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Sector: Financial Services
Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Region: China
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Fundamental View
AS OF 02 Dec 2024- Bank of China (BCHINA; ratings: A1(neg)/A(stb)/A(neg)) is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in HK.
- BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
- BCHINA’s capital standing and reserve cover are a little weaker than ICBCAS and CCB, but the Big 4 banks have generally been managed more prudently compared to the non-Merchants joint stock banks.
Business Description
AS OF 02 Dec 2024- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66.06%-owned subsidiary Bank of China (HK).
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64.13% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK, and is also the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind BCHINA’s credit standing.
- BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
- BCHINA’s overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY23. However, its NIM has also been under pressure in FY24 due to higher non-CNY funding costs.
- As a G-SIB, BCHINA has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, on the back of its domestic TLAC issue plan and the upcoming government equity injection.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.55% | 1.48% | 1.39% | 1.31% | 1.23% |
| Credit Costs | 0.87% | 0.70% | 0.63% | 0.57% | 0.55% |
| Reported ROA | 0.87% | 0.89% | 0.85% | 0.80% | 0.75% |
| Reported ROE | 10.6% | 11.3% | 10.8% | 10.1% | 9.6% |
| Total Equity/Total Assets | 8.4% | 8.3% | 8.4% | 8.1% | 8.0% |
| CET1 Ratio | 11.3% | 11.3% | 11.8% | 11.6% | 12.2% |
| NPL Ratio | 1.46% | 1.33% | 1.32% | 1.27% | 1.26% |
| Loan-Deposit Ratio | 84% | 87% | 87% | 87% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024BCHINA is one of the Big 4 banks (4th largest by assets) with a reasonable capital stack and sufficient liquidity. Its majority government ownership and systemic importance assures it of strong state support. Its NIM and profitability has trailed its more domestically-focused peers due to higher cost-income ratios of its overseas operations, but its credit costs are also the lowest among the Big 5. It had a larger QoQ NIM contraction than peers in 3Q24 as its overseas businesses are also faced with rate cuts. We have moved BCHINA from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
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Fundamental View
AS OF 02 Dec 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 ~16% range and management aims to keep the CET1 ratio at ~16% in prepartion for Basel III final reforms.
Profitability (ROA and ROE) has historically been 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 in the current sluggish macroeconomic environment.
Business Description
AS OF 02 Dec 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 46% corporate, 18% SME, 12% retail, and 24% international as at end-September 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 02 Dec 2024Returns have caught up well with peers 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 sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers henceforth as rate cuts flow through, due to its larger domestic and international corporate loan book (which tend to be floating rate).
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 Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 2.08% |
| ROA | 0.49% | 0.65% | 0.67% | 0.93% | 1.03% |
| ROE | 3.9% | 5.6% | 5.9% | 8.1% | 8.5% |
| Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.3% |
| CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 16.6% |
| Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.40% |
| Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.35% |
| Gross LDR | 84% | 82% | 84% | 84% | 85% |
| Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins, and we see greater NIM pressure on BBL than most peers from the turn in base rates. 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 >16%. 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. We keep BBL on M/P but think its seniors should trade around 5 bp inside its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 02 Dec 2024- Our credit view on AGRBK (credit ratings: A1(neg)/A(stb)/A(neg)) is based on a strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
- AGRBK’s capital standing is weaker than those of peer-group leaders ICBCAS and CCB; however it has peer-leading reserve coverage ratio. The Big 4 have been managed more prudently in recent years than the non-Merchants joint stock banks.
- We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 02 Dec 2024- AGRBK has surpassed CCB to become the second-largest bank in China in terms of total assets and has been moved from bucket 1 to bucket 2 in the G-SIB list with a capital surcharge of 1.5%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40.14%), MOF (35.29%) and the Social Security Fund (6.72%).
- AGRBK has the second largest branch network in China after Postal Bank, with a strong presence in rural areas.
Risk & Catalysts
AS OF 02 Dec 2024- China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) are a key factor behind AGRBK’s credit standing.
- AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. It was promoted to a Bucket 2 G-SIB in Nov-23 and currently has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, on the back of its domestic TLAC issue plan and the upcoming government equity injection.
- AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative, as these actions reflect close state links that underpin AGRBK’s credit standing.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.65% | 1.64% | 1.43% | 1.20% | 1.19% |
| Reported ROA | 0.83% | 0.86% | 0.82% | 0.73% | 0.69% |
| Reported ROE | 11.4% | 11.6% | 11.3% | 10.9% | 10.8% |
| Total Equity/Total Assets | 8.1% | 8.3% | 7.9% | 7.2% | 6.9% |
| CET1 Ratio | 11.0% | 11.4% | 11.2% | 10.7% | 11.4% |
| NPL Ratio | 1.56% | 1.43% | 1.37% | 1.33% | 1.32% |
| Credit Costs | 1.16% | 1.03% | 0.79% | 0.64% | 0.74% |
| Loan-Deposit Ratio | 74% | 78% | 79% | 78% | 83% |
CreditSight View Comment
AS OF 01 Nov 2024AGRBK is the 2nd-largest Chinese banks by assets and has a strong presence in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit due to its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support. Its loan growth has led peers for many years, which has put its capital ratios under pressure, with some distance vs. the other Big 4 banks. Reserve cover is a strength at ~300%. AGRBK managed to report pre-provision profit growth in 9M24, due to stronger loan growth. But its capital ratios were behind the other Big 4 banks. We have moved AGRBK from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
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Search topics about wealth insights and investments.Industrial and Commercial Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Dec 2024Our credit view on ICBCAS (ratings: A1(neg)/A(stb)/A(neg)) is based on the strong likelihood of state support in the event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by its status as China’s largest lender; it plays a key role in financing the country’s economic development.
The Big 4 banks are generally more prudently managed than the non-Merchants Joint Stock Banks, but they are also subject to greater directed lending at low/no margins.
Business Description
AS OF 02 Dec 2024- With total assets in excess of RMB 48 tn, ICBCAS is the world's largest bank by assets and is classified as a G-SIB with a capital surcharge of 1.5%.
- ICBCAS was originally set up in 1984 to provide loans to China's large state-owned industrial corporations.
- ICBCAS was recapitalised in 2005 with an injection of $15 bn, following which it was listed in Hong Kong and Shanghai in 2006.
- The government owns a majority of ICBCAS's shares through Central Huijin and the Ministry of Finance, which own stakes of 34.79% and 31.14% respectively.
- In addition to a strong onshore presence, ICBC also has an extensive international network.
Risk & Catalysts
AS OF 02 Dec 2024China’s sovereign ratings (A1(neg)/A+(stb)/A+(neg)) underpin ICBCAS’s credit standing; any deterioration will negatively affect ICBCAS’s ratings.
Asset quality risk remains as China’s economic recovery is slow and the property sector has yet to see a meaningful recovery. Transparency is limited and credit risks are hard to assess in China as these often depend on the government’s willingness to socialise losses.
ICBCAS is managed on commercial terms, but the government may call on it to perform “national service” that overrides profitability considerations. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing.
As a G-SIB, ICBCAS has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, given its domestic TLAC issuance plan as well as the government’s plan to inject a total of RMB 1 tn of equity into the Big 6 banks.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.87% | 1.82% | 1.61% | 1.35% | 1.25% |
| Reported ROA | 1.00% | 1.02% | 0.97% | 0.87% | 0.78% |
| Reported ROE | 12.0% | 12.2% | 11.5% | 10.7% | 9.8% |
| Total Equity/Total Assets | 8.7% | 9.3% | 8.8% | 8.4% | 8.1% |
| CET1 Ratio | 13.2% | 13.3% | 14.0% | 13.7% | 14.0% |
| NPL Ratio | 1.58% | 1.42% | 1.38% | 1.36% | 1.35% |
| Provisions/Average Loans | 1.15% | 1.03% | 0.83% | 0.61% | 0.64% |
| Loan Deposit Ratio | 74% | 78% | 78% | 78% | 81% |
CreditSight View Comment
AS OF 01 Nov 2024ICBCAS is the largest bank by assets in the world and has a very strong franchise in China. Its majority government ownership adds to its systemically important status. It has peer-leading capital ratios but was overtaken by CCB at 1Q24. Its profitability and asset quality has been impacted by its social duties to support the real economy including stepping up lending towards the property sector, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. Its operating performance was weaker than most of its peers in 9M24, due to a larger NIM compression. We have moved ICBCAS from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
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Search topics about wealth insights and investments.Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 4.77%
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Fundamental View
AS OF 02 Dec 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 high 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 and recent growth focus on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 02 Dec 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-September 2024, the bank's loan mix by segment consists of 39% corporate, 27% 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 02 Dec 2024- Sluggish economic momentum and challenged SMEs have resulted in still elevated credit costs at KBANK, given its larger SME and Blue scheme book. KBANK’s higher NIM and low-40%s cost-income ratio however 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 (post which credit costs are expected to fall to 140-160 bp in FY25).
- KBANK’s NIM remains high compared to its peers. Its switch to focus on safer segments however is weighing on the NIM, though it has helped to stabilize credit costs.
Key Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.63% |
| ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.18% |
| ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 9.3% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.2% |
| CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 17.6% |
| Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.20% |
| Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.90% |
| Gross LDR | 96% | 93% | 91% | 92% | 88% |
| Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Kasikornbank is the 2nd largest bank in Thailand. We are cautious about its one third loan book exposure to SMEs given their challenges, but have liked the bank’s high NIM and strong capital. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending, and remain elevated in FY24 given the larger SME and Blue scheme book. The bank however has switched to focus on safer segments, which has weighed on the NIM but helped to stabilize credit costs. It has been cleaning up its balance sheet, which should complete by YE24, post which credit costs are expected to fall to 140-160 bp in FY25. Credit costs have been comfortably absorbed thus far. We keep KBANK on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: June 09, 2023
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Fundamental View
AS OF 29 Nov 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 the bank up 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 29 Nov 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 46% retail, 27% private corporates, 11% SME, and 16% Government & SOEs at end-September 2024.
Risk & Catalysts
AS OF 29 Nov 2024KTB’s conservative focus on the government agencies/SOEs segment is supporting asset quality well amid the challenging macro environment and sluggish growth momentum.
We see KTB’s margin coming under greater pressure than peers as rate cuts come through 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 think there is an upgrade potential for KTB’s standalone credit profile in the medium term.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.51% |
| ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.21% |
| ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.7% |
| Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 12.3% |
| CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 18.0% |
| Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
| Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.26% |
| Gross LDR | 99% | 99% | 98% | 104% | 97% |
| Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 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 (~16% of total loan book). 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, and credit costs have remained in the normal 120-130 bp range this year. We see greater NIM pressure on KTB than most peers from the turn in base rates, given its larger corporate book and higher CASA mix (~80%). The CET1 ratio is solid at 18.0%. We have it on M/P as the $ AT1 is trading in line with its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: July 22, 2024
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Search topics about wealth insights and investments.Siam Commercial Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Region: Thailand
- Bond: SCBTB 3.9 24
- Indicative Yield-to-Maturity (YTM): 5.573% (Indicative as of March 2)
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Fundamental View
AS OF 29 Nov 2024- Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a 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 17.8% at the Holdco (SCB X) level and 17.3% at the Bank level at Sep-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 29 Nov 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 35% corporate, 17% SME, and 48% retail as of end-September 2024.
Risk & Catalysts
AS OF 29 Nov 2024- The 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.
- Credit costs are elevated due to SCBX’s greater retail exposure and the macro backdrop of sluggish growth and high household debt. However, 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’s NIM has been on a stronger trajectory than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.88% |
| ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
| ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.0% |
| Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.2% |
| CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.8% |
| Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.38% |
| Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.79% |
| Gross LDR | 93% | 93% | 93% | 99% | 100% |
| Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 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. The NIM has been strong vs. peers in 9M24 as expected, and we see this continuing as rates come down. COVID Blue scheme loans though still sit within SCB and is the highest % of loans among peers (12% at 4Q23). Weaker asset quality from this book and general retail exposure given high household debt have resulted in credit costs staying elevated, but these have been comfortably absorbed. We keep SCBTB on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
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Search topics about wealth insights and investments.UnionBank of the Philippines
- Sector: Financial Services
- Sub Sector: Banks
- Region: Philippines
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Fundamental View
AS OF 18 Nov 2024UnionBank of the Philippines (UBP) is rated Baa2 (neg) by Moody’s. Moody’s affirmed the negative outlook in April 2024 due to uncertainty over the bank’s asset quality and profitability following their deterioration in 2023.
The bank has historically generated higher returns than peers, but it geared its focus significantly towards the retail segment by acquiring Citi’s Philippine retail portfolio in 2022 and through organic growth, which brought retail loans to more than half the total book.
Returns have suffered despite the good boost to core revenues, as asset quality has been poorly managed resulting in high credit costs which we have forewarned. Continued rounds of capital infusions from shareholders have thus been required. The reserve cover is maintained relatively thin.
Business Description
AS OF 18 Nov 2024- UnionBank of the Philippines was incorporated in 1968, and listed on the Philippine Stock Exchange in June 1992. Principal shareholders are Aboitiz Equity Ventures (49.66%), Insular Life (16%), & Social Security System (18%).
- UBP undertook mergers with International Corporate Bank in 1994 and International Exchange Bank in 2006. City Savings Bank (a thrift bank) was purchased in Jan 2013. City Savings received merger approval with PR Savings (a bank engaged in motorcycle, agri-machinery, & teachers' salary loans) in Dec 2018 from the BSP. It acquired the Citi Philippines retail franchise in 2022.
- The loan book is broadly split 40% wholesale loans and 60% retail loans (comprising 33% credit cards, 22% mortgages, 33% salary loans and 12% others including teachers loans, salary loans and motorcycle loans by the thrift bank subsidiary, City Savings Bank, and 3% UnionDigital) at 3Q24.
Risk & Catalysts
AS OF 18 Nov 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) or reduction of shareholding by Aboitiz Equity Ventures would negatively impact UBP’s credit ratings.
The bank’s aggressive retail expansion has improved the NIM, but negatively impacted overall profitability because of high credit costs (particularly since 2H23) which we have forewarned. We continue to disfavor its focus on riskier retail given the brisk growth pace and current macro backdrop. It is now focusing on lower risk, shorter term loans at UnionDigital, as well as payroll and credit card loans, but the improvement in credit costs have been slow to come through.
The bank however benefits from good shareholder support; it successfully completed a third stock rights offering of PHP 10 bn in 2Q24 (2023: PHP 12 bn; 2022: PHP 40 bn) to shore up capital. Lower opex from 2Q24 onwards will also aid the bottomline.
Key Metric
AS OF 18 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.50% | 4.60% | 4.80% | 5.50% | 5.90% |
| Reported ROA (Cumulative) | 1.5% | 1.6% | 1.3% | 0.8% | 1.0% |
| Reported ROE (Cumulative) | 11.5% | 11.5% | 9.7% | 5.6% | 6.1% |
| PPP ROA | 2.68% | 2.59% | 2.17% | 2.31% | 2.87% |
| CET1 Ratio | 15.0% | 16.3% | 11.3% | 13.9% | 14.8% |
| Total Equity/Total Assets | 13.6% | 13.5% | 13.6% | 15.3% | 16.8% |
| Gross NPL Ratio | 5.10% | 5.00% | 4.80% | 6.27% | 7.20% |
| Net LDR | 64.3% | 63.1% | 67.4% | 73.8% | 80.2% |
| Liquidity Coverage Ratio | 207% | 272% | 148% | 163% | n/m |
| Net Stable Funding Ratio | 133% | 149% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024UBP’s NIM and core revenue generation have remained strong despite the challenging funding environment thanks to its pivot towards higher yielding retail via organic growth and acquiring Citi’s local retail portfolio. However, the asset quality repercussions which we have forewarned from its aggressive growth pace and riskier retail focus amid the current macro backdrop have come through, with elevated credit costs since 2H23 taking a toll on profitability. The reserve cover is maintained relatively thin. Continued shareholder support with yet another stock rights offering in 2Q24 has ensured sufficient capital for now, and AQ should see a slight improvement from here. Still, we maintain U/P as it trades tight for its size and risk, given its asset quality issues and weak fundamentals.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: April 17, 2020
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Search topics about wealth insights and investments.Bank of Philippine Islands
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
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Fundamental View
AS OF 08 Nov 2024Bank of the Philippine Islands (BPI), the 3rd largest bank in the Philippines by assets, is rated Baa2(stable)/BBB+(stable)/ BBB-(stable).
We view the bank as too big to fail given its systemic importance in the country. There is also a strong probability of support from the government in addition to its main shareholder, the Ayala Corporation if needed.
BPI has a long history, and we view it as a fundamentally sound bank with prudent capitalization, strong and improved profitability, and comfortable liquidity. Asset quality remains relatively well managed but we are keeping an eye on strong growth in the non-wholesale book.
Business Description
AS OF 08 Nov 2024- The history of the Bank of the Philippine Islands traces back to 1851. It is the oldest bank in the Philippines and South East Asia. It was first listed on the Philippine Stock Exchange in 1971, and became a universal bank in 1982.
- Ayala Corporation, one of the biggest conglomerates in the country, became BPI's dominant shareholder in 1969. Ayala Corp still holds a 49% stake in the bank.
- BPI has been acquisitive across the years. It merged with Far East Bank and Trust Company and acquired Ayala Insurance Holdings Corp in 2000. It acquired DBS Bank Philippines in 2001 and Prudential Bank Philippines in 2005. DBS was a shareholder of BPI but exited its position in 2013. More recently in January 2024, it completed the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 73% of its loan book outstanding to corporates, 2% to MSMEs and 25% to retail as of 3Q24. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 08 Nov 2024Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would have a negative impact on BPI’s credit ratings.
Sustaining returns is a challenge without the rates tailwind, so BPI has focused on unsecured retail and MSME growth, which has put pressure on asset quality, and paring down provision reserves. We see risks to asset quality from the strategy, but BPI’s large corporates-focused book (73% of total loans) provide comfort and provisioning capacity has improved meaningfully. Provision reserves however have limited room to be further reduced, unlike BDO and MBT.
The acquisition of Robinsons Bank was completed on 1 January 2024, and it opens BPI up to new customer segments such as teachers and motorcycle loans. The current footprint is small but we are wary of the brisk intended growth.
Key Metric
AS OF 08 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.42% | 2.01% | 2.41% | 2.52% | 2.92% |
| Reported ROA (Cumulative) | 0.98% | 1.10% | 1.59% | 1.93% | 2.07% |
| Reported ROE (Cumulative) | 7.7% | 8.4% | 13.1% | 15.4% | 15.9% |
| Net Interest Margin | 3.49% | 3.30% | 3.59% | 4.09% | 4.29% |
| CET1 Ratio | 16.2% | 15.8% | 15.1% | 15.3% | 14.8% |
| Total Equity/Total Assets | 12.5% | 12.1% | 12.2% | 12.4% | 13.6% |
| NPL Ratio | 2.68% | 2.49% | 1.76% | 1.84% | 2.30% |
| Provisions/Loans | 1.94% | 0.91% | 0.58% | 0.22% | 0.32% |
| Liquidity Coverage Ratio | 232% | 221% | 195% | 207% | n/m |
| Net Stable Funding Ratio | 154% | 155% | 149% | 154% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BPI is a fundamentally sound bank. Its traditionally conservative approach has led to a loss of loan market share in the past, as well as a lower NIM than BDO and MBT. It took a well-balanced approach towards growth during the pandemic, but is now growing briskly in higher yielding retail and MSME loans and paring down provision reserves to sustain returns in absence of rate tailwinds. Asset quality slipped in 9M24, and we see further risks from the strong focus on higher yielding segments. Still, we remain comfortable with BPI given the large corporate book (73% of loans) and underwriting record, and strongly improved profitability. The target CET1 ratio level has been lowered but to a still acceptable 14% level. Its ongoing digital investments have driven growth and efficiency.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: August 19, 2022
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BMO Financial
Hyundai Motor
Toronto Dominion
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Fundamental View
AS OF 06 Nov 2024BDO Unibank (BDO) is the largest bank in the Philippines in terms of assets & market share and is rated Baa2(stb)/NR/BBB-(stb).
Given its size and systemic importance, BDO is considered too big to fail and is strongly likely to be supported by its controlling shareholder SM Investments, as well as the Philippine government in times of stress.
BDO is widely viewed as the soundest bank in the country given its strong fundamentals, well-diversified businesses, and good management. Its CET1 ratio is maintained at a lower level than its first-tier peers, BPI and Metrobank.
Business Description
AS OF 06 Nov 2024- BDO Unibank was established as Acme Savings Bank in 1968, and was then acquired by SM Investments in 1976. It became a commercial bank in 1994 and a universal bank in 1996.
- BDO was listed in May 2002. SM Investments remains the bank's largest shareholder with a 41% stake.
- BDO has expanded through a series of M&As. Among its key transactions, it merged with Dao Heng Bank Philippines in 2001, Banco Santander Philippines in 2003, UOB Philippines in 2005, Equitable PCI Bank in 2007, GE Money Bank in 2009, Citibank Savings, DB Trust and Real Bank in 2014, One Network Bank in 2015 (the largest rural bank in the Philippines), and RB Pandi's banking business in 2019. It also acquired the insurance business of Generali in the Philippines in 2016.
- BDO has the largest distribution network in the country and is ranked the largest bank in terms of consolidated resources, total assets, loans, deposits and trust funds under management.
- Its loan book is split 51% large corporates, 25% middle market, and 24% consumer at 3Q24. 44% of the consumer book comprises mortgages, 25% are credit cards, 13% are auto loans and the remaining are personal loans (13%) and others (5%).
Risk & Catalysts
AS OF 06 Nov 2024Sustaining returns will be a challenge without the rates tailwind. Management is thus focused on volume growth in loans as well as CASA, pivoting the loan mix towards higher yielding segments, and releasing provisions, similar to its first tier peers (BPI and MBT).
We view this as acceptable for BDO given its relatively higher NPL cover (178% at 3Q24) than peers. We would prefer a higher CET1 ratio, but BDO’s large corporates-focused book (52% of total loans) and underwriting track record give comfort around potential asset quality deterioration as a result prolonged high interest rates and inflation.
NIM compression in 3Q24 has been guided by management to revert in Q4 on the back of the BSP’s 250 bp reduction in the reserve requirement ratio (RRR) effective 25 October. Still, NIM reduction is likely in FY25 should the market’s expectations of more BSP rate cuts come through.
Any downgrade of the Philippine sovereign ratings (Baa2/ BBB+/ BBB) would negatively impact BDO’s credit ratings.
Key Metric
AS OF 06 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| NIM | 4.36% | 4.05% | 4.14% | 4.37% | 4.32% |
| Reported ROA (Cumulative) | 0.9% | 1.2% | 1.5% | 1.7% | 1.8% |
| Reported ROE (Cumulative) | 7.6% | 10.4% | 13.0% | 15.2% | 15.0% |
| Equity/Assets | 11.6% | 11.7% | 11.3% | 11.5% | 11.8% |
| CET1 Ratio | 13.2% | 13.6% | 13.4% | 13.8% | 14.1% |
| NPL ratio | 2.7% | 2.8% | 2.0% | 1.9% | 1.8% |
| Provisions/Loans | 1.34% | 0.72% | 0.64% | 0.59% | 0.44% |
| PPP ROA | 2.3% | 2.1% | 2.3% | 2.7% | 2.5% |
| Liquidity Coverage Ratio | 127% | 145% | 141% | 123% | 136% |
| Net Stable Funding Ratio | 122% | 124% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BDO is the largest bank in the Philippines. Management is well-regarded, the business is well-diversified and it is the market leader in many business lines. The NIM has peaked, but non-interest income is a third of operating income given good fee generation and overall core profitability is strong. Management aims to sustain returns, supported by growth in higher yielding loans and paring down provision reserves. Still, we remain comfortable with BDO given the large corporate book and high NPL cover, as well as underwriting track record, which provide comfort around weaker asset quality from prolonged high rates and inflation. Capital could be higher but remains acceptable with the CET1 ratio at 14.1%.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: November 28, 2023
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BMO Financial
Hyundai Motor
Toronto Dominion