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Fundamental View
AS OF 22 Dec 2023Kasikornbank (KBank; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
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 4Q22 due to its larger SME exposure, and credit costs have remained elevated in 9M23.
Margins are the highest among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition. Rising base rates in 2023 have provided a boost, but the bank is now focusing growth on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 22 Dec 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-June 2023, the bank's loan mix by segment consists of 35% corporate, 31% SME, 28% retail and 6% 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 22 Dec 2023High household debt and challenged SMEs remain longstanding issues in Thailand. KBank’s higher NIM and low-40%s cost-income ratio provide comfortable room for elevated 9M23 credit costs (~200 bp) to be absorbed and a similar level of returns as peers to be maintained, but the sluggish Thai economic recovery may keep credit costs high due to its larger Blue scheme and SME books, thereby limiting further returns improvement relative to peers. The balance sheet cleanup effort, which began in 4Q22, is also continuing into 2024.
Loan growth has been middling across the Thai banks due to a combination of easing pent-up retail demand, a focus on quality given elevated household debt and challenged SMEs, and balance sheet cleanups.
NIM expansion going forward may be more limited as well due to difficulty in passing on rate hikes in full to the non-corporate segments without asset quality ramifications, and a shift in focus away from the higher yielding unsecured retail and SME segments given asset quality pressure.
Key Metrics
AS OF 22 Dec 2023THB mn | FY19 | FY20 | FY21 | FY22 | 9M23 |
---|---|---|---|---|---|
PPP ROA | 2.72% | 2.44% | 2.38% | 2.36% | 2.55% |
ROA | 1.20% | 0.85% | 0.98% | 0.86% | 1.03% |
ROAE | 9.9% | 7.0% | 8.3% | 7.3% | 8.6% |
Equity / Assets | 13.8% | 13.4% | 13.1% | 13.4% | 13.8% |
CET1 Ratio | 16.2% | 15.5% | 15.5% | 15.9% | 16.7% |
Gross NPL ratio | 3.65% | 3.93% | 3.76% | 3.19% | 3.11% |
Provisions / Loans | 1.74% | 2.05% | 1.73% | 2.11% | 2.07% |
Gross LDR | 97% | 96% | 93% | 91% | 91% |
CreditSights View
AS OF 22 Jan 2024Kasikornbank is the 2nd largest bank in Thailand. We were cautious about its one third loan book exposure to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. The bank is doing cleanups in FY23 and FY24, and has switched to focusing growth on the safer segments which will weigh on the NIM. FY24 credit costs could stay close to FY23’s elevated levels if growth remains sluggish and uneven given the larger SME and Blue scheme book. They can be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers.
Recommendation Reviewed: January 22, 2024
Recommendation Changed: June 09, 2023