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Indicative Year-to-Maturity: 4.31%
Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 4.31%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa2 / BBB+ / -
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Fundamental View
AS OF 18 Jun 2024- Kasikornbank (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 remain elevated.
- Margins are leading 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 18 Jun 2024- 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-March 2024, the bank's loan mix by segment consists of 38% corporate, 28% SME, 27% retail and 7% 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 18 Jun 2024- High household debt and challenged SMEs remain longstanding issues in Thailand, but KBANK’s higher NIM and low-40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
- Loan growth has been middling across the Thai banks due to a focus on quality given elevated household debt and challenged SMEs, and a larger and prolonged balance sheet cleanup at KBANK which is slated to be completed by YE24.
- KBANK expects to be able to maintain a flat FY24 NIM even as peak NIMs have been hit in 4Q23, supported by its higher CASA funding mix, as well as larger retail and SME loan book should rate cuts come through this year. However, its continued pivot away from the higher yielding unsecured retail and SME segments and recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access present some headwind.
Key Metric
AS OF 18 Jun 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
|---|---|---|---|---|---|
| PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.74% |
| ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.25% |
| ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 10.0% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.3% |
| CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 16.5% |
| Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.19% |
| Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.89% |
| Gross LDR | 96% | 93% | 91% | 92% | 91% |
| Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSight View Comment
AS OF 22 Jul 2024Kasikornbank is the 2nd largest bank in Thailand. We are 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 will remain fairly elevated (guided at 175-195 bp) given the larger SME and Blue scheme book. Credit costs can be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers. We keep KBANK on M/P but think its seniors should trade 5-10 bp outside BBL.
Recommendation Reviewed: July 22, 2024
Recommendation Changed: June 09, 2023
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