Banking Sector:Jul loans back into contraction territory

Bank sector loans contracted 0.1% m-m in Jul 2014.

    Deposits grew 0.3% m-m in Jul, bucking the contraction in lending.

    Our forecast suggests 3QFY14 bank sector earnings will be better than 2QFY14and 3QFY13.

    We leave our bank earnings growth outlook for FY14 unchanged at 4%.

    We take an ‘OVERWEIGHT’ position in the banking space with KBANK as ourtop pick.

    Loans at 10 listed banks under our coverage fell back into contraction territory inJul 2014, down 0.1% m-m, marking the first decline after four straight months ofgrowth. The Jul numbers took YTD loan growth down to 1.2% from end-FY13.

    Most banks saw lending down in Jul, saving for KBANK and TMB which reportedloan growth. Corporate loan growth remained a key driver of lending growth at bothbanks while the industry’s loan contraction was largely blamed on corporate and autohire purchase loan repayments.

    How we view this

    Despite loan contraction in Jul, we stick to our forecast that bank sector loans willaccelerate in 3QFY14 well into the end of FY14 on the back of rising demand forcorporate lending and a seasonal pickup in retail loans during the peak spendingseason. There also remains scope for a drop in loan-loss provisions. On this basis,our forecast suggests 3QFY14 bank sector earnings will be better than 2QFY14 and3QFY13.

    We leave our bank earnings outlook for FY14 unchanged at Bt210bn, up 4% y-y.

    Investment Action

    The resumption of public spending on mega-investment projects would auger wellfor loan growth in 2HFY14 and well into FY15. At the end of the day, we take an‘OVERWEIGHT’ position in the banking space. KBANK is our top pick with a Bt246/share target price.