Banking Sector:Apr loan growth still stuck in slow gear
Apr loan growth still stuck in slow gear, up a fractional 0.09% m‐m
The combined loan growth of 10 listed banks under our coverage remained stuck in slow gear inApr 2016. The Apr figures showed the combined loans of 10 listed banks edged up a fractional0.09% m‐m, taking YTD loan contraction to 0.26% from end‐FY15. In Apr, most banks recordedm‐m loan growth with the exception of the following four banks: BBL, KKP, KTB and TISCO whichreported loan contraction. However, overall loan growth at other banks remained lackluster, up ameager 0.08%‐1.29% m‐m.
BAY best performer in terms of Apr loan growth while loans at KKP down the most in the sector
On a m‐m basis, BAY turned out to be the best performer in terms of Apr loan growth, up 1.29%.
The Apr numbers took its YTD loan growth to 1.8% from end‐FY15 but it was not strong enoughto outpace LHBANK in terms of YTD loan growth. Even though LHBANK reported a fairly marginalloan growth of 0.08% m‐m in Apr 2016 due to a high base of comparison in Mar when it enjoyedan exceptionally strong loan growth, it still retained its spot as the sector’s top performer interms of YTD loan growth, up 3.62% from end‐FY15. On the downside, KKP was the biggest loserin the sector in terms of m‐m loan growth in Apr 2016, down 1.61%, taking YTD loan contractionto 2.86% from end‐FY15. In YTD terms, TISCO remained the sector’s worst performer as its YTDloans contracted 3.3% from end‐FY15 after it saw its loans drop 1.21% m‐m in Apr 2016.
NPLs still on the rise but loan‐loss provisions set to drift lower, boding well for earnings
In our view, NPLs in the banking sector are expected to remain on the rise in 2QFY16 due mostlyto SMEs and retail loans but the pace of increase may slow down from the previous quarter afterbanks have tightened their lending standards and provided more help to their customers andNPLs at hire purchase‐focused banks have crept lower since the previous quarter. Loans at hirepurchase‐focused banks were the main culprit behind a recent surge in the sector’s NPLs. For thisreason, we believe hire purchase focused banks will likely see their NPLs drift further lower in2QFY16. The slowing pace of increase in NPLs would also mean lower loan‐loss provisions. Onbalance, it seems to us that 2QFY16 bank profits will likely be better than what was seen in1QFY16.
‘OVERWEIGHT’ position in banking space with BBL as top pick
Even though banks may remain at risk of a further rise in NPLs , the pace of increase in NPLshowever slows down and NPLs at some banks have also edged lower. In terms of lending,demand is expected to rise over the remaining course of the year driven by mega‐investmentprojects in both public and private sectors though current loan growth remains in the slow lane.
In this sense, we maintain an ‘OVERWEIGHT’ position in the banking space. BBL remains our toppick in the sector with a FY16 target price of Bt184/share in view of its strong expertise incorporate finance, putting it in a better position to reap the benefit from the financing of themega‐investment projects and its huge cushion against potential risks thanks to its highest NPLcoverage ratio in the sector.