Going for that extra spice
Banks posted solid 1Q08 results across the board
We saw solid performances across the board for banks in 1Q08. Overall
net profit surged by 37% y-y and 412% q-q, bolstered by 17% growth in
net interest income, 24% growth in fee income and one-off divestment
gains at some of the banks. A sharp drop in provisions at state banks
KTB, TMB and SCIB, confirmed that their earnings have already passed
bottom. We maintain our positive view on the sector as we expect solid
operations to continue. But since share prices have now had a good run,
as reflected in P/BV rising to 1.7x, we see better risk-reward profiles
from investing in KTB and Tisco.
Continued loan growth but mainly for ST working cap
Overall loan growth was impressive at 2.3% q-q, adjusting for BAY’s
hire-purchase (HP) acquisition, with KBANK posted the strongest 4.9%
growth, followed by KTB’s 4.5%. SCB was an exception as repayment
was reflected in a 1.2% drop in its loan book, but the bank is maintaining
its 2008 target of 12-15%. Loan demand is similar among banks in that
growth was driven by short-term working capital, while consumer loans
were solid for auto HP – as seen with Tisco’s 4.4% growth, Thanachart
Bank’s 5.7% and the 9.7% at Kiatnakin. Although we look for continued
momentum, we keep our 10% industry growth projection this year since
new loans granted will partly be offset by repayments and NPL sales.
Net interest margin fattened 37bp y-y and 10bp q-q
Overall NIM rose to 3.5%, driven by Vayupak fund dividend income as
well as the left-over benefits from cheaper funding. Tisco and KBANK’s
NIMs are among the highest in the sector while the biggest improvement
was seen at SCIB. Despite our view that interest rates will likely hold
stable for the rest of the year, our expectation of a 19bp NIM expansion
to 3.5% this year remains achievable, as supported by banks’ strong
pricing power as well as NPL carve-outs.
NPLs up a bit in absolute terms, but ratio down to 8.7%
After first falling in 4Q07, overall NPLs in absolute terms rose again by a
marginal 1.1%, but strong loan growth helped shore up the NPL ratio to
8.7%. But we don’t read this as an alarm signal as banks are speeding
up NPL sales, and we project NPLs to drop to 7% at end-2008.