Region: Thailand
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Fundamental View
AS OF 18 Jun 2024Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a slight focus on the retail segment and targets to increase margins by growing personal unsecured lending. Recent credit costs have been elevated due to the retail exposure.
The capital buffer is strong with a CET1 ratio of 17.4% at the Holdco (SCB X) level and 17.2% at the Bank level at Mar-24. It announced a major business overhaul in September 2021 to establish a new parent company called SCB X to segregate the group’s core banking services from its new fintech and digital businesses and to enable greater flexibility and independence.
Business Description
AS OF 18 Jun 2024- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.58% owned by the King of Thailand, and a further 23.32% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 36% corporate, 17% SME, and 48% retail as of end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024The bank’s new strategic direction is sensible given limited domestic growth opportunities, but it comes with execution risk since the fintech and platform space are new to SCB, as well as higher credit costs. However, we take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and capital support to the Gen 2/3 businesses is subject to a minimum 16% CET1 ratio being maintained at the bank.
High household debt and challenged SMEs remain as longstanding issues in Thailand, but SCB X’s higher NIM and low-to-mid 40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
SCB X has given a stronger FY24 NIM guidance than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans. Recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access however present some headwind.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.91% |
ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.3% |
Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.5% |
CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.4% |
Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.52% |
Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.67% |
Gross LDR | 93% | 93% | 93% | 99% | 102% |
Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was poor. It created a new HoldCo structure (SCBX) in 2022 to shift digital units and unsecured retail loans outside the bank, and pledged a >16% CET1 ratio at SCB. The BOT has also ringfenced SCB which further reduces the risk for the SCBTB bonds. However, the COVID Blue scheme book still sits within SCB and is the highest % of loans among peers (12% at 4Q23). We are slightly cautious about credit costs that may arise from this book. FY24 credit costs are guided to be slightly lower than FY23’s elevated levels, but they can be comfortably absorbed as we expect the NIM to be most resilient among peers this year, and FY23 returns led peers despite the high credit costs.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 18 Jun 2024Krung Thai Bank (KTB; Baa1(stb)/ BBB-(pos)/ BBB+(stb)) is the 3rd largest bank by assets in Thailand, with a 55.07% state ownership through the Financial Institutions Development Fund. Strong government support underpins KTB’s underlying credit profile.
The state influence opens up the bank to potentially government-directed lending; it has secured an increasingly meaningful portion of banking business from government agencies and State Owned Enterprises, which underscored its one-notch upgrade by Fitch in Dec-21.
KTB was faced with asset quality challenges in the past and had the highest NPL ratio and restructured loans among the major Thai banks. It has since de-risked its loan book, and asset quality has proven to be more resilient than its peers with lower COVID-19 restructured loans.
Business Description
AS OF 18 Jun 2024- KTB is the 3rd largest bank by assets in Thailand. The Thai Financial Institutions Development Fund owns 55.07% of the bank, and has a free float of 44.93%.
- Being the largest state-owned bank, it secures a meaningful portion of banking business from government agencies and State Owned Enterprises (SOEs) and per the bank, is the preferred bank for the government and SOE employees.
- Though state owned, the bank runs on a commercial basis and is not considered as a policy bank.
- KTB's loan profile comprised 45% retail, 28% private corporates, 11% SME, and 16% Government & SOEs at end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024High household debt and challenged SMEs remain as longstanding issues in Thailand while growth momentum has remained sluggish. KTB’s conservative focus on the government agencies/SOEs segment however is supporting its asset quality well.
Rising base rates have been good for the NIM, but margins could come under greater pressure than peers as rate cuts come through possibly from 2H24 onwards given the larger corporate/SOE loan book (which tend to be floating rate). Loan growth has also been middling across the Thai banks due to a focus on quality amid the current backdrop.
We see a two-notch differential between the standalone credit fundamentals of KTB vs. the other top Thai banks at Moody’s as wide and there is an upgrade potential for KTB’s standalone credit profile in the medium term.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.49% |
ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.20% |
ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.8% |
Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 11.7% |
CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 16.4% |
Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.24% |
Gross LDR | 99% | 99% | 98% | 104% | 101% |
Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024KTB is the 3rd largest bank in Thailand by assets and the largest state-owned bank. It is 55% indirectly owned by the Thai government and thus secures meaningful business from government agencies and SOEs. KTB was faced with asset quality challenges in the past and had the highest NPL ratio among the major Thai banks. Its fundamentals have improved as it de-risked its loan book, so asset quality was more resilient than peers during COVID. It has a >16% CET1 ratio and a high 80% CASA ratio, which should help to mitigate NIM pressure arising from its larger corporate/SOE book when rate cuts flow through. The government/SOE book increased again to ~16% of loans in 1Q24 and credit costs returned to the normal 120-130 bp range. We have an O/P rec as its $ AT1 trades wide relative to Thai peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: March 26, 2024
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Fundamental View
AS OF 18 Jun 2024Kasikornbank (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 2024High 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 Metrics
AS OF 18 Jun 2024THB 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 |
CreditSights View
AS OF 23 Apr 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 will remain fairly elevated (guided at 175-195 bp) given the larger SME and Blue scheme book, but we expect the NIM to be more resilient than peers. Credit costs can thus be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: June 09, 2023
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Fundamental View
AS OF 18 Jun 2024Bangkok Bank (BBL: Baa1(stb)/BBB+(stb)/BBB(stb)) is a family run conservative financial institution, with high capital and liquidity levels.
It acquired Indonesia’s Permata Bank in 2020 which resulted in a meaningful decline in its CET1 ratio to 14%. It is back to ~15% range and management aims to bring the CET1 ratio to 16% in prepartion for Basel III final reforms.
Its profitability (ROA and ROE) has historically below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. However, the returns gap has narrowed as this has supported its asset quality outperformance versus peers, and allowed the NIM to benefit better from the rising rate environment as debt servicing capabilities of households and SMEs remain fragile.
Business Description
AS OF 18 Jun 2024- Bangkok Bank was set up in 1944 and was listed on the Stock Exchange of Thailand in 1975. It is a family-run bank and the current President of the bank, Chartsiri Sophonpanich, is the grandson of the founder of the bank.
- It is the largest bank by assets in Thailand. It was briefly surpassed by Kasikornbank in 2018, but the Bank Permata acquisition has taken BBL back to No.1.
- The bank is corporate-loan focused, and the loan book was split 44% corporate (most including international loans), 19% SME, 12% retail, and 25% international as at end-March 2024. It is by far the most international amongst the Thai banks, with branches in 14 economies.
- BBL's overseas presence has been enhanced by the acquisition of Bank Permata, the 12th largest bank in Indonesia. Bank Permata's asset size is ~10% of that of BBL.
Risk & Catalysts
AS OF 18 Jun 2024Returns have caught up well with peers in FY23 as the more resilient large corporate book has supported lower credit costs and better BOT rate hike pass through to the NIM, given the backdrop of high household debt, challenged SMEs and still sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers in FY24 due to its lower CASA ratio as deposit rates catch up, as well as larger domestic and international corporate loan book (which tend to be floating rate) as rate cuts come through possibly from 2H24 onwards.
Loan growth has been middling across the Thai banks due to a focus on quality amid the current backdrop.
The acquisition of Bank Permata of Indonesia in May 2020 provides BBL with exposure to the high growth opportunities of the Indonesian market, which is the bank’s identified main base for overseas expansion, but this also presents higher risks.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 1.95% |
ROA | 0.49% | 0.65% | 0.67% | 0.93% | 0.93% |
ROE | 3.9% | 5.6% | 5.9% | 8.1% | 7.8% |
Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.2% |
CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 15.6% |
Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.00% |
Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.27% |
Gross LDR | 84% | 82% | 84% | 84% | 86% |
Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSights View
AS OF 26 Jun 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins. BBL completed the acquisition of Indonesia’s Bank Permata (~12% of loans) in 2Q20 which reduced its CET1 ratio to 14%, but it has since rebuilt it to >15%. While disclosure from BBL is less than other key Thai banks and both systems face an overhang of COVID relief loans, we take comfort from BBL’s strong loss buffers and large corporate book which will aid stable asset quality and credit costs. Its lower CASA ratio and larger corporate book though makes it more susceptible to NIM pressure this year. We keep BBL on M/P but think its seniors should trade 5-10 bp inside its Thai peers.
Recommendation Reviewed: June 26, 2024
Recommendation Changed: January 25, 2023
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