation Changed: October 12, 2022

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