Thai banks' earnings slip 8% YoY in 4Q17

They will continue to struggle in early 2018 as it dips by 1% QoQ.

Maybank Kim Eng predicts another lacklustre 4Q17 (due mid-January 2018) for Thai banks, with an unfortunate combination of sluggish loan growth/margins and high provisions causing earnings from that quarter to decline by 1% QoQ/8% YoY on average.

Despite the pick-up in GDP, the aggregate loans of the nine banks involved in the report expanded by only 1.1% in Nov from Sep. As such, Maybank Kim Eng estimated only 1.5% QoQ growth in loans in 4Q17, on average. Net interest margin may have shrunk slightly due to the change in loan mix towards low-yielding corporate loans, making net interest income lacklustre.

Here’s more from Maybank:

In addition, non-interest income may have declined amongst the big banks due to lower gains from investments after profit-taking in 3Q17 and benign bancassurance income. The only likely respite is 4Q17 NPLs may have fallen by 10bps to 3.71% on average due to seasonal write-offs. However, preparation for IFRS9 (effective Jan-19) may have created a credit-cost overhang. This should especially be the case for the big banks (SCB/KTB/KBANK/BBL).

Small banks (TCAP/TISCO/KKP) should outperform big-bank peers due to better credit quality and lower provisions needed. As always, it is hard to project KKP’s earnings as its income is volatile (high exposure to investment-related businesses) but we believe provisions returned to normal levels (0.80%) from the extraordinarily low level in 3Q17 (0.16%), making earnings decline QoQ. However, this set of results is unlikely to be that bad due to KKP’s solid expansion in high-yield consumer loans, as well as its strong capital markets business franchise.