Maybank Kim Eng maintained a positive outlook on the Thai banking sector, stating that the delay in economic recovery due to the resurgence of the coronavirus outbreak will have less impact on the Thai economy, compared to the first outbreak. Meanwhile, the earnings and ROE are expected to improve this year.
KGI expected seven banks under its coverage to report 4Q20E combined earnings of THB23b, down 34% YoY, and flat QoQ, due to higher credit cost and lower NIM. The security company expected BBL to report the strongest earnings growth of 29% QoQ due to high integration cost in 3Q20. Loans likely grew QoQ due to seasonal factors such as high demand for working capital.
KGI estimated FY20 loans to grow 7.4% YoY, led by BBL’s acquisition of Permata Bank. NIM should have declined due to the multiple rate cuts and debt restructuring. Non-NII is expected to drop YoY due to the high base of investment gains in 4Q19 for BBL and KBANK. However, KGI expected non-NII increased QoQ due to higher fee income and higher gains from equity investment.
Meanwhile, the banking sector’s NPL ratio is likely to increase 12bps QoQ to 4.33% while credit cost should have remained high in 4Q20. KGI believed big banks will realize investment gains and utilize these to set aside provisions for upcoming NPLs in 2021. NPL ratio is forecasted to increase to 4.9% in 2021, but credit cost should drop in 2021 given pre-emptive provisions in 2020. Overall, sector pre-provision operating profit should drop 13% YoY and 2% QoQ in 4Q20. Thai banks will announce 4Q20 and FY20 results during 18-21 Jan.
In addition, KGI forecasted sector earnings to grow 13-14% YoY for this year and next, thanks to a lower credit cost and higher fee income growth. This should support ROE to reach 6.5-7.0% in 2021-22E from 5.8% in 2020. KGI expected banks operations and earnings to gradually improve from 2H21 onwards as NIM and credit cost should bottom out in 1H21. Near-term weakness in share price offers opportunities to accumulate.