Thailand's Bank of Ayudhya strictly monitoring consumer confidence

Its loan growth target stays put.

Bank of Ayudhya (BAY), the country's fifth-largest lender by assets, is maintaining its lending growth target at 7-9% this year.

According to a research note from Maybank Kim Eng, Noriaki Goto, chief executive officer of Krungsri Group, said higher credit-card spending was a clear indicator of a pick-up in consumer-lending demand.

The report also noted that confidence among business borrowers had recently shown an improvement as well.

"We are carefully monitoring confidence levels, as we are not yet assured that the pick-up in consumer confidence and lending will lead to sustainable growth," he added.

BAY aims to reduce its NPLs to 2.5% of outstanding loans this year.

Here's more from Maybank Kim Eng:

We think the bank’s target is quite challenging as its loan growth contracted by 0.8% YTD-May14. We forecast loans to grow at a slower pace of 5% in 2014F vs the average growth of 11% in the past five years.

Note the bank trimmed its target loan growth from 9-11% to 7-9% amid weak loan demand this year. Asset quality wise, we remain cautious on the NPLs
among SMEs and the retail segment, especially hire-purchase loans.

We expect the NPL ratio to edge up by 10bps to 2.87% in 2014. Note the NPL ratio jumped to 3.20% in 1Q14 from 2.77% in 4Q13.

We have a SELL rating with a 12-month TP of THB31. Prefer SCB, KTB and KBANK.