In October, sector loan growth was low, mixed among banks, with BBL standing out with robust loan growth. We maintain our forecast of a 2% contraction in sector loans with BBL leading with solid loan growth. The good sign in the sector was an ease in NPL inflow in 3Q24. However, in 4Q24 NIM will start to be hit by interest rate cuts and we expect earnings to fall QoQ (lower NIM, higher opex) though rise YoY (lower ECLs). In 2025, we expect essentially flat sector earnings as a narrowing in NIM will be offset by lower credit cost with slow loan and non-NII growth. We keep BBL as the sector’s pick based on: 1) cheapest valuation, 2) lowest asset quality risk and 3) positioned for outperforming loan growth.
Research
Bank - Mute Oct loan growth; easing NPL inflow
October loan growth: Overall mute but robust at BBL. Sector loans contracted 0.1% MoM in October with a mix among banks. BBL had robust loan growth at 1.4% MoM, in line with our expectation of a recovery in 4Q24, backed by international and large corporate loans. KBANK and TISCO saw moderate loan growth at 0.3% MoM, while KTB’s loans were stagnant MoM. Other banks saw an MoM contraction in loans with the largest contraction at BAY (-2.3% MoM). Loans in the sector fell 2.4% YoY and 2.2% YTD and we stand by our forecast of a 2% contraction in 2024. We expect BBL to be the only bank with actual loan growth in 2024F, though a small 1%, on solid loan growth recovery in 4Q24. In October, the sector’s deposits & borrowing rose a substantial 1.4% MoM, led by KTB, SCB, BBL and TTB. The growth in deposits & borrowing outpaced loan growth in October, putting downward pressure on NIM.
Monthly loan growth
MoM Change (Btbn) | % MoM Growth | %YoY | %YTD | 2024F | |||||
|---|---|---|---|---|---|---|---|---|---|
Aug-24 | Sep-24 | Oct-24 | Aug-24 | Sep-24 | Oct-24 | Growth | Growth | (%) | |
BBL | (31.2) | 9.2 | 31.9 | (1.4) | 0.4 | 1.4 | (2.2) | (0.6) | 1 |
KTB | (28.3) | (11.9) | 0.1 | (1.1) | (0.5) | 0.0 | (1.4) | (0.4) | 0 |
KBANK | (6.6) | (15.2) | 7.0 | (0.3) | (0.7) | 0.3 | 0.8 | (1.9) | (2) |
SCB | 0.7 | (11.2) | (5.8) | 0.0 | (0.5) | (0.2) | (0.1) | 0.2 | 0 |
BAY | (16.0) | (1.7) | (39.2) | (0.9) | (0.1) | (2.3) | (6.8) | (6.8) | (5) |
TTB | (7.7) | (17.0) | (6.3) | (0.6) | (1.3) | (0.5) | (7.0) | (5.9) | (7) |
TISCO | (2.4) | (0.9) | 0.6 | (1.0) | (0.4) | 0.3 | (0.7) | (1.8) | (1) |
KKP | (4.6) | (10.2) | (2.4) | (1.2) | (2.6) | (0.6) | (6.9) | (6.9) | (7) |
Total | (96.1) | (59.0) | (13.9) | (0.7) | (0.4) | (0.1) | (2.4) | (2.2) | (2) |
Source: InnovestX Research
Easing NPL inflow. NPL inflow is easing, with a 6% QoQ fall in 3Q24: new NPLs were quiescent QoQ and re-entry NPLs fell 13% QoQ, suggesting asset quality is improving. We expect a gradual ease in credit cost in 4Q24 and 2025. (See NPL details on page 2.)
NIM to be hit by rate cuts. In 4Q24, NIM will be eroded by interest rate cuts. Following a 25 bps cut in the policy rate in October, most banks cut lending rates by 12.5-25 bps but kept deposit rates unchanged. Unlike peers, BBL cut both lending rates (20 bps for MLR and MOR and 5 bps for MRR) and deposit rates (10 bps for savings deposit rates and 20 bps for time deposit rates). On this basis, we expect BBL to experience less of a narrowing in NIM than other large banks. Factoring in a cut in the policy rate of 50 bps in 4Q24 (October and December) and 50 bps in 2025, we expect the sector’s NIM to narrow 11 bps QoQ in 4Q24 and 16 bps in 2025.
4Q24 and 2025 earnings outlook. We expect 4Q24 earnings to fall QoQ (NIM squeezed by interest rate cuts and seasonal rise in opex) but rise YoY (lower ECL). In 2025, we expect the sector’s earnings to be essentially flat, with sluggish loan growth, narrowed NIM, lower credit cost and modest non-NII growth.
BBL as the sector’s only Outperform. We keep BBL the sector’s pick as:
1) valuation is cheapest, 2) asset quality risk is lowest and 3) loan growth is expected to be highest.
Key risks: 1) Asset quality risk from an uneven economic recovery, 2) NIM risk from a cut in interest rates, and 3) ESG risk from market conduct.