Bank – Sluggish loan growth in August

In August, sector loan growth contracted 0.1% MoM but rose 2.9% YoY and 2.3% YTD. KTB had the strongest YoY loan growth of 9.5% and YTD loan growth of 6.1%, which exceeded our full-year forecast of 3%. We see upside potential to our 2026 sector loan growth forecast of 2.8%, supported by rising private investment. We expect NII will recover in 2H26 with no pressure from the rate-cut cycle and a pickup in loan growth. We maintain BBL, KTB, and KBANK as our top sector picks to capture the onset of this investment cycle.

Sluggish loan growth in August. In August, sector loan growth contracted 0.1% MoM but rose 2.9% YoY and 2.3% YTD. KTB, TISCO, KBANK, and TTB saw slight MoM loan growth, while BBL, BAY, KKP, and SCB saw MoM contractions. KTB had the strongest YoY loan growth at 9.5% and YTD loan growth of 6.1%, exceeding our full-year forecast of 3%. We see upside potential to our 2026 sector loan growth forecast of 2.8%, supported by rising private investment. We expect a long-term recovery in loan growth with upside from Thailand's return to an investment cycle, backed by surging BOI investment applications, and look for loan growth to pick up to 4% in 2027F from 2.8% in 2026F.

A start of NII recovery. We expect net interest income (NII) to recover in 2H26 with no pressure from the rate-cut cycle and a pickup in loan growth. We expect NIM to improve slightly in 2H26 and 2027 on easing costs of funds from deposit repricing and a rising loan-to-deposit ratio. For 3Q26, we expect most banks to see earnings rise QoQ (due to higher NII on a minimal improvement in NIM) but fall YoY (due to lower NII on lower NIM). We see a long-term recovery in loan growth from the return of Thailand's investment cycle, supported by surging BOI investment applications. Bank earnings growth is expected to rise to 5% in 2027F from 1% in 2026F.

Dividends remain supportive. We expect 2026F DPS for most banks (except BBL and SCB) to rise rather than remain flat as in our previous forecast. Backed by a solid capital base and an expected earnings recovery, we anticipate banks will sustain high payout ratios over the next three years, offering attractive dividend yields of 5–7%.

Keep KTB, KBANK and BBL as the sector pick. We prefer large banks—BBL, KTB, and KBANK—as sector picks to capture the start of an investment cycle, which will be a key turning point for the banking sector in the long term.

Key risks: 1) Asset quality risk from an economic slowdown and escalation of the Middle East war, 2) NIM risk from a cut in interest rates, 3) ESG risk from market conduct and 4) cyber security risk.