Its IFRS 9 compliance detected a high-risk loan portfolio from high exposure to SMEs.
Whilst the International Financial Reporting Standard 9 (IFRS 9) required banks to have larger reserves and earlier detection of credit losses, Maybank Kim Eng believes Kasikornbank may need higher provisions because of its high-risk loan portfolio from SMEs' non-performing loans.
Here's more from Maybank Kim Eng:
Under IFRS 9, financial companies need to estimate credit losses for their portfolios and set aside provisions before their loans turn into NPLs. As KBank has high exposure to SMEs, which are chiefly responsible for NPLs in this cycle, its portfolio is considered high-risk.
We think it may need higher provisions. In fact, high credit costs were behind its recent 4Q17 results disappointment. Earnings fell 40% QoQ to 39% below consensus, as the bank boosted its coverage to 149% from 141% in 3Q17. While this year’s credit cost should fall, the extent of the fall will depend on the stringency of IFRS 9 regulations.
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