Bank – Loans continued to shrink

Loans shrinking. Sector loans contracted 0.7% MoM in August, the fifth month of contraction, reflecting stricter loan extensions, low loan demand and high repayments on corporate loans. As of August, loans are down 1.2% QTD, 1.6% YTD and 1.4% YoY. In August, BBL saw the largest loan contraction at 1.4% MoM (reflecting high corporate loan repayments). YTD, TTB had the largest loan contraction at 6.4%. Strengthening in the baht will push BBL’s loan growth down via currency conversion as it has the largest exposure to international loans at 25%. We see downside risk to our 2024F loan growth of 1%, though we expect a seasonal acceleration in 4Q24. It is likely that the sector’s loan growth will end up negative in 2024.

Falling deposits & borrowing. In August, the sector’s deposits & borrowing fell a large 1.5% MoM and 1.1% YoY with +0.1% YTD. Loan to deposits & borrowing ratio rose to 89% in August from 88% in July, suggesting an attempt to sustain NIM.

Modest earnings growth. In 3Q24F, we expect earnings to be essentially unchanged both QoQ and YoY. Then in 4Q24F, we expect earnings to slip QoQ (but grow YoY) due to lower NIM from the policy rate cut, seasonally higher opex and credit cost at some banks (KBANK, KTB and TISCO). We now expect the sector’s earnings to grow 3% in 2024, 6% in 2025 and 6% in 2026, with lower credit cost, modest loan growth and narrowed NIM.