Bank – 3Q26F: A start of NII expansion

We expect the sector’s 3Q26F earnings to increase 3% QoQ but decline 8% YoY, with the strongest QoQ growth at KTB and YoY growth at KKP. 3Q26F should mark the start of a QoQ recovery in NII, supported by a modest improvement in NIM despite soft loan growth. Looking ahead, we expect Thailand’s investment cycle to support a gradual recovery in loan growth and earnings from 2027F. We remain positive on large banks, particularly BBL, KTB, and KBANK, as key beneficiaries of this trend. Recent weakness in bank share prices has been driven mainly by foreign fund outflows rather than fundamentals, creating an opportunity to accumulate bank stocks and lock in appealing dividend yields.

Preview 3Q26F: A start of NII expansion. We expect the banking sector’s 3Q26F earnings to rise 3% QoQ (driven mainly by BBL and KTB) but decline 8% YoY due largely to lower NII. The key highlight of 3Q26F is the start of QoQ expansion in NII, supported by a modest improvement in NIM despite muted loan growth. On a QoQ basis, we expect KTB to deliver the strongest earnings growth among peers at 16%, driven by higher FVTPL gains from its investment in THAI. On a YoY basis, we expect KKP to post the strongest earnings growth among peers at 23%, mainly supported by higher non-NII from capital market-related income. Our forecasts are based on the following assumptions.

Asset quality: We expect NPL inflows to remain stable. The sector’s credit cost is expected to be stable QoQ and decline by 13 bps YoY. We also expect limited impact from flooding in Thailand’s central region.
NIM: We expect the sector’s NIM to edge up by 3 bps QoQ, supported by lower funding costs from deposit repricing, but decline by 22 bps YoY.
Loans: We expect sector loan growth to remain flat QoQ due to seasonal loan repayments. As of August, sector loan growth was flat QTD but increased 2.9% YoY and 2.3% YTD, with KTB posting the strongest growth (+2.2% QTD, +9.5% YoY, and +6.1% YTD).
Non-NII: We expect the sector’s non-NII to remain stable QoQ, as declines at most banks are likely to be offset by a substantial increase at KTB, but fall 5% YoY. We expect KTB to record a sharp rise in FVTPL gains, mainly from its investment in THAI. We also expect the sector’s net fee income to decline 2% QoQ but increase 7% YoY.
Cost to income ratio: We expect the sector’s cost-to-income ratio to improve slightly both QoQ and YoY, supported by tighter operating expense control. We expect BBL, KBANK, and TTB to report lower opex QoQ due to the absence of one-off expenses.

A transition to recovery. We believe banks’ earnings are entering a recovery phase as the rate-cut cycle ends and the investment cycle begins. With no further pressure from rate cuts, we expect NIM to improve modestly by 2-3 bps in 2H26 and 2027, supported by lower funding costs from deposit repricing and a rising loan-to-deposit ratio. We see a long-term recovery in loan growth driven by Thailand’s investment cycle, supported by a surge in BOI investment applications. We expect the sector’s loan growth to gradually improve from 3% in 2026F to 4% in 2027F. We forecast the sector’s earnings to remain stable in 2026F before recovering by 6% in 2027F.

Decent dividend yield. On the back of sizable excess CET1 capital and efforts to support ROE, we expect banks to maintain high payout ratios and deliver 2026F DPS at or above 2025 levels, translating into an attractive dividend yield of 4-7%.

Large banks as the sector picks. 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 economic slowdown, 2) NIM risk from a cut in interest rates, and 3) ESG risk from market conduct.