Due to the Labour Protection Act (No. 7) B.E. 2562 which mandates employers to increase the severance pay rate from 300 days to 400 days, many companies had higher costs at the bottom line on the financial statement.
The banking sector seems to be worse than the others in listed companies since the banks had just lost one of its advantages from transaction fees to mobile banking, causing the banks to report a lower profit in their financial statements in 1H19.
As for the third-quarter statement, many analysts expect major banks in Thailand to report lower third-quarter earnings as slowing economic growth sapped demand for loans and lower lending rates narrowed interest margins. Most banks in August lowered their minimum overdraft and lending rates after the Monetary Policy Committee (MPC) announced a rate cut by 25 basis points to 1.50%.
KT Zmico Securities (Prapharas Nonthapiboon) states that most banks’ 3Q earnings remained “lackluster” due to slower economic growth and increased asset quality risk. Large lenders’ net interest margin probably narrowed on lower lending rates while a further reduction in policy rate would lead to another cut in earnings estimates.
UOB Kay Hian (Thananchai Jittanoon) states in the analysis that loan growth is likely to remain poor due to a sluggish economy while non-performing loans could edge higher. Net interest margin should remain under pressure due to lower rates as most banks’ capital market fee incomes seen rebounding with recovery in stock market activities.
Meanwhile, Bloomberg Intelligence (Diksha Gera) indicates that Thailand’s banks could miss 2019 loan-growth targets on potentially weakening demand and rising uncertainty amid the U.S.-China trade war. Small business loan asset quality remains fragile, while mortgage curbs may hamper retail lending.
Government investment spending could drive business loan demand in the next few quarters, but the private-sector investment may be delayed by political uncertainty.
After all the negativities in 2019, most of the share prices in the banking sector had plunged out of panic to the point that their P/E was lower than 12x which results in a huge upside to the consensus!
Major banks in Thailand did not sit by doing nothing and started to expand their businesses. In July, SCB sealed the deal with “Gojek,” Southeast Asia’s leading on-demand multi-service platform technology group, and a business alliance forged with GET, a lifestyle on-demand application. Not to mention the mega deal to sell SCB Life to FWD, booking a post-tax capital gain of approximately 11 billion baht.
TMB will merge with TBANK, pushing it to Thailand’s 6th largest bank. Meanwhile, KBANK is developing its system for a better service for its users.
More importantly, the new regulation has allowed the reversal of a loan-loss provision surplus to profit which will support the banking sector to book higher income in 2020.
Whether the 3Q financial statement will turn out to be as bad as expected or surprisingly better-than-expected, the fact that there is a huge gap in the upside for these stocks cannot be overlooked!